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Securities Purchase Agreement - GT Interactive Software Corp., Infogrames Entertainment SA and California US Holdings Inc.

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                          SECURITIES PURCHASE AGREEMENT


         THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), made and entered
into as of November 15, 1999,  by and among GT  Interactive  Software  Corp.,  a
Delaware corporation (the "Company"),  Infogrames  Entertainment S.A., a societe
anonyme  organized  under the laws of France  ("Parent"),  and  California  U.S.
Holdings, Inc., a California corporation and a wholly-owned subsidiary of Parent
("Purchaser").

                              W I T N E S S E T H:

                  WHEREAS,  the  Company  wishes to issue,  sell and  deliver to
Purchaser, and Purchaser wishes to purchase from the Company,  28,571,429 shares
(the "Shares") of common stock,  par value $0.01 per share,  of the Company (the
"Common  Stock")  for a  purchase  price of $50  million  and a 5%  Subordinated
Convertible  Note of the  Company  in the  principal  amount  equal  to the Note
Purchase  Price (as  hereinafter  defined)  in the form set  forth in  Exhibit A
hereto  (the  "Note"),  pursuant to the terms and  conditions  set forth in this
Agreement (the Shares and the Note are sometimes collectively referred to herein
as the "Securities"); and

                  WHEREAS,  concurrent  with the  execution and delivery of this
Agreement,  the Company will issue, sell and deliver to Purchaser, and Purchaser
will purchase from the Company,  a Short-Term Senior Secured Note of the Company
in the principal amount of $25,000,000 in the form set forth in Exhibit B hereto
(the  "Short-Term  Note"),  the  outstanding  principal and accrued  interest of
which, on the Closing Date (as hereinafter defined), shall be applied toward the
payment by Purchaser for the Note; and

                  WHEREAS,  concurrent  with the  execution and delivery of this
Agreement and in consideration  of Purchaser's  purchase of the Short-Term Note,
the  Company is issuing to  Purchaser  warrants  covering  50,000  shares of the
Company's  Common Stock,  having an exercise price of $.01 per share, and paying
Purchaser a fee of $100,000; and

                  WHEREAS,  in  connection  herewith,  and as a condition to the
willingness of the Parent and Purchaser to enter into this Agreement, Parent has
required that certain  holders of securities of the Company agree,  and in order
to induce Parent to enter into the Purchase Agreement, such holders have agreed,
among other things, to exchange  securities of the Company held by them for a 0%
Senior  Subordinated  Convertible  Note of the  Company in the form of Exhibit C
hereto (the "Senior Note"), pursuant to the terms and conditions set forth in an
agreement in the form of Exhibit D hereto (the "Exchange Agreement"); and

                  WHEREAS,  in  connection  herewith,  and as a condition to the
willingness of the Parent and Purchaser to enter into this Agreement, Parent has
required that certain stockholders (the "Principal Stockholders") of the Company
agree, and in order to induce Parent to enter into the Purchase  Agreement,  the
Principal  Stockholders  have agreed,  among other things,  to enter into equity
purchase and voting  agreements in the forms of Exhibits E-1 and E-2 hereto (the
"Selling Stockholder Agreements"); and

                  WHEREAS,  concurrent  with the  execution and delivery of this
Agreement,  Parent has agreed to purchase,  and certain  Principal  Stockholders
have agreed to sell, subordinated

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notes of the Company in the face amount of $10 million,  plus accrued  interest,
pursuant to the terms and conditions of the Note Purchase  Agreement in the form
annexed as Exhibit E-3 (the "Note Purchase Agreement"); and

                  WHEREAS, the Company and Purchaser have agreed to enter into a
Registration Rights Agreement in the form of Exhibit F hereto (the "Registration
Rights Agreement"); and

                  WHEREAS,  the Board of  Directors  of the Company has approved
and  deemed it  advisable  for the  Company to enter  into this  Agreement,  the
Exchange  Agreement,  and the  Registration  Rights  Agreement  and to issue the
Securities and the Short-Term Note to be issued to Purchaser, the Senior Note to
be issued to certain affiliates of General Atlantic Partners L.P. and the shares
of Common Stock issuable upon conversion of the Notes (the "Conversion  Shares")
(all such  agreements,  Notes and securities are referred to collectively as the
"Transaction  Documents") and has determined that the issuance of the Securities
in  accordance  with  the  terms  of this  Agreement,  and the  issuance  of the
Short-Term  Note and the Senior Note,  are fair to and in the best  interests of
the Company  and the holders  (other  than the  Principal  Stockholders)  of the
Common Stock; and

                  WHEREAS,  the  Company,  Purchaser  and Parent  desire to make
certain  representations,  warranties  and  agreements in connection  with,  and
establish various conditions precedent to, the transactions contemplated hereby:

                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:

                                   ARTICLE I
                       PURCHASE AND SALE OF THE SECURITIES

         1.1      The Purchase.

         (a) Upon the  terms and  subject  to the  conditions  set forth in this
Agreement,  at the Closing:  (i) the Company  shall  issue,  sell and deliver to
Purchaser,  and Purchaser shall purchase from the Company,  the Shares, and (ii)
the Company shall issue and deliver to Purchaser,  and Purchaser  shall purchase
from the Company, the Notes (collectively, the "Purchase").

         (b) The aggregate  purchase  price for the Shares (the "Stock  Purchase
Price") shall be $50 million and the aggregate  purchase price for the Note (the
"Note Purchase Price") shall be the sum of $60 million plus the interest accrued
through  Closing on each of the  Short-Term  Note and the notes to be  purchased
pursuant to the Note  Purchase  Agreement.  At the  Closing,  the Company  shall
deliver to  Purchaser,  registered  in its name or the name of its nominee,  the
Note and the share certificates evidencing the Shares, registered in its name or
the name of its nominee,  each duly  executed and dated as of the Closing  Date,
against  payment of the Stock Purchase Price and the Note Purchase Price by wire
transfer  of  immediately  available  funds to the  account  of the  Company  as
specified by written  notice to Parent at least two  business  days prior to the
Closing  Date.  Purchaser  shall pay a  portion  of the Note  Purchase  Price by
cancellation of the Short-Term Note and the interest then accrued thereon.

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         1.2 The Closing. The closing of the Purchase (the "Closing") shall take
place at 10:00 a.m.,  New York time,  on a date to be  specified by the parties,
which in any event shall be no later than the third  business day  following the
satisfaction  (or waiver) of all of the conditions set forth in Article VI (such
date,  the "Closing  Date"),  at the offices of Kramer Levin  Naftalis & Frankel
LLP, 919 Third Avenue, New York, New York, unless another time, date or place is
agreed to in  writing by the  parties  hereto.  At the  Closing,  the  opinions,
certificates  and other  documents  required by this  Agreement  to be delivered
(other  than those  required  to be  delivered  prior to the  Closing)  shall be
delivered.

         1.3 Short-Term Note, etc. Concurrent with the execution and delivery of
this Agreement,  the Company is issuing to Purchaser and Purchaser is purchasing
from the Company the Short-Term Note for a purchase price of $25,000,000, and in
consideration  of Purchaser's  purchase of the  Short-Term  Note, the Company is
issuing to Purchaser  warrants  exercisable  for 50,000  shares of Common Stock,
exercisable  at a price of $.01 per  share,  and  paying to  Purchaser  a fee of
$100,000.  On November  16, 1999,  the Company  shall  deliver to Purchaser  the
Short-Term Note and such warrants; and Parent shall cause to be wire transferred
$25.0 million in  immediately  available  funds to the account of the Company as
specified to Parent and the Company shall cause to be wire transferred  $100,000
in immediately  available  funds to the account of Parent as specified by Parent
to Company.

                                   ARTICLE II
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The  Company  represents  and  warrants to Parent and  Purchaser  that,
except as set forth in the  correspondingly  numbered  Sections  of the  letter,
dated the date  hereof,  from the  Company to Parent  (the  "Company  Disclosure
Letter"):

         2.1 Organization and Good Standing. The Company and each of the Company
Subsidiaries  is a  corporation  duly  organized,  validly  existing and in good
standing under the laws of the  jurisdiction  of its  incorporation  and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Company and each of the
Company  Subsidiaries  is duly  qualified or licensed and in good standing to do
business in each  jurisdiction  in which the  character of the  property  owned,
leased or operated  by it or the nature of the  business  conducted  by it makes
such  qualification  or licensing  necessary,  except where the failure to be so
duly  qualified  or  licensed  and in good  standing  would not have a  Material
Adverse Effect. The Company has previously made available to Parent accurate and
complete copies of the Certificate of Incorporation  and Bylaws, as currently in
effect,  of the  Company  and each  Company  Subsidiary.  For  purposes  of this
Agreement,  the term "Company  Subsidiary"  shall mean any "subsidiary" (as such
term is defined in Rule 1-02 of Regulation  S-X of the  Securities  and Exchange
Commission (the "SEC") of the Company.

         2.2  Capitalization.  As of November 12, 1999, the  authorized  capital
stock of the Company  consists of (a)  150,000,000  shares of common stock,  par
value $.01 per share,  of the Company  (the  "Common  Stock") and (b)  5,000,000
shares of preferred stock of the Company,  of which 600,000 have been designated
as Series A Convertible Preferred Stock ("Preferred Shares"). As of November 12,
1999, (i) 74,633,940  shares of Common Stock were

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issued  and  outstanding,   (ii)  600,000   Preferred  Shares  were  issued  and
outstanding, (iii) no shares of Common Stock or shares of preferred stock of the
Company were issued and held in the  treasury of the Company,  (iv) no shares of
Common  Stock  or  preferred  stock  of the  Company  were  held by any  Company
Subsidiary,  (v)  6,000,000  shares of Common  Stock  were  reserved  for future
issuance upon conversion of the outstanding  Preferred  Shares,  (vi) 16,541,727
shares of Common Stock are  authorized  for issuance  under the Company's  stock
incentive  plans, of which options  covering 985,160 shares have been exercised,
and of which options  covering  13,566,640 of Common Stock have been granted and
remain  outstanding  ("Company  Options"),  and of which 5,565  shares of Common
Stock were issued as restricted  stock awards,  (vii) 6,356,625 shares of Common
Stock were reserved for future  issuance upon exercise of warrants (the "Company
Warrants"),  and (viii)  1,000,000  shares of Common  Stock are  authorized  for
issuance under the Company's 1998 Employee Stock Purchase Plan, of which 116,364
shares  have been  issued.  No change in the  capitalization  of the Company has
occurred between November 12, 1999 and the date hereof,  except for the issuance
of Shares  upon the  exercise  or lapse of Company  Options  and Stock  Purchase
Options.  No other capital  stock of the Company is  authorized  or issued.  All
issued and  outstanding  shares of the Common Stock and Series A Preferred Stock
are duly  authorized,  validly issued,  fully paid and  non-assessable  and were
issued free of preemptive  rights and in compliance  with all  applicable  Laws.
Except as set  forth in  Schedule  2.2 of the  Company  Disclosure  Letter or as
otherwise  contemplated by this Agreement,  as of the date hereof,  there are no
outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive
rights,  options  (except  as set  forth  in  Schedule  2.15(h)  of the  Company
Disclosure  Letter) or other  agreements  to which the  Company  or any  Company
Subsidiary  is a  party,  of any  kind  relating  to  any  of  the  outstanding,
authorized  but  unissued or treasury  shares of the capital  stock or any other
security of the Company,  and there is no authorized or outstanding  security of
any kind  convertible  into or exchangeable  for any such capital stock or other
security.  Except as disclosed in Schedule 2.2 of the Company Disclosure Letter,
there are no  obligations,  contingent  or other,  of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of Common Stock
or the capital  stock of any Company  Subsidiary  or to provide funds to or make
any investment (in the form of a loan, capital contribution or otherwise) in any
such Company Subsidiary or any other entity. Except as disclosed in Schedule 2.2
of the Company Disclosure Letter,  there are no registration  rights, and to the
best  knowledge of the  Company,  there are no voting  trusts,  proxies or other
agreements or  understandings  with respect to the voting rights of any class of
the Company's capital stock.

         2.3  Subsidiaries.  Schedule 2.3 of the Company  Disclosure Letter sets
forth the name and  jurisdiction of  incorporation  of each Company  Subsidiary,
each of which is wholly owned by the Company  except for  directors'  qualifying
shares  and  except  as  otherwise  indicated  in  Schedule  2.3 of the  Company
Disclosure  Letter.  All of the capital stock and other interests of the Company
Subsidiaries  so held by the Company are owned by it or a Company  Subsidiary as
indicated in Schedule 2.3 of the Company  Disclosure  Letter,  free and clear of
any lien, charge, encumbrance, hypothecation, pledge, option, trust, mortgage or
security  interest of any kind  (collectively,  "Liens")  with respect  thereto,
except pursuant to the Credit Agreement,  or as disclosed in Schedule 2.3 of the
Company  Disclosure  Letter.  All of the outstanding  shares of capital stock of
each of the Company Subsidiaries  directly or indirectly held by the Company are
duly authorized,  validly issued,  fully paid and non-assessable and were issued
free of preemptive  rights and in compliance with all applicable Laws. No equity
securities  or other  interests  of any

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<PAGE>

of the Company Subsidiaries are or may become required to be issued or purchased
by reason of any  options,  warrants,  rights to subscribe  to,  puts,  calls or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any Company
Subsidiary,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements by which any Company Subsidiary is bound to issue additional shares
of its capital stock, or options,  warrants or rights to purchase or acquire any
additional  shares  of its  capital  stock  or  securities  convertible  into or
exchangeable for such shares. Except as set forth in Schedule 2.3 of the Company
Disclosure Letter, the Company does not directly or indirectly own any equity or
similar  interest  in,  or any  interest  convertible  into or  exchangeable  or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other  business  association  or entity,  with respect to which
interest  the Company has  invested or is required to invest  $20,000 or more or
for which the  Company or any  Company  Subsidiary  has  liability  which is not
limited.  Reflections  Interactive Limited ("RIL"), a wholly owned subsidiary of
the  Company,  has the full right and power to obtain,  in  accordance  with the
terms of the Deed of Partnership dated December 4, 1998,  between RIL and Martin
Lee Edmondson  ("Edmondson"),  as amended by the amendment  dated  September 23,
1999 (the "Deed"),  all right, title and interest in the business,  property and
assets (the "RIL  Partnership  Property") of the  partnership  created under the
Deed (the  "RIL/Edmondson  Partnership").  Since December 4, 1998,  none of RIL,
Edmondson or the RIL/Edmondson Partnership has sold or otherwise transferred any
of the rights or interests  in the  business,  property  and assets  (other than
sales  of  products  in the  normal  course  of  business)  owned or held by the
RIL/Edmondson  Partnership,  directly or indirectly,  or created or permitted to
exist any lien on such  rights or  interests,  other  than the lien  created  in
connection  with  the  Credit  Agreement.  RIL has sent a  notice  to  Edmondson
pursuant  to clause 12.5 of the Deed and no action by any of RIL,  Edmondson  or
any third  party,  except for the  passage of time until  November  30,  1999 as
specified  therein and except for  obtaining  the consent of the  Landlord  with
respect to the  assignment  to RIL of the lease to  Edmondson  of  certain  real
property,   is  necessary  to  effect  the  termination  of  the   RIL/Edmondson
Partnership and to transfer all right, title and interest in the RIL/Partnership
Property to RIL,  free of any Lien.  Edmondson  has no right to receive,  either
currently  or in the  future,  any  income,  capital or other  payment  from the
Company or any Company Subsidiary  (including without limitation RIL) other than
(i)  payments  that may become due in the future  under the terms of the Service
Agreement,  annexed  to the  Escrow  Deed,  by and  among the  Company,  RIL and
Edmondson,  dated December 4, 1998,  (ii) the return of his capital  account and
his current account  pursuant to clause 12.8 of the Deed in an aggregate  amount
equal to (pound)260,000, (iii) his draw of (pound)10,333 for November 1999, (iv)
any payment to be made pursuant to Section 3.7 of the agreement for the sale and
purchase of the share capital and future  operation of  Reflections  Interactive
Limited,  dated  December 23, 1998 between the Company and  Edmondson  (the "RIL
Purchase  Agreement"),  by the  Company to  Edmondson,  or by  Edmondson  to the
Company,  based upon the determination of the net asset value (as defined in the
RIL Purchase  Agreement) which net asset value has not been determined as of the
date  hereof;  provided,  however,  that in no event  will such  payment  exceed
(pound)250,000,  and (v) any  expenses to be borne by the Company in  accordance
with the terms of the  Registration  Rights  Agreement  between  the Company and
Edmondson dated December 23, 1998.

         2.4  Authorization;  Binding  Agreement.  The Company has all requisite
corporate  power and  authority  to execute and deliver  this  Agreement  and to
consummate the transactions  contemplated  hereby. The execution and delivery of
this Agreement and the consummation

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of  the  transactions  contemplated  hereby  and  by  the  Selling  Stockholders
Agreements  (collectively,  the  "Transactions")  have  been  duly  and  validly
authorized  (including  for purposes of Delaware  General  Corporation  Law (the
"DGCL")  Section 203) by the Company's  Board of Directors and a majority of its
directors who do not have any  financial  interest in the  Transactions,  and no
other corporate proceedings on the part of the Company or any Company Subsidiary
are necessary to authorize  the  execution and delivery of this  Agreement or to
consummate  the  transactions  contemplated  hereby,  except that the  Company's
Certificate  of  Incorporation  shall be  amended  to  increase  the  number  of
authorized  shares of Common  Stock to permit the  reservation  of Common  Stock
issuable in connection with the transactions  contemplated  hereby in accordance
with the DGCL.  This Agreement has been duly and validly  executed and delivered
by the Company and  constitutes  the legal,  valid and binding  agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforceability  thereof may be limited by applicable bankruptcy,
insolvency,   fraudulent  conveyance,   reorganization  or  other  similar  laws
affecting the  enforcement of creditors'  rights  generally and by principles of
equity regarding the availability of remedies ("Enforceability Exceptions").

         2.5 Governmental  Approvals. No material consent,  approval,  waiver or
authorization  of,  notice  to or  declaration  or  filing  with  ("Governmental
Consent") any nation or  government,  any state or other  political  subdivision
thereof or any entity,  authority  or body  exercising  executive,  legislative,
judicial or  regulatory  functions of or pertaining  to  government,  including,
without   limitation,   any  governmental  or  regulatory   authority,   agency,
department,  board,  commission  or  instrumentality,  any  court,  or  tribunal
("Governmental  Authority"),  on the part of the  Company or any of the  Company
Subsidiaries  is required in  connection  with the  execution or delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby other than (a) the filing of the Certificate of Amendment to
the Certificate of  Incorporation of the Company in the form of Exhibit J hereto
(the  "Certificate  Amendment")  with the  Secretary  of State  of  Delaware  in
accordance with the DGCL, (b) customary filings with the SEC for transactions of
the type contemplated hereby, (c) filings under the Hart-Scott-Rodino  Antitrust
Improvements Act of 1976, as amended, and the rules and regulations  promulgated
thereunder (the "HSR Act"), and filings or consents under any applicable foreign
antitrust requirements, (d) filings pursuant to the rules and regulations of the
Nasdaq National Market  ("Nasdaq/NMS") and (e) all filings and mailings required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.  The
Company has received a written  waiver from the  Nasdaq/NMS in which  Nasdaq/NMS
has granted an exception under NASD Rule 4310(c)(25)(H)(ii) from the requirement
that the Company obtain stockholder approval in connection with the transactions
contemplated hereby.

         2.6 No Violations. Except as referred to in Schedule 2.6 of the Company
Disclosure   Letter,   the  execution  and  delivery  of  this  Agreement,   the
consummation  of the  transactions  contemplated  hereby and  compliance  by the
Company with any of the  provisions  hereof will not (a) conflict with or result
in any breach of any provision of the Certificate of  Incorporation or Bylaws of
the  Company or any of the Company  Subsidiaries;  provided,  however,  that the
issuance of a portion of the shares issuable upon conversion of the Note and the
Senior Notes will require that the Certificate  Amendment have become effective,
(b)  require  any  Consent  under or result  in a  violation  or  breach  of, or
constitute  (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or

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acceleration)  under any of the terms,  conditions or provisions of, any Company
Material  Contract  (as  hereinafter  defined),  (c) result in the  creation  or
imposition  of any  material  Lien upon any of the assets of the  Company or any
Company Subsidiary or (d) subject solely to obtaining the Governmental  Consents
from Governmental  Authorities referred to in Section 2.5 hereof, violate in any
material way any applicable provision of any statute, law, rule or regulation or
any order, decision, injunction,  judgment, award or decree ("Law") to which the
Company or any Company Subsidiary or its assets or properties are subject.

         2.7 Securities  Filings.  The Company has made available to Parent true
and complete copies of (a) its Annual Reports on Form 10-K, as amended,  for the
three  fiscal  years  ended  March 31,  1999,  as filed  with the SEC (the "1999
10-K"), (b) its proxy statements relating to all of the meetings of stockholders
(whether  annual or special) of the Company  since  December 13, 1995,  as filed
with the SEC, (c) its  Quarterly  Report on Form 10-Q for the  quarterly  period
ended  September 30, 1999 as filed on November 15, 1999 as set forth in Schedule
2.9(a)(ii)  (the  "Form  10-Q"),  and  (d) all  other  reports,  statements  and
registration  statements and amendments thereto (including,  without limitation,
Quarterly Reports on Form 10-Q, as amended,  and Current Reports on Form 8-K, as
amended)  filed by the Company  with the SEC since  January 1, 1996 and prior to
the date hereof. The reports and statements set forth in clauses (a) through (c)
above, and those  subsequently  provided or required to be provided  pursuant to
this Section 0, are referred to collectively  herein as the "Company  Securities
Filings." Except as set forth in Schedule 2.7 of the Company  Disclosure Letter,
as of their respective  dates, or as of the date of the last amendment  thereof,
if  amended  after  filing  and prior to the date  hereof,  each of the  Company
Securities  Filings was prepared in all material respects in accordance with the
requirements of the Securities  Exchange Act of 1934, as amended,  and the rules
and regulations promulgated thereunder (the "Exchange Act"), as the case may be,
and none of the  Company  Securities  Filings  contained  or, as to the  Company
Securities  Filings  subsequent  to the date hereof,  will  contain,  any untrue
statement of a material fact or omitted or, as to the Company Securities Filings
subsequent  to the date hereof,  will omit, to state a material fact required to
be stated therein or necessary to make the statements  therein,  in light of the
circumstances under which they were made, not misleading.

         2.8 Company Financial  Statements.  The audited consolidated  financial
statements and unaudited interim financial statements of the Company included in
the Company  Securities  Filings  filed  prior to the date hereof (the  "Company
Financial  Statements") have been prepared in accordance with generally accepted
accounting  principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and present fairly,  in all material  respects,
the  financial  position of the Company and the Company  Subsidiaries  as at the
dates thereof and the results of their operations and cash flows for the periods
then ended subject,  in the case of the unaudited interim financial  statements,
to normal year-end audit  adjustments,  any other adjustments  described therein
and the fact that certain  information  and notes have been condensed or omitted
in accordance with the Exchange Act.

         2.9 Absence of Certain Changes or Events.

         (a)  Except  as  identified  with   specificity  in  (i)   Management's
Discussion and Analysis of Financial  Condition and Results of Operations in the
Form  10-Q,  without  reference  to (A) the  first  paragraph  thereof,  (B) the
subsection titled "--Year 2000 Compliance" or (C) the

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"Factors  Affecting  Future  Performance"  incorporated by reference in the Form
10-Q from the Company's  Annual Report on Form 10-K, as amended,  for the fiscal
year ended March 31, 1999,  (ii) the financial  statements  included in the Form
10-Q attached hereto as Schedule  2.9(a)(i) of the Company  Disclosure Letter or
(iii) Schedule  2.9(a)(ii) and Schedule  2.9(a)(ii)(F) of the Company Disclosure
Letter,  since June 30, 1999, through the date of this Agreement,  there has not
been: (A) any event that has had or would have a Material  Adverse  Effect;  (B)
any  declaration,  payment or setting aside for payment of any dividend or other
distribution or any redemption or other acquisition  (other than pursuant to the
Repurchase  Agreement)  of any  shares of  capital  stock or  securities  of the
Company by the Company;  (C) any damage or loss involving an amount in excess of
$100,000  to any  material  asset or  property  (without  reference  to  Company
Intellectual Property Rights (as hereinafter  defined)),  whether or not covered
by  insurance;  (D) any  change  by the  Company  in  accounting  principles  or
practices;  (E) any  material  revaluation  by the Company of any of its assets,
including  writing  down the value of inventory or writing off notes or accounts
receivable  other than in the ordinary  course of  business;  or (F) any sale of
property  (without  reference to Company  Intellectual  Property  Rights) of the
Company or any Company  Subsidiary with the value in excess of $100,000,  except
for sale of inventory in the ordinary course of business.

         (b) Except as  disclosed on Schedule  2.9(b) of the Company  Disclosure
Letter,  neither the Company nor any of the Company Subsidiaries:  (i) has since
March 31, 1999,  amended any Employee Plan (as hereinafter  defined) in a manner
that would  reasonably  be expected  to increase  the cost to the Company or any
Company  Subsidiary of maintaining  such Employee Plan in excess of (A) $500,000
in the  aggregate  annually,  or (B)  $100,000  with  respect to officers of the
Company or any Company  Subsidiary,  except as to benefits they share  generally
with all employees of the Company or any Company subsidiary,  as applicable;  or
(ii) has any announced plan or commitment to create any additional Employee Plan
or to make any modification or change to any existing  Employee Plan that would,
in either  case,  reasonably  be expected to  materially  increase  the benefits
payable  to  employees  or  former  employees  of the  Company  or  any  Company
Subsidiary.

         2.10 No Undisclosed  Liabilities.  Except as set forth in the 1999 Form
10-K, the Form 10-Q or Schedule 2.10 of the Company Disclosure  Letter,  neither
the Company nor any Company Subsidiary has any liabilities  (absolute,  accrued,
contingent or otherwise),  except  liabilities  (a) in the aggregate  adequately
provided for in the Company's  unaudited  balance sheet  (including  any related
notes thereto) as of September 30, 1999 included in the Form 10-Q or of the type
not required under generally accepted accounting principles to be reflected as a
balance sheet and incurred  since  September 30, 1999 in the ordinary  course of
business,  (b) in an  aggregate  amount of less than  $500,000  and not required
under  generally  accepted  accounting  principles  to be reflected on a balance
sheet, (c) disclosed on the Company  Disclosure Letter or of a type described in
the  representations  and  warranties  of the Company in this Article II and not
required to be  disclosed  in such Company  Disclosure  Letter,  or (d) incurred
under the terms of this Agreement.

         2.11  Compliance with Laws. The business of the Company and each of the
Company  Subsidiaries  has been  operated in material  compliance  with all Laws
applicable thereto.

                                       8

<PAGE>

         2.12  Permits.  Except as set  forth in  Schedule  2.12 of the  Company
Disclosure  Letter,  (a) the  Company  and the  Company  Subsidiaries  have  all
permits,  certificates,   licenses,  approvals  and  other  authorizations  from
Governmental  Authorities  required in  connection  with the  operation of their
respective businesses (collectively, "Company Permits"), (b) neither the Company
nor any Company  Subsidiary  is in  violation  of any Company  Permit and (c) no
proceedings  are pending or, to the  knowledge  of the Company,  threatened,  to
revoke or limit any Company Permit,  except, in the case of each of clauses (a),
(b) and (c) above,  those the absence or  violation  of which would not create a
liability or obligation of the Company of more than $100,000.

         2.13  Litigation.  Except as disclosed in Schedule  2.13 of the Company
Disclosure Letter, there is no suit, action or proceeding ("Litigation") pending
or, to the  knowledge of the  Company,  threatened  (and  involving an amount in
excess of $100,000) against the Company or any of the Company Subsidiaries,  nor
is there any judgment,  decree,  injunction,  rule or order of any  Governmental
Authority  outstanding against the Company or any Company Subsidiary.  Except as
disclosed  in  Schedule  2.13 of the  Company  Disclosure  Letter,  to the  best
knowledge  of the  Company,  no  investigation  or  review  by any  Governmental
Authority  is  pending  or  threatened   against  the  Company  or  any  Company
Subsidiary.

         2.14 Contracts. Schedule 2.14 of the Company Disclosure Letter contains
a complete list of all loan agreements and financing  agreements,  all equipment
lease  financing  agreements and all other  contracts and  agreements  involving
obligations of the Company or any Company Subsidiary in excess of $100,000, true
and complete  copies of which have been made  available  to Parent.  Neither the
Company  nor any of the  Company  Subsidiaries  is a party or is  subject to any
note,  bond,  mortgage,  indenture,   contract,  lease,  license,  agreement  or
instrument  that is  required to be  described  in or filed as an exhibit to any
Company   Securities   Filing  filed  prior  to  the  date  of  this   Agreement
(collectively  with those  agreements  listed in  Schedule  2.14 of the  Company
Disclosure Letter, the "Company Material Contracts") that is not so described in
or filed as required by the  Securities Act or the Exchange Act, as the case may
be. Except as disclosed in Schedule 2.14 of the Company  Disclosure  Letter, all
Company  Material  Contracts  are valid and  binding  and are in full  force and
effect and  enforceable  against the Company or such Company  Subsidiary and, to
the knowledge of the Company, the other parties thereto in accordance with their
respective terms, subject to the Enforceability Exceptions.  Except as set forth
in Schedule 2.14 of the Company Disclosure  Letter,  neither the Company nor any
Company  Subsidiary  is in material  violation or breach of or default under any
such Company Material Contract.  To the best knowledge of the Company,  no party
(other than the Company or Company  Subsidiaries)  is in material  violation  or
breach of or default under any Company Material Contract.

         2.15 Employee Benefit Plans.

         (a)  Schedule  2.15(a)  of the  Company  Disclosure  Letter  lists  all
employee  pension  benefit  plans (as  defined in Section  3(2) of the  Employee
Retirement  Income  Security Act of 1974,  as amended  ("ERISA")),  all employee
welfare  benefit  plans (as  defined  in  Section  3(1) of ERISA)  and all other
employee benefit plans, programs or arrangements, including, without limitation,
any bonus,  stock option,  stock  purchase,  incentive,  deferred  compensation,
supplemental retirement, severance and other similar fringe or employee benefit

                                       9

<PAGE>

plans, programs or arrangements,  and any employment,  executive compensation or
severance  agreements,  in any case that are maintained or contributed to by the
Company,   any  Company   Subsidiary  or  any  other  entity   (whether  or  not
incorporated)  that is a member of a controlled  group  including the Company or
which is under common control with the Company (an "ERISA Affiliate") within the
meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986,
as amended,  and the regulations  thereunder (the "Code") or Section 4001(a)(14)
or (b) of ERISA,  for the  benefit  of any  current  or former  employee  of the
Company or any Company Subsidiary ("Employee Plans").

         (b) Prior to the date of this Agreement,  the Company has provided,  or
made available,  to Parent or Parent's  counsel,  to the extent  applicable with
respect to any Employee Plan, copies of: (i) each written Employee Plan document
and each related trust agreement, insurance or other funding contract; (ii) each
current summary plan description prepared for such Employee Plan; (iii) the most
recent  annual  report on Form 5500 filed with the  Department  of Labor and the
Internal  Revenue  Service with respect to each Employee Plan; and (iv) the most
recent favorable  determination letter issued for each Employee Plan intended to
be a qualified plan under Section 401(a) of the Code.

         (c) None of the  Employee  Plans  provides  retiree  health or  welfare
benefits to any person (other than in accordance  with Section 4980B of the Code
or Part 6 of  Subtitle  B of  Title I of  ERISA or any  other  similar  benefits
continuation law).

         (d)  Each   Employee   Plan  has  been   established   and   maintained
substantially  in accordance  with its terms and in substantial  compliance with
applicable  law  (including  ERISA  and the  Code).  In  addition,  to the  best
knowledge of the Company, each Employee Plan has been established and maintained
in accordance  with its terms and in compliance  with  applicable Law (including
ERISA and the Code).

         (e) No Employee Plan is subject to Title IV of ERISA.

         (f) With respect to each Employee  Plan,  all payments due from Company
or any  Company  Subsidiary  to date have been  made when due,  and all  amounts
properly  accrued to date or as of the Closing as  liabilities of the Company or
any Company  Subsidiary  that have not been paid have been properly  recorded on
the books of the appropriate  entity. With respect to each Employee Plan that is
funded wholly or partially through an insurance policy, all premiums required to
have  been  paid to date  under  the  insurance  policy  have  been paid and all
premiums required to be paid under the insurance policy through the Closing will
have been paid on or before the Closing.

         (g) Except as disclosed in Schedule  2.15(g) of the Company  Disclosure
Letter, the Company has not received any written notice of, and is not otherwise
aware of, any actions, claims (other than routine claims for benefits), lawsuits
or  arbitrations  pending or, to the best  knowledge of the Company,  threatened
with respect to any Employee  Benefit Plan  (including  against any fiduciary of
any  Employee  Benefit  Plan)  which,  in the  aggregate,  would have a Material
Adverse Effect.  With respect to any Employee Plan, there has been no prohibited
transaction,  breach of fiduciary duty or Internal  Revenue Service audit and no
such audit is pending.

                                       10

<PAGE>

         (h) Schedule 2.15(h) of the Company Disclosure Letter sets forth a true
and complete  list of each person who holds any  outstanding  option to purchase
shares of capital stock as of the date hereof,  together with: (i) the number of
shares  of  capital  stock  subject  to each  such  option;  (ii)  the  exercise
price-per-share  of such option;  (iii) the vesting schedule of such option; and
(iv) a  statement  of  whether  each such  option is  intended  to qualify as an
incentive stock option within the meaning of Section 422 of the Code (an "ISO").

         (i) Except as disclosed in Schedule  2.15(i) of the Company  Disclosure
Letter, the consummation of the transactions contemplated by this Agreement will
not: (i)(A) result in an increase in the amount of or (B) accelerate the vesting
or timing of payment of, any benefits or compensation  payable in respect of any
employee  of the Company or any  Company  Subsidiary;  (ii) cause any payment or
other  consideration  that is owed or may become due to any  director,  officer,
employee,  contractor or agent of the Company to be nondeductible to the Company
or subject to tax under Code Section 280G or 4999;  or (iii) cause or permit the
termination of any employment  contract or other  arrangement with any director,
officer, employee, contractor or agent of the Company.

         (j) Schedule 2.15(j) of the Company  Disclosure  Letter contains a list
of all existing  employment  agreements  with "change of control"  provisions to
which the Company is a party.

         2.16 Taxes and Returns.

         (a)  Except as set forth in  Schedule  2.16 of the  Company  Disclosure
Letter:

         (i) the Company and each of the Company  Subsidiaries has timely filed,
    or caused to be timely  filed,  all Tax  Returns  (as  hereinafter  defined)
    required to be filed by it, and all such tax returns are true,  complete and
    correct in all  respects,  and has timely paid,  collected  or withheld,  or
    caused to be paid, collected or withheld,  all material amounts of Taxes (as
    hereinafter defined) required to be paid, collected or withheld,  other than
    such Taxes for which adequate reserves in the Company  Financial  Statements
    have been established;

         (ii)  the  Company  and  each of the  Company  Subsidiaries  have  made
    adequate provision in the Company Financial Statements for all Taxes payable
    by the  Company or any  Company  Subsidiary  for which no Tax Return has yet
    been filed;

         (iii) there are no claims or assessments pending against the Company or
    any of the Company  Subsidiaries for any alleged  deficiency in any Tax, and
    the Company has not been  notified in writing of any  proposed Tax claims or
    assessments  against the Company or any of the Company  Subsidiaries  (other
    than in each case,  claims or assessments for which adequate reserves in the
    Company  Financial  Statements have been established or which are immaterial
    in amount);

         (iv)  neither  the  Company  nor any of the  Company  Subsidiaries  has
    executed any waivers or extensions of any applicable  statute of limitations
    to assess any Taxes; and there are no outstanding requests by the Company or
    any of

                                       11

<PAGE>

    the Company Subsidiaries for any extension of time within which to file any
    material Tax Return or within which to pay any Taxes shown to be due on any
    Tax Return;

         (v) the statute of limitations  period for assessment of federal income
    taxes has expired for all taxable years through February 28, 1995;

         (vi) to the best  knowledge of the Company,  (A) there are no liens for
    Taxes on the assets of the Company or any of the Company Subsidiaries except
    for  statutory  liens  for  current  Taxes not yet due and  payable  and (B)
    neither the Company nor any Company Subsidiary is liable for any Tax imposed
    on any other person,  except as the result of the  application of Income Tax
    Regulations  Section  1.1502-6 (and any  comparable  provision of any state,
    local, foreign or provincial  jurisdiction) to the affiliated group of which
    the Company is the common parent.

         (b) For  purposes  of this  Agreement,  the term  "Tax"  shall mean any
federal,  state, local, foreign or provincial income, gross receipts,  property,
sales, use, license,  excise,  franchise,  employment,  payroll,  alternative or
add-on minimum,  ad valorem,  transfer or excise tax, or any other tax,  custom,
duty,  governmental  fee  or  other  like  assessment  or  charge  of  any  kind
whatsoever,  together with any interest or penalty  imposed by any  Governmental
Authority.  The  term  "Tax  Return"  shall  mean  a  report,  return  or  other
information  (including any attached schedules or any amendments to such report,
return  or  other  information)  required  to be  supplied  to or  filed  with a
governmental  entity with respect to any Tax,  including an information  return,
claim for refund, amended return or declaration or estimated Tax.

         (c) Except as set forth in the second and third  sentences  of Schedule
2.16 of the  Company  Disclosure  Letter,  neither  the  Company nor any Company
Subsidiary is currently under examination or audit by any Governmental Authority
with respect to any Tax.

         2.17 Intellectual Property.

         (a) The Company or the Company  Subsidiaries  own, license or otherwise
possess  legally  enforceable  rights to use,  sell and  transfer  all  material
copyrights developed internally by Company or the Company Subsidiaries,  and any
applications  therefor,  and all  material  trade  secrets  that are used in the
respective  businesses of the Company and the Company  Subsidiaries as currently
conducted,  except as disclosed on Schedule 2.17(a)(i) of the Company Disclosure
Letter. To the Company's best knowledge, the Company or the Company Subsidiaries
own, license,  or otherwise possess legally  enforceable rights to use, sell and
transfer all  material  patents,  trademarks,  trade  names,  service  marks and
copyrights   developed  by  third  parties,   and  any  applications   therefor,
technology,  know-how,  source code,  object code,  domain names and tangible or
intangible proprietary  information or materials that are used in the respective
businesses of the Company and the Company  Subsidiaries as currently  conducted,
except as disclosed on Schedule  2.17(a)(ii) of the Company  Disclosure  Letter.
Schedule  2.17(a)(iii)  contains  a  complete  list of each  patent,  trademark,
service mark and copyright,  as to which Company or a Company  Subsidiary is the
registered  owner, of each application for patent,  trademark,  service mark and
copyright  registration  filed  by or on  behalf  of

                                       12

<PAGE>

the Company or a Company  Subsidiary,  and of each  agreement with a third party
involving  an amount in excess of $100,000  that grants the Company or a Company
Subsidiary any rights to make, use, sell,  modify,  create  derivative works of,
sublicense or otherwise  distribute the intellectual  property of a third party,
true and complete  documentation of which has been delivered to Parent.  For the
purposes of this Agreement,  "Company  Intellectual  Property  Rights" means all
patents,  trademarks,  trade names, service marks, copyrights,  and applications
therefor, technology,  know-how, trade secrets, source code, object code, domain
names and tangible or intangible  proprietary  information or materials that are
used in the respective businesses of the Company and the Company Subsidiaries as
currently conducted.

         (b) There are no valid  grounds  for any bona fide  claims (i) that the
business  of the  Company or any of the  Company  Subsidiaries  infringes  on or
otherwise violates any copyright of another based on works developed  internally
by the Company or a Company Subsidiary or any trade secret of another; (ii) that
the  business  of the  Company  or any of  the  Company  Subsidiaries  willfully
infringes  on or  otherwise  willfully  violates,  or,  to  the  Company's  best
knowledge,  infringes on or otherwise violates, any patent, trademark or service
mark of another; (iii) against the use by the Company or a Company Subsidiary of
any copyrights  internally  developed by the Company or a Company  Subsidiary or
trade  secrets  used in the business of the Company or a Company  Subsidiary  as
currently  conducted or as proposed to be conducted;  (iv) to the Company's best
knowledge,  against the use by the Company or any of the Company Subsidiaries of
any trademarks,  trade names,  patents,  technology,  know-how or source code or
object  code  used  in the  business  of  the  Company  or  any  of the  Company
Subsidiaries  as  currently  conducted  or  as  proposed  to be  conducted;  (v)
challenging the ownership, validity or effectiveness of any of the copyrights in
works  internally  developed by the Company or the Company  Subsidiaries  or any
applications  therefor  or of any  material  trade  secret of the  Company  or a
Company  Subsidiary;  (vi) to the  Company's  best  knowledge,  challenging  the
ownership,  validity or  effectiveness  of any of the  patents,  registered  and
material  unregistered  trademarks,  service  marks  and  trade  names,  and any
applications  therefor or of any material  trade secret of the Company or any of
the Company Subsidiaries; or (vii) to the Company's best knowledge,  challenging
the license or legally enforceable right to use any patents, trademarks, service
marks,  trade  secrets  or  copyrights  of a third  party by the  Company or the
Company's Subsidiaries, except, in the case of each of clauses (i), (ii), (iii),
(iv), (v), (vi) and (vii) above, as disclosed on Schedule 2.17(b) of the Company
Disclosure Letter.

         (c)  All  material  patents,  registered  trademarks,   service  marks,
copyrights  and  material  trade  secrets  owned by the  Company and used in the
business  of the  Company  are  valid  and  subsisting.  To the  Company's  best
knowledge,   all  material  patents,   registered  trademarks,   service  marks,
copyrights  and material  trade secrets  licensed by the Company and used in the
business  of the  Company  are  valid  and  subsisting.  Except  as set forth in
Schedule 2.17(c),  the rights,  title and ownership of the Company  Intellectual
Property Rights by Company and Company  Subsidiaries  herein, are not subject to
any encumbrances,  charges, liens,  indentures,  security interests or claims of
any kind.

         (d) Except as set forth (i) in the portions identified with specificity
of the  specified  Company  Securities  Filings  filed prior to the date of this
Agreement listed on Schedule 2.17(d)(i) of the Company Disclosure Letter or (ii)
on  2.17(d)(ii)  of  the  Company  Disclosure  Letter,  to  the  Company's  best
knowledge, there is no material unauthorized use,

                                       13

<PAGE>

infringement or  misappropriation  of any of the Company  Intellectual  Property
Rights or material trade secret of the Company by any third party, including any
employee or former employee of the Company or any of the Company Subsidiaries.

         (e) Except as set forth in Schedule  2.17(e) of the Company  Disclosure
Letter,  the  execution,  delivery and  performance  of this  Agreement  and the
consummation  of the  transactions  contemplated  hereby will not  constitute  a
breach  of any  instrument  or  agreement  governing  any  Company  Intellectual
Property  Rights or material  trade  secret;  will not cause the  forfeiture  or
termination  or give rise to a right of forfeiture or termination of any Company
Intellectual Property Rights or material trade secret of the Company; nor impair
the right of the Surviving Corporation,  after the Closing Date, to use, sell or
license any Company Intellectual Property Rights or material trade secret.

         (f) The Company and the Company  Subsidiaries have taken reasonable and
practicable steps designed to safeguard and maintain their proprietary rights in
all Company Intellectual  Property Rights and the secrecy and confidentiality of
their  trade  secrets.  To the  Company's  best  knowledge,  no current or prior
officers,  employees or consultants  of the Company or the Company  Subsidiaries
claim or have a right to claim an ownership interest in any Company Intellectual
Property  Rights or trade  secret as a result of  having  been  involved  in the
development or licensing of such Company  Intellectual  Property Rights or trade
secret while employed by or consulting to Company.

         2.18 The Shares and the Notes.

         (a) The Shares have been duly  authorized and, when issued and paid for
pursuant to the terms of this Agreement,  will be duly and validly issued, fully
paid  and  nonassessable,   and  will  be  free  and  clear  of  all  Liens  and
restrictions,  other than restrictions on transfer imposed by the Securities Act
and state securities  laws,  including  without  limitation "blue sky" laws; the
Notes have been duly  authorized  and,  when issued and  delivered  and paid for
pursuant to the terms of this  Agreement,  will be duly and  validly  issued and
enforceable in accordance with their terms subject to Enforceability Exceptions;
and, upon authorization of additional shares of Common Stock pursuant to Section
4.11 of this Agreement, the Conversion Shares will have been duly authorized and
reserved  for issuance  upon  conversion  of the Note by the Company  and,  when
issued upon  conversion in accordance with the terms of the Note, will have been
duly and validly issued, fully paid and nonassessable and will be free and clear
of all Liens and restrictions other than restrictions  imposed by the Securities
Act and state securities laws, including without limitation "blue sky" laws.

         (b) Subject to the accuracy of Purchaser's representations appearing in
Section  3.8  hereof,  the  offer,  issue  and  sale of the  Securities  and the
Conversion  Shares are and will be exempt from the  registration  and prospectus
delivery  requirements  of the  Securities  Act,  and have  been  registered  or
qualified  (or  are  exempt  from  registration  and  qualification)  under  the
registration,  permit or  qualification  requirements  of all  applicable  state
securities laws.

         2.19 Labor Matters. Except as set forth in Schedule 2.19 of the Company
Disclosure  Letter,  (a)  there  are no  controversies  pending  or, to the best
knowledge  of the  Company,  threatened,  between  the  Company  and  any of its
employees, which controversies

                                       14

<PAGE>

would have a Material  Adverse  Effect;  (b)  neither the Company nor any of the
Company Subsidiaries is a party to any material collective  bargaining agreement
or other labor union contract  applicable to persons  employed by the Company or
the  Company  Subsidiaries,  nor,  as of the  date of this  Agreement,  does the
Company or any of the Company Subsidiaries know of any activities or proceedings
of any labor union to organize any such  employees;  (c) neither the Company nor
any of the Company  Subsidiaries  has any  knowledge  of any strikes or material
slowdowns,  work stoppages,  lockouts, or threats thereof, by or with respect to
any employees of the Company or any of the Company  Subsidiaries;  (d) there are
no material  outstanding  or, to the best knowledge of the Company,  threatened,
lawsuits,  claims  or  charges  in any  forum  with  respect  to  the  Company's
compliance  with  laws  regarding   antidiscrimination,   wrongful  termination,
termination in violation of public policy,  unpaid overtime,  breach of contract
or any other  claimed  employee  rights;  and (e) the  Company  and the  Company
Subsidiaries  have  complied  in  all  material  respects  with  all  reporting,
disclosure and other  requirements with respect to safety,  affirmative  action,
drug and alcohol testing, WARN Act and any other applicable labor and employment
laws or regulations.

         2.20  Limitation on Business  Conduct.  Except as set forth in Schedule
2.20 of the  Company  Disclosure  Letter,  neither  the  Company  nor any of the
Company Subsidiaries is a party to, or has any obligation under, any contract or
agreement,   written  or  oral,  which  contains  any  covenants   currently  or
prospectively limiting in any material respect the freedom of the Company or any
of the Company Subsidiaries to engage in any line of business or to compete with
any entity.

         2.21  Property.  Except as set forth in  Schedule  2.21 of the  Company
Disclosure Letter, each of the Company and each of the Company Subsidiaries owns
the  properties  and assets that it purports to own free and clear of all Liens,
except for Liens  which  arise in the  ordinary  course of  business  and do not
materially impair the Company's or the Company Subsidiaries' ownership or use of
such  properties  or  assets,  Liens for  Taxes  not yet due and Liens  securing
obligations under that certain credit agreement, dated as of September 11, 1998,
by and among the Company,  the lender  parties  thereto and First Union National
Bank,  as  Administrative  Agent,  as such credit  agreement has been amended on
April 18, 1999,  June 29, 1999 and  November 15, 1999 (the "Credit  Agreement").
The  Company  owns no real  property.  The  Company  has made  available  to the
Purchaser  true and  complete  copies  of all of its  leases of  property.  With
respect  to the  property  and  assets  it  leases,  the  Company,  the  Company
Subsidiaries,  and to the best of the  Company's  knowledge,  each of the  other
parties thereto,  is in material compliance with such leases, and the Company or
the Company  Subsidiaries,  as the case may be, hold a valid leasehold  interest
free of any Liens,  except those referred to above.  The rights,  properties and
assets  presently  owned,  leased or  licensed  by the  Company  and the Company
Subsidiaries  include all rights,  properties and assets necessary to permit the
Company and the Company  Subsidiaries  to conduct their business in all material
respects in the same manner as their businesses have been conducted prior to the
date  hereof.  Neither the Company  nor any  Company  Subsidiary  is in material
violation of any zoning, building or safety ordinance, regulation or requirement
or other  law or  regulation  applicable  to the  operation  of owned or  leased
properties,  nor,  as of the  date of this  Agreement,  has the  Company  or any
Company Subsidiary received any notice of such a violation with which it has not
complied.

                                       15

<PAGE>

         2.22 Environmental Matters.

         (a) Except as set forth in Schedule  2.22(a) of the Company  Disclosure
Letter, the Company and the Company Subsidiaries are in material compliance with
the Environmental Laws (as hereinafter  defined),  which compliance includes the
possession by the Company and the Company  Subsidiaries of all material  permits
and governmental  authorizations  required under applicable  Environmental Laws,
and compliance in all material  respects with the terms and conditions  thereof,
except in each case where such  non-compliance  would not reasonably be expected
to have a Material  Adverse  Effect.  Neither the Company nor any of the Company
Subsidiaries  has  received  any  written   communication  from  a  Governmental
Authority  that alleges that the Company or any of the Company  Subsidiaries  is
not in such material compliance, and there are no circumstances that may prevent
or  interfere   with  such   compliance   in  the  future,   except  where  such
non-compliance  would not  reasonably  be  expected  to have a Material  Adverse
Effect.

         (b) Except as set forth in Schedule  2.22(b) of the Company  Disclosure
Letter,  there are no Environmental Claims (as hereinafter  defined),  including
claims  based on  "arranger  liability,"  pending  or, to the  knowledge  of the
Company,  threatened  against the Company or any of the Company  Subsidiaries or
against any person or entity whose  liability  for any  Environmental  Claim the
Company or any of the  Company  Subsidiaries  has  retained  or  assumed  either
contractually or by operation of law, except for such Environmental  Claims that
would not reasonably be expected to have a Material Adverse Effect.

         (c) Except as set forth in Schedule  2.22(c) of the Company  Disclosure
Letter, to the knowledge of the Company and the Company Subsidiaries,  there are
no past or present actions, inactions,  activities,  circumstances,  conditions,
events or incidents,  including the release,  emission,  discharge,  presence or
disposal of any Material of  Environmental  Concern (as hereinafter  defined) by
the Company and the Company  Subsidiaries  and, to the  knowledge of the Company
and the Company Subsidiaries, by third parties, that would form the basis of any
Environmental  Claim against the Company or any of the Company  Subsidiaries  or
against any person or entity whose  liability  for any  Environmental  Claim the
Company or any of the  Company  Subsidiaries  have  retained  or assumed  either
contractually or by operation of law, except for such Environmental  Claims that
would not reasonably be expected to have a Material Adverse Effect.

         (d) Except as set forth in Schedule  2.22(d) of the Company  Disclosure
Letter, the Company is in compliance in all material respects with Environmental
Laws as they relate to (i) any on-site or off-site  locations  where the Company
or any of the  Company  Subsidiaries  has stored,  disposed or arranged  for the
disposal of Materials of Environmental  Concern for itself (but not on behalf of
others) or (ii) any  underground  storage  tanks  located on  property  owned or
leased by the Company or any of the Company  Subsidiaries.  To the  knowledge of
Company,  there is no asbestos  contained  in or forming  part of any  building,
building component,  structure or office space owned or leased by the Company or
any of the Company Subsidiaries. To the knowledge of Company, no polychlorinated
biphenyls  (PCB's) or  PCB-containing  items are used or stored at any  property
owned or leased by the Company or any of the Company  Subsidiaries.  The Company
hereby represents that it has occupied properties only for the purpose of office
space or warehousing non -hazardous materials.

                                       16

<PAGE>

         (e) For purposes of this Agreement:

         (i)  "Environmental  Claim" means any written claim,  action,  cause of
    action,  investigation or notice by any person or entity alleging  potential
    liability  (including  potential liability for investigatory  costs, cleanup
    costs,  governmental  response costs,  natural resources  damages,  property
    damages,  personal  injuries,  or  penalties)  arising  out of,  based on or
    resulting  from (x) the presence,  or release into the  environment,  of any
    Material of Environmental  Concern at any location,  whether or not owned or
    operated  by  the  Company  or  any  of  the  Company  Subsidiaries,  or (y)
    circumstances forming the basis of any violation,  or alleged violation,  of
    any Environmental Law.

         (ii) "Environmental  Laws" means all Federal,  state, local and foreign
    laws or regulations  relating to pollution or protection of human health and
    the environment  (including  ambient air, surface water,  ground water, land
    surface or sub-surface  strata),  including laws and regulations relating to
    emissions,  discharges,  releases or  threatened  releases of  Materials  of
    Environmental Concern, or otherwise relating to the manufacture, processing,
    distribution,  use, treatment,  storage, disposal,  transport or handling of
    Materials of Environmental Concern.

         (iii) "Materials of Environmental Concern" means chemicals, pollutants,
    contaminants,   hazardous  materials,  hazardous  substances  and  hazardous
    wastes,  toxic  substances,   petroleum  and  petroleum  products  that  are
    regulated under the Environmental Laws.

         2.23 Insurance.  The Company maintains insurance that provides adequate
coverage  for normal  risks  incident  to the  business  of the  Company and the
Company Subsidiaries and their respective properties and assets and in character
and amount comparable to that carried by persons engaged in similar  businesses,
except where the nature of potential liabilities that may reasonably be expected
to arise in the course of the  Company's  business  would,  in the  exercise  of
prudent  business  judgment,  require  additional  amounts or types of insurance
coverage,  in which case the Company  maintains such  additional  coverage.  The
insurance  polices  maintained  by the  Company  are  with  reputable  insurance
carriers, have no premium delinquencies and are in full force and effect. Copies
of all such insurance policies have been made available to Parent.

         2.24  Interested  Party  Transactions.  Except as set forth in the 1999
Form 10-K,  or Schedule  2.24 of the  Company  Disclosure  Letter,  no event has
occurred  that would be required to be  reported  as a Certain  Relationship  or
Related  Transaction,  pursuant to Item 404 of Regulation S-K promulgated by the
SEC.

         2.25 Finders and Investment Bankers. Neither the Company nor any of its
officers or directors  has employed any broker,  finder or financial  advisor or
otherwise  incurred  any  liability  for any  brokerage  fees,  commissions,  or
financial  advisors'  or  finders'  fees in  connection  with  the  transactions
contemplated  hereby,  other than pursuant to an agreement with Bear,  Stearns &
Co. Inc.

                                       17

<PAGE>

         2.26 Fairness  Opinion.  The Company's  Board of Directors has received
from its  financial  advisor,  Bear,  Stearns  & Co.  Inc.,  a  written  opinion
addressed to it relating to the fairness  from a financial  point of view of the
transaction  contemplated  hereby.  A true and complete copy of such opinion has
been delivered to Parent.

         2.27  Takeover  Statutes.  Assuming  Parent  and its  "associates"  and
"affiliates" (as defined in Section 203 of the DGCL)  collectively  beneficially
"own" (as defined in Section 203 of the DGCL) and have  beneficially  "owned" at
all times  during the three (3) year  period  prior to the date hereof less than
fifteen  percent of the Company Stock  outstanding,  Section 203 of the DGCL is,
and shall be,  inapplicable  (a) to the acquisition of the Securities and (b) to
any  business  combination  of the  Company  with  the  Parent  or  any of  such
"associates" or "affiliates."

         2.28 Full  Disclosure.  No statement  contained in any  certificate  or
schedule,   including,   without  limitation,  the  Company  Disclosure  Letter,
furnished  or to be  furnished  by the  Company or the Company  Subsidiaries  to
Parent or  Purchaser  in, or  pursuant  to the  provisions  of,  this  Agreement
contains or shall  contain any untrue  statement of a material  fact or omits or
will  omit  to  state  any  material  fact  necessary,   in  the  light  of  the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.

         2.29 Year 2000.  Except as set forth in  Schedule  2.29 of the  Company
Disclosure  Letter and as updated in the Form  10-Q,  the  disclosure  under the
heading "Year 2000 Compliance"  contained in the Company's annual report on Form
10-K,  as  amended,  for the period  ended  March 31,  1999 is  accurate  and in
compliance with applicable law in all material respects.

         2.30 Director  Resignations  and Election.  All of the directors of the
Company  other than Thomas A.  Heymann and Steven A.  Denning  will  execute and
deliver to the Company  irrevocable  resignations from the Board of Directors of
the  Company on or before  November  29,  1999 and  effective  as of the Closing
("Resignations"),  and all of the Resignations  will be irrevocably  accepted by
the Company,  which acceptance may not be rescinded.  In addition, the Company's
Board of Directors has elected Bruno Bonnell and Thomas  Schmider,  as directors
of the Company effective as of the Closing.

         2.31 Financial Projections;  Liquidity. True and complete copies of all
financial projections provided by the Company to, and all written communications
with,  the Company's  lenders under the Credit  Agreement  since October 1, 1999
(the  "Projections")  are set forth in Schedule  2.31 of the Company  Disclosure
Letter (including, without limitation, the Company's projected cash flow and the
forecasted  Borrowing  Base  under  the  Credit  Agreement  and the  computation
thereof).  The  Projections  were  prepared  in good faith  based on  reasonable
assumptions in light of the then current  financial  condition and operations of
the Company and set forth the Company's projected cash flow over the periods set
forth therein. Since November 12, 1999 (the "November  Projections"),  there has
been no change,  event or other development that would cause any material change
in the Company's  cash flow from that shown in the November  Projections  during
the periods set forth therein.  The cash  generated by the Company's  operations
plus the $25 million to be loaned by Purchaser to the Company to be evidenced by
the  Short-Term  Note will be  sufficient  to permit the Company to continue its
operations in the

                                       18

<PAGE>

ordinary course and to meet the Company's  obligations as they come due until at
least February 28, 2000.

         2.32  Expenses.  The  Company  has  provided  Parent  with a good faith
estimate of all costs and expenses paid, payable or to be payable by the Company
in connection with the transactions  contemplated by the Transaction  Documents,
including, without limitation, any amounts that will come due as a result of the
consummation of the transactions contemplated by the Transaction Documents.

                                  ARTICLE III
             REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER

         Parent and Purchaser jointly and severally represent and warrant to the
Company that:

         3.1 Organization  and Good Standing.  Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation  and has all requisite  corporate power
and  authority  to own,  lease and  operate its  properties  and to carry on its
business as now being  conducted.  Purchaser  is a  wholly-owned  subsidiary  of
Parent.

         3.2  Authorization;  Binding  Agreement.  Parent and Purchaser have all
requisite  corporate  power and authority to execute and deliver this  Agreement
and to  consummate  the  transactions  contemplated  hereby.  The  execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby  have  been  duly and  validly  authorized  by the  respective  Boards of
Directors  of Parent  and  Purchaser,  as  appropriate,  and no other  corporate
proceedings on the part of Parent,  Purchaser or any other  subsidiary of Parent
are necessary to authorize  the  execution and delivery of this  Agreement or to
consummate the transactions  contemplated  hereby.  This Agreement has been duly
and  validly  executed  and  delivered  by  each of  Parent  and  Purchaser  and
constitutes  the legal,  valid and binding  agreement  of Parent and  Purchaser,
enforceable  against each of Parent and Purchaser in accordance  with its terms,
subject to the Enforceability Exceptions.

         3.3 Governmental  Approvals.  No Governmental  Consent from or with any
Governmental  Authority  on the part of  Parent  or  Purchaser  is  required  in
connection  with the  execution  or  delivery  by Parent and  Purchaser  of this
Agreement  or the  consummation  by Parent  and  Purchaser  of the  transactions
contemplated  hereby other than (a) filings with the SEC, (b) filings  under the
HSR  Act  and  filings  or  consents  under  any  applicable  foreign  antitrust
requirements  and (c) filings and mailings  under  Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder.

         3.4 No Violations.  The execution and delivery of this  Agreement,  the
consummation of the transactions contemplated hereby and compliance by Parent or
Purchaser with any of the provisions hereof will not (a) conflict with or result
in any  breach of any  provision  of the  governing  documents  of Parent or any
subsidiary of Parent,  (b) require any Consent under or result in a violation or
breach of, or  constitute  (with or  without  notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the

                                       19

<PAGE>

terms,   conditions  or  provisions  of,  any  material  note,  bond,  mortgage,
indenture,  contract, lease, license, agreement or instrument to which Parent or
any  subsidiary  of Parent is a party or by which  Parent or any  subsidiary  of
Parent or any of their respective  assets or property is subject,  (c) result in
the creation or imposition of any material Lien upon any of the assets of Parent
or any  subsidiary  of Parent or (d)  subject to  obtaining  the  Consents  from
Governmental  Authorities referred to in Section 3.3 hereof,  violate any Law to
which  Parent  or any  subsidiary  of  Parent  or  their  respective  assets  or
properties  are  subject,  except  in any  such  case  for any  such  conflicts,
violations,  breaches,  defaults or other  occurrences that would not prevent or
delay  consummation  of  the  transactions  contemplated  hereby,  or  otherwise
materially  and  adversely  affect the ability of Parent or Purchaser to perform
their respective obligations under this Agreement.

         3.5 Disclosure  Documents.  None of the information supplied by Parent,
Purchaser or their respective officers,  directors,  representatives,  agents or
employees (the "Parent  Information")  in writing  specifically for inclusion in
the  Schedule 14F and Schedule  13D filed in  connection  with this  transaction
will,  at the time such  documents are filed with the SEC or first mailed to the
Company's stockholders, contain any untrue statement of a material fact, or will
omit to state  any  material  fact  necessary  in  order to make the  statements
therein, in light of the circumstances in which they were made not misleading or
necessary to correct any statement in any earlier  communication with respect to
the  solicitation  of proxies for such  stockholders'  meeting  which has become
false or misleading.

         3.6 Finders and Investment Bankers.  Neither Parent,  Purchaser nor any
of their  respective  officers or directors  has employed any broker,  finder or
financial  advisor or otherwise  incurred any liability for any brokerage  fees,
commissions  or financial  advisors'  or finders'  fees in  connection  with the
transactions contemplated hereby, other than Lazard and Freres & Co. LLC.

         3.7 Financing  Arrangements.  Parent (including for this purpose one or
more of its wholly owned  subsidiaries)  has funds available to it sufficient to
enable the Purchaser to purchase the Securities in accordance  with the terms of
this  Agreement and  securities  of the Company from the Principal  Stockholders
pursuant to the Selling Stockholder Agreements.

         3.8 Securities Laws.

         (a) The  Securities are being acquired by Purchaser for its own account
pursuant to this Agreement and not for any other Person, and for investment only
and with no intention of  distributing  or reselling such Securities or any part
thereof or any interest therein in any transaction that would be in violation of
the  securities  laws of the United  States of  America,  or any state  thereof;
without prejudice,  however,  to the rights of Purchaser at all times to sell or
otherwise  dispose  of all or any  part of the  Securities  under  an  effective
registration  statement or  applicable  exemption  from  registration  under the
Securities Act of 1933, as amended,  and the rules and  regulations  promulgated
thereunder (the "Securities Act") and any applicable state securities law.

         (b)  Purchaser is an  "accredited  investor" as that term is defined in
Rule 501 under the  Securities  Act and has such  knowledge  and  experience  in
financial and business  matters that it is capable of evaluating  the merits and
risks of an investment in the Securities.

                                       20

<PAGE>

By reason of Purchaser's business or financial experience, it is a sophisticated
investor  which has the capacity to protect its interest in connection  with the
transactions  contemplated  under the  Transaction  Documents and has sufficient
knowledge and experience in financial and business matters to evaluate  properly
the merits and risks of the Securities and the related transactions contemplated
by the Transaction Documents.

         (c) Purchaser  has been provided with copies of the Company  Securities
Filings and a copy of the Company  Disclosure Letter and has had the opportunity
to request any exhibits filed as part of any such document.

         (d) Purchaser hereby  acknowledges  that the Company has made available
to it the  opportunity  to ask  questions  and receive  answers from the Company
concerning the terms and conditions under which the Securities will be issued to
it.

         (e)  Purchaser  agrees that,  so long as required by law,  certificates
evidencing any of the Securities and any securities issued in exchange for or in
respect thereof shall bear a legend substantially to the following effect:

         "THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
         REGISTERED  UNDER THE UNITED STATES  SECURITIES ACT OF 1933, AS AMENDED
         (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY
         OTHER  COUNTRY,  STATE OR OTHER  JURISDICTION,  AND MAY NOT BE OFFERED,
         SOLD,  PLEDGED,  TRANSFERRED OR OTHERWISE DISPOSED OF WITHIN THE UNITED
         STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES  PERSONS,
         EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE ACT
         AND OTHER  APPLICABLE LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH ACT OR
         OTHER LAWS."

         (f) The  foregoing  representations  in this  Section  3.8 are made for
purposes  of  compliance  with  the  exemptions  from  registration   under  the
Securities Act and shall not in any way affect the rights of Parent or Purchaser
in connection with this Agreement,  including, without limitation, their ability
to rely on the  representations  and warranties of the Company set forth in this
Agreement.

         3.9 Absence of Liens. Upon surrender of the notes purchased pursuant to
the Note Purchase  Agreement by the Purchaser to the Company in accordance  with
the terms thereof, the Company will obtain all right, title and interest in such
notes  obtained by Purchaser  from the  transferors  thereof,  without any Liens
having been imposed by Purchaser  or by reason of  Purchaser's  ownership of the
Note.

                                   ARTICLE IV
                       ADDITIONAL COVENANTS OF THE COMPANY

                  The Company covenants and agrees as follows:

                                       21

<PAGE>

         4.1 Conduct of Business of the Company and the Company Subsidiaries.

         (a) Unless  Parent  shall  otherwise  consent in writing  and except as
expressly  contemplated by this Agreement or in the Company  Disclosure  Letter,
during the period from the date of this Agreement to the Closing,

         (i)  the  Company  shall  conduct,  and  it  shall  cause  the  Company
    Subsidiaries to conduct,  its or their businesses in the ordinary course and
    consistent with past practice, and the Company shall, and it shall cause the
    Company  Subsidiaries  to,  use its or  their  reasonable  best  efforts  to
    preserve substantially intact its business  organization,  to keep available
    the  services of its present  officers  and  employees  and to preserve  the
    present commercial relationships of the Company and the Company Subsidiaries
    with  persons  with  whom  the  Company  or  the  Company   Subsidiaries  do
    significant business and

         (ii) without  limiting the  generality  of the  foregoing,  neither the
    Company nor any of the Company Subsidiaries will:

              (A)    amend or propose to amend its Certificate of  Incorporation
    or Bylaws;

              (B)    authorize for issuance, issue, grant, sell, pledge, dispose
    of or propose to issue,  grant, sell, pledge or dispose of any shares of, or
    any options, warrants,  commitments,  subscriptions or rights of any kind to
    acquire or sell any shares of, the capital stock or other  securities of the
    Company or any of the Company Subsidiaries,  including,  but not limited to,
    any securities  convertible  into or exchangeable for shares of stock of any
    class of the Company or any of the Company Subsidiaries,  except for (a) the
    issuance of shares pursuant to the exercise of Company  Options  outstanding
    on the date of this Agreement in accordance  with their present  terms,  (b)
    the issuance of shares upon the exercise of Company Warrants  outstanding on
    the date of this Agreement in accordance  with their present terms,  and (c)
    the issuance of shares upon the conversion of Preferred  Shares  outstanding
    on the date of this  Agreement in  accordance  with the present terms of the
    Preferred Shares;

              (C)    split,  combine or  reclassify  any  shares of its  capital
    stock or  declare,  pay or set  aside  any  dividend  or other  distribution
    (whether in cash,  stock or property or any combination  thereof) in respect
    of its capital  stock,  other than  dividends  to the  holders of  Preferred
    Shares in  accordance  with the present  terms of the  Preferred  Shares and
    dividends  or  distributions  to the  Company  or a Company  Subsidiary,  or
    directly or  indirectly  redeem,  purchase or otherwise  acquire or offer to
    acquire any shares of its capital stock or other securities;

              (D)    create, incur or assume any indebtedness for borrowed money
    or issue any debt securities,  except pursuant to the Credit Agree-

                                       22

<PAGE>

    ment as in effect on the date  hereof  (except as  provided in clause (2) of
    paragraph (E) below);

              (E)    (1) assume, guarantee,  endorse (other than endorsement for
    collection  or deposit in the  ordinary  course of  business)  or  otherwise
    become liable or responsible (whether directly, indirectly,  contingently or
    otherwise)  for the  obligations  of any person (other than the Company or a
    Company Subsidiary);  (2) make any capital expenditures or make any advances
    or capital contributions to, or investments in, any other person (other than
    to a Company  Subsidiary);  (3) voluntarily incur any material  liability or
    obligation  (absolute,  accrued,  contingent  or  otherwise);  or (4)  sell,
    transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree to
    sell, transfer,  mortgage,  pledge or otherwise dispose of or encumber,  any
    assets or properties,  real, personal or mixed,  material to the Company and
    the  Company  Subsidiaries  taken as a whole  other than (x) to secure  debt
    permitted  under  paragraph (D) or (y) the sale of inventory in the ordinary
    course of business;

              (F)    increase  in  any  manner  the  compensation  of any of its
    officers or  employees  or enter into,  establish,  amend or  terminate  any
    employment, consulting, retention, change in control, collective bargaining,
    bonus or other  incentive  compensation,  profit  sharing,  health  or other
    welfare,  stock  option  or other  equity,  pension,  retirement,  vacation,
    severance,  deferred  compensation  or other  compensation  or benefit plan,
    policy,  agreement,  trust,  fund or arrangement with, for or in respect of,
    any stockholder,  officer, director, employee, consultant or affiliate other
    than,  in any such case  referred to above,  as may be required by Law or as
    required  pursuant to the terms of  agreements in effect on the date of this
    Agreement  and  other  than  arrangements  with new  employees  (other  than
    employees who will be officers of the Company) hired in the ordinary  course
    of business and providing for  compensation  and other  benefits  consistent
    with those  provided for similarly  situated  employees of the Company as of
    the date hereof;

              (G)    alter   through   merger,   liquidation,    reorganization,
    restructuring  or in any other fashion the corporate  structure or ownership
    of any subsidiary or the Company;

              (H)    except as may be required as a result of a change in law or
    as required by the SEC, and with prior written  notice to Purchaser,  change
    any of the accounting principles or practices used by it;

              (I)    make any tax  election  which  is  inconsistent  with  past
    practice or settle or compromise any Tax liability in excess of $75,000;

              (J)    pay,  discharge  or  satisfy  any  claims,  liabilities  or
    obligations  (absolute,  accrued,  asserted  or  unasserted,  contingent  or
    otherwise),

                                       23

<PAGE>

    other than the payment,  discharge or satisfaction in the ordinary course of
    business of liabilities of less than $25,000  reflected or reserved  against
    in the financial statements (including the notes thereto) of the Company, or
    covered by insurance;

              (K)    enter  into,  amend,  modify  or  terminate  any  contract,
    agreement, commitment or other understanding involving: (1) annual payments,
    or property with a value,  of (x) $75,000 or more,  ($100,000 or more in the
    case of purchase  orders) if the place of  performance is the United States,
    or (y)  $100,000 or more if the place of  performance  is outside the United
    States,  (2) a term  of more  than  one  (1)  year  or (3)  the  assignment,
    transfer,  sale or  exclusive  license of  copyrights,  trademarks  or other
    intellectual property;

              (L)    incur   expenses  in  connection   with  the   transactions
    contemplated by this Agreement in excess of $4,350,000;

              (M)    take, or agree in writing or otherwise to take,  any of the
    foregoing actions or any action which would make any of the  representations
    or warranties of the Company contained in this Agreement untrue or incorrect
    in any material respect at or prior to the Closing; and

              (N)    shall not  terminate  the  Exchange  Agreement  between the
    Company and certain of its stockholders dated of even date herewith.

         (b) The Company shall,  and the Company shall cause each of the Company
Subsidiaries  to,  (i)  comply  with all Laws  applicable  to it,  to any of its
properties,  assets  or  business  or to the  consummation  of the  transactions
contemplated  hereby,  and to  maintain in full force and effect all the Company
Permits  necessary for its business,  (ii) promptly furnish Parent and Purchaser
with copies of all notices and  correspondence  or other  information to or from
any party in  connection  with matters  relating to the Credit  Agreement or the
Exchange  Agreement and (iii) send a message by email by the opening of business
on November 16, 1999 to all of their respective  employees notifying them of the
provisions  of this  Section  4.1 and  directing  them not to take any action in
contravention of this Section 4.1.

         4.2  Notification  of Certain  Matters.  The Company  shall give prompt
notice to Parent if any of the following occur after the date of this Agreement:
(a) receipt of any notice or other communication in writing from any third party
alleging  that  the  Consent  of  such  third  party  is or may be  required  in
connection with the transactions  contemplated by this Agreement,  provided that
such Consent would have  otherwise  been required to have been disclosed in this
Agreement;  (b) receipt of any material notice or other  communication  from any
Governmental Authority (including,  but not limited to, the National Association
of Securities Dealers ("NASD"),  Nasdaq/NMS or any other securities exchange) in
connection  with  the  transactions  contemplated  by  this  Agreement;  (c) the
occurrence  of an event  which  would be  reasonably  likely to have a  Material
Adverse Effect; or (d) the commencement or threat of any Litigation involving or
affecting  the  Company  or any of the  Company  Subsidiaries,  or any of  their
respec-

                                       24

<PAGE>

tive properties or assets, or, to the Company's knowledge, any employee,  agent,
director or officer,  in his or her  capacity as such,  of the Company or any of
the Company Subsidiaries.

         4.3 Access and Information.  Between the date of this Agreement and the
Closing,  and without  intending  by this  Section 4.3 to limit any of the other
obligations  of the parties  under this  Agreement,  the Company will give,  and
shall  direct  its  accountants  and  legal  counsel  to  give,  Parent  and its
authorized  representatives   (including,   without  limitation,  its  financial
advisors,  accountants and legal counsel), at reasonable times and without undue
disruption  to or  interference  with the  normal  conduct of the  business  and
affairs of the Company,  access as reasonably  required in  connection  with the
transactions  provided for in this Agreement to all offices and other facilities
and  to  all  contracts,  agreements,  commitments,  books  and  records  of  or
pertaining to the Company and the Company  Subsidiaries  and will furnish Parent
with (a) such financial and operating data and other information with respect to
the  business  and  properties  of the Company and the Company  Subsidiaries  as
Parent  may  from  time to time  reasonably  request  in  connection  with  such
transactions and (b) a copy of each material report, schedule and other document
filed or received by the Company or any of the Company Subsidiaries with or from
the SEC, the NASD or Nasdaq/NMS.

         4.4 Reasonable Best Efforts. Subject to the terms and conditions herein
provided, the Company agrees to use reasonable best efforts to take, or cause to
be taken,  all  actions  and to do, or cause to be done,  all things  necessary,
proper or advisable to consummate  and make effective as promptly as practicable
the transactions  contemplated by the Transaction Documents,  including, but not
limited to, (a) obtaining all Consents from  Governmental  Authorities and other
third parties required for the consummation of the transactions  contemplated by
the Transaction  Documents  thereby and (b) timely making all necessary  filings
under the HSR Act.  Upon the terms and  subject to the  conditions  hereof,  the
Company agrees to use reasonable best efforts to take, or cause to be taken, all
actions  and to do, or cause to be done,  all things  necessary  to satisfy  the
other conditions of the Closing set forth herein. The Company will not take, nor
permit  any of its  subsidiaries  to  take,  any  action  or to  enter  into any
agreement which is inconsistent with the rights granted to the Purchaser in this
Agreement or which may adversely  affect the  consummation  of the  transactions
contemplated by the Transaction Documents.

         4.5 Public  Announcements.  So long as this Agreement is in effect, the
Company shall not, and shall use reasonable  efforts to cause its affiliates not
to,  issue  or  cause  the  publication  of  any  press  release  or  any  other
announcement  with respect to the transactions  contemplated  hereby without the
consent of Parent  (such  consent not to be  unreasonably  withheld or delayed),
except  where such  release or  announcement  is required by  applicable  Law or
pursuant to any applicable  listing  agreement with, or rules or regulations of,
the  NASD or  Nasdaq/NMS,  in which  case the  Company,  prior  to  making  such
announcement, will consult with Parent regarding the same.

         4.6 Indemnification and Insurance.

         (a) The Company after the Closing shall indemnify and hold harmless, to
the fullest extent permitted under applicable law, including without limitation,
as provided in the Amended and  Restated  Certificate  of  Incorporation  of the
Company and the Company's By-

                                       25

<PAGE>

Laws as in effect on the date  hereof,  each  present  and  former  director  or
officer  of  the  Company  determined  as  of  the  Closing  (collectively,  the
"Indemnified  Parties"),  who was or is a party  or is  threatened  to be made a
party to any threatened, pending or completed action, suit or proceeding, or was
or is involved in any  action,  suit or  proceeding,  whether  civil,  criminal,
administrative or investigative  (hereinafter a "proceeding"),  by reason of the
fact that he or she is or was a director  or officer of the Company or of any of
its  subsidiaries,  or is or was at any  time  serving,  at the  request  of the
Company,  any other corporation,  partnership,  joint venture,  trust,  employee
benefit plan or other enterprise in any capacity, against all expense, liability
and loss  (including,  but not limited to,  attorneys' fees,  judgments,  fines,
excise  taxes  or  penalties  with  respect  to any  employee  benefit  plan  or
otherwise, and amounts paid or to be paid in settlement) incurred or suffered by
such director or officer in connection with such  proceeding,  arising out of or
pertaining  to  matters  existing  or  occurring  at or  prior  to the  Closing,
including,  without  limitation,  matters  arising out of or  pertaining  to the
transactions  contemplated by this Agreement (and the Company shall, as provided
under its Amended and Restated  Certificate of  Incorporation  and By-Laws as in
effect on the date hereof and to the fullest extent  permitted under  applicable
law, advance expenses as incurred by such Indemnified Party; provided,  however,
that if and to the extent  that  Delaware  law so  requires  the payment of such
expense in advance of the final  disposition of a proceeding  shall be made only
upon  delivery to the Company of an  undertaking  by such  Indemnified  Party to
repay all such advances if it shall ultimately be determined that such person is
not entitled to  indemnification  by the Company).  The foregoing shall inure to
the benefit of any Indemnified Party's heirs,  executors or administrators,  and
shall not be in limitation of any rights to indemnification which an Indemnified
Party may have under  applicable  law and the  Company's  Amended  and  Restated
Certificate of Incorporation prior to the Closing.

         (b) Commencing  promptly  after the date hereof,  the Company shall use
its  reasonable  best  efforts to obtain a  replacement  directors  and officers
insurance policy (the "Replacement  Policy"), to take effect upon the earlier of
(i) December 13, 1999 or (ii) a change of control as defined in Section 12.b. of
the  primary  policy  in  effect  as the  date  hereof  (National  Union  policy
857-48-92) (the "Replacement Policy Date"),  which Replacement Policy waives any
right to termination as a result of a change of control or similar event arising
out of the transactions  contemplated by the Transaction Documents, and provides
coverage  for one (1) year  from  the  Replacement  Policy  Date.  In  addition,
commencing  promptly after the date hereof, the Company shall use its reasonable
best  efforts  to  obtain a  "tail"  directors  and  officers  insurance  policy
providing  coverage  for a period of six years from the Closing  Date for claims
based on alleged  wrongful acts  occurring at or prior to the Closing (the "Tail
Insurance").  It is the parties' intention that there be no gap in the Company's
director and officers insurance coverage.

         (c) For a period of six (6) years after the  Closing,  the Company will
maintain in effect, if available,  directors' and officers'  liability insurance
covering those Persons who are currently covered by the Company's directors' and
officers' liability insurance policy (a copy of which has been made available to
Parent)  on  terms  (including  the  amounts  of  coverage  and the  amounts  of
deductibles,  if any) that are no less  favorable to the terms now applicable to
them under the Company's current policies;  provided,  however, that in no event
shall the Company be required to expend in excess of 200%

                                       26

<PAGE>

of the annual  premium  currently  paid by the  Company for such  coverage;  and
provided  further,  that, if the premium for such coverage  exceeds such amount,
the Company  shall  purchase a policy with the greatest  coverage  available for
such 200% of the annual  premium.  Notwithstanding  the  foregoing,  the Company
shall not be bound by the foregoing obligation for so long as the Tail Insurance
continues to be in full force and effect; provided, however, that the Company in
all events  shall be bound by the  foregoing  for a period of one year after the
Replacement Policy Date.

         (d) This Section 4.6 shall survive the consummation of the transactions
contemplated  hereby, is intended to benefit the Indemnified  Parties,  shall be
binding on all successors and assigns of the Company and shall be enforceable by
the Indemnified Parties.

         4.7 SEC and  Stockholder  Filings.  The Company  shall send to Parent a
copy of all material  public reports and materials as and when it sends the same
to its stockholders, the SEC or any state or foreign securities commission.

         4.8 Takeover  Statutes.  If any "fair  price,"  "moratorium,"  "control
share acquisition" or other similar  anti-takeover statute or regulation enacted
under state or federal laws in the United  States  (each a "Takeover  Statute"),
including,  without  limitation,  Section  203 of  the  DGCL,  is or may  become
applicable to the transactions  contemplated by this Agreement, the Company will
use reasonable best efforts to grant such approvals and take such actions as are
necessary  so  that  the  transactions  contemplated  by this  Agreement  may be
consummated  as promptly as  practicable  on the terms  contemplated  hereby and
otherwise act so as to eliminate or minimize the effects of any Takeover Statute
on any of the transactions contemplated hereby.

         4.9  Directors  of  Company;  Directors  of Company  Subsidiaries.  The
Company  agrees  that its Board of  Directors  shall,  at the request of Parent,
elect prior to Closing one additional  director designated by Parent to serve as
a director of the Company effective as of the Closing;  provided,  however, that
such  designee  shall be reasonably  acceptable  to the Board of  Directors.  If
requested  by Parent,  the Company  will secure the  resignations  of or remove,
effective as of the Closing, any member of the Board of Directors of any Company
Subsidiary.  At Purchaser's  request, the Company shall exercise reasonable best
efforts to cause  Parent's  designees to be elected to the Board of Directors of
the Company Subsidiaries effective as of the Closing Date.

         4.10 Antidilution Protection.  The Company agrees that if there are, as
of the date  hereof,  (a) any shares of the  Company's  Common  Stock issued and
outstanding  other  than the  number  set forth in  Section  2.2 as  issued  and
outstanding  at November  12,  1999  (other than as a result of the  exercise or
conversion of Purchase Rights (as defined below)), or (b) any warrants, options,
conversion  rights or other  rights to  acquire  shares of the  Company's  Stock
("Purchase  Rights")  that have not been  included in  Schedules  2.15(h) to the
Company  Disclosure Letter or as to options reflected as granted and outstanding
in Section 2.2, the Company shall,  upon demand by Purchaser,  immediately issue
to  Purchaser  at no cost to  Purchaser,  the number of shares of the  Company's
Common  Stock  that will  maintain  the  percentage  of  ownership  interest  of
Purchaser  (on a  fully-diluted  basis)  that  Purchaser  would  have had at the
Closing without giving effect to such undisclosed Purchase Rights.

         4.11 Amendment of Certificate of Incorporation.  The Company's Board of
Directors  has  authorized  and the  Company's  stockholders  have  approved  an
increase of the Company's  authorized capital stock by increasing its authorized
Common  Stock by 150 million

                                       27

<PAGE>

shares to a total of 300 million  shares of Common Stock.  The Company agrees to
take all action  required to effectuate  such  increases,  including  filing the
Certificate Amendment with the appropriate governmental authorities in the State
of Delaware (the  effectiveness  of any such  amendment to be conditioned on the
occurrence of the Closing), and taking all other steps necessary and appropriate
to effectuate such increase.  The  effectiveness  of the  Certificate  Amendment
shall not be a condition to the Closing.

         4.12  Registration and Listing.  If any shares of Common Stock required
to be reserved for purposes of conversion of the Note require  registration with
or approval of any  Governmental  Authority  under any federal or state or other
applicable  law before  such shares of Common  Stock may be issued or  delivered
upon conversion, the Company will in good faith and as expeditiously as possible
cause such shares of Common Stock to be duly registered or approved, as the case
may be. So long as the Common Stock is quoted on The Nasdaq Stock  Market,  Inc.
or listed on any national securities exchange, the Company will, if permitted by
the rules of such system or exchange, quote or list and keep quoted or listed on
such system or exchange,  upon official notice of issuance, all shares of Common
Stock issuable or deliverable upon conversion or exchange of the Note.

         4.13  Reservation  of  Common  Stock.  The  Company  shall at all times
reserve and keep available out of its authorized shares of Common Stock,  solely
for the  purpose of issuing  or  delivering  upon  conversion  of the Note,  the
maximum  number of shares of Common  Stock that may be issuable  or  deliverable
upon such conversion;  provided,  however, that to the extent the Company, as of
the date hereof, has an insufficient number of authorized shares of Common Stock
reserved  for  issuance  upon  conversion  of the Note,  the  Company  shall use
commercially  reasonable  efforts to take all actions  necessary to increase and
reserve for  issuance  such number of  authorized  shares of Common  Stock as is
equal to the  maximum  number of shares of Common  Stock that may be issuable or
deliverable  upon  conversion  of the Note,  which  actions  shall  include  (a)
obtaining  the written  consent of a sufficient  number of  stockholders  of the
Company to an amendment to the Certificate of Incorporation and (b) upon receipt
of such written consent,  preparing, filing and mailing an information statement
on Schedule 14C under the Exchange Act as soon as  practicable  thereafter.  The
Company shall issue all such shares of Common Stock in accordance with the terms
of the  Amended and  Restated  Certificate  of  Incorporation,  as amended,  and
otherwise comply with the terms hereof and thereof.

                                   ARTICLE V
                  ADDITIONAL COVENANTS OF PURCHASER AND PARENT

                  Parent and Purchaser covenant and agree as follows:

         5.1 Reasonable Best Efforts. Subject to the terms and conditions herein
provided,  Parent and Purchaser agree to use reasonable best efforts to take, or
cause to be  taken,  all  actions  and to do,  or cause to be done,  all  things
necessary,  proper or advisable to consummate  and make effective as promptly as
practicable the transactions contemplated by this Agreement,  including, but not
limited  to,  (a)  obtaining  all   Governmental   Consents  from   Governmental
Authorities  and  other  third  parties  required  for the  consummation  of the
transactions  contemplated by this Agreement and (b) timely making all necessary
filings under the HSR Act. Upon the terms and subject to the conditions  hereof,
Parent and Purchaser  agree to use reasonable  best

                                       28

<PAGE>

efforts to take,  or cause to be taken,  all  actions  and to do, or cause to be
done,  all things  necessary to satisfy the other  conditions of the Closing set
forth  herein.  Notwithstanding  the  foregoing,  neither  Parent nor any of its
affiliates  shall be required to divest or hold  separate or  otherwise  take or
commit to take any action  that  materially  limits its  freedom of action  with
respect to, or its ability to retain,  any of the businesses or assets of Parent
or any of its affiliates.

         5.2  Public  Announcements.  So long as this  Agreement  is in  effect,
Parent and Purchaser shall not, and shall use reasonable  efforts to cause their
affiliates  not to, issue or cause the  publication  of any press release or any
other announcement with respect to the transactions  contemplated hereby without
the consent of the Company  (such  consent  not to be  unreasonably  withheld or
delayed),  except where such release or  announcement  is required by applicable
Law  or  pursuant  to  any  applicable  listing  agreement  with,  or  rules  or
regulations of, any stock exchange on which shares of Parent's capital stock are
listed or the NASD,  or other  applicable  securities  exchange,  in which  case
Parent,  prior to  making  such  announcement,  will  consult  with the  Company
regarding the same.

         5.3 Compliance.  In consummating the transactions  contemplated hereby,
Parent and Purchaser shall comply,  and cause their subsidiaries to comply or to
be in compliance, in all material respects, with all applicable Laws.

         5.4  Employment.  As  of  the  Closing  Date  and  thereafter,  neither
Purchaser nor Parent shall be under any obligation to continue the employment of
any current or former employee of the Company or the Company  Subsidiaries as of
the Closing Date ("Company Employees").  Furthermore,  except as may be provided
in an Employee Plan,  neither Purchaser nor Parent shall be under any obligation
to  continue  or  maintain  any level of  compensation  or  benefits  to Company
Employees.  Subject to the terms of an Employee Plan, Purchaser and Parent shall
have the right to amend or terminate such Employee Plan and Parent  reserves the
right to require that Company terminate prior to the Closing Date any retirement
plan intended to satisfy the requirements of Code Section 401(k).

         5.5  Guarantee  of Parent.  Parent  hereby  guarantees  the  payment by
Purchaser of the Stock Purchase Price and the Note Purchase Price, and any other
amounts payable by Purchaser pursuant to this Agreement and will cause Purchaser
to perform all of its other  obligations under this Agreement in accordance with
their terms.

         5.6 Director  Election.  After the Closing,  Parent agrees that it will
exercise  reasonable  best efforts to cause the Company's  Board of Directors to
elect at least  such  number  of  directors  as  necessary  to  comply  with the
Company's  Certificate  of  Incorporation,  as  amended,  and that at least  two
members of the Board of Directors of the Company  designated  by Parent shall be
independent  directors as defined under the rules for inclusion of the Company's
Common Stock on the Nasdaq National Market.

         5.7 Section  14(f)  Information.  Parent will supply the Company and be
solely  responsible for any information with respect to itself and its nominees,
officers,  directors  and  affiliates  required by Section  14(f) and Rule 14f-1
under the Exchange Act.

                                       29

<PAGE>

                                   ARTICLE VI
                               PURCHASE CONDITIONS

         6.1 Conditions to Each Party's  Obligation to Effect the Purchase.  The
respective  obligations  of each  party to  effect  the  Purchase  and the other
transactions  contemplated hereby shall be subject to the satisfaction or waiver
at or prior to the Closing of the following conditions:

         (a) No  Injunction  or Action.  No order,  statute,  rule,  regulation,
executive order, stay,  decree,  judgment or injunction shall have been enacted,
entered,  promulgated or enforced by any court or other  Governmental  Authority
which prohibits or prevents the  consummation of the Purchase which has not been
vacated,  dismissed  or withdrawn  prior to the Closing.  The Company and Parent
shall use all reasonable efforts to have any of the foregoing vacated, dismissed
or withdrawn by the Closing.

         (b)  Governmental   Approvals.   All   Governmental   Consents  of  any
Governmental  Authority  required for the  consummation  of the Purchase and the
transactions contemplated by this Agreement shall have been obtained.

         (c) Exchange Agreement.  The transactions  contemplated by the Exchange
Agreement shall have closed at or prior to the Closing.

         6.2 Conditions to Obligations of Parent and Purchaser.  The obligations
of Parent and  Purchaser to consummate  the Purchase and the other  transactions
contemplated  by this Agreement are subject to the  satisfaction  of each of the
following  conditions  at or prior to the  Closing  (any or all of which  may be
waived by Parent and  Purchaser  in whole or in part to the extent  permitted by
law):

         (a)  Representations  and Warranties.  Each of the  representations and
warranties of the Company  contained in this Agreement shall be true and correct
(without giving effect to any limitation as to "materiality,"  "material adverse
effect" or similar  qualifying  language set forth therein) except to the extent
that any breach  (either  individually  or in the aggregate  with all other such
breaches) would not have a Material  Adverse Effect on the Company or materially
and adversely  affect the ability of the Company to consummate the  transactions
contemplated by this Agreement.

         (b)  Performance of Obligations of the Company.  The Company shall have
performed in all material  respects all obligations  required to be performed by
it under this Agreement at or prior to the Closing.

         (c)  Certificates.  Purchaser shall have received a certificate  (dated
the Closing Date and in form and substance reasonably satisfactory to Parent and
Purchaser) signed by the Chief Executive Officer and the Chief Financial Officer
of the Company to the effect set forth in Sections 6.2(a) and 6.2(b).

         (d) Opinion of Counsel. Purchaser shall have received the duly executed
opinion of Kramer Levin  Naftalis & Frankel LLP,  counsel to the Company,  dated
the Closing Date, substantially in the form of Exhibit F hereto.

                                       30

<PAGE>

         (e) Litigation. There shall be no pending suit, action or proceeding by
any person against Purchaser, the Company, or any affiliate,  director,  officer
or employee of any of the foregoing which has a reasonable likelihood of success
(i)(A) in any way  seeking to  restrict  or modify in any  material  respect the
transactions  contemplated hereby, (B) seeking to obtain any damages against any
person as a result of the  transactions  contemplated  hereby or (C)  seeking to
impose any financial burden on any of the foregoing persons or any limitation on
the ability of Parent or Purchaser to hold the  Securities or on the business or
operations of the Company or any of its  subsidiaries,  if the reasonably likely
determination of a matter set forth in this clause (i) would  materially  reduce
the economic or business  benefits  Parent  expects,  as of the date hereof,  to
realize  from the  purchase  of the  Securities,  or (ii) in any way  seeking to
prohibit the transactions contemplated by the Transaction Documents.

         (f) No  Material  Adverse  Effect.  No change,  development,  effect or
circumstance  shall have occurred that would have a Material Adverse Effect with
respect to the Company.

         (g) Registration  Rights Agreement.  The Registration  Rights Agreement
shall have been duly executed and delivered to Purchaser by the Company.

         (h) Selling Stockholder  Agreements.  The transactions  contemplated by
the  Selling  Stockholders  Agreements  shall  have  closed  at or  prior to the
Closing.

         (i) Replacement Policy. The Replacement Policy shall have been obtained
and shall, upon the Closing, be in full force and effect.

         6.3  Documents  to be Delivered  by the  Company.  At the Closing,  the
Company shall deliver to Purchaser the following:

         (a)  duly  executed  certificates  representing  the  Shares,  in  form
satisfactory to Purchaser;

         (b) the duly executed Notes;

         (c) the Certificate of Incorporation  of the Company,  certified by the
Secretary of State of the State of  Delaware,  and the Bylaws of the Company and
resolutions  of the  Board of  Directors  and the  stockholders  of the  Company
approving this Agreement and the transactions contemplated hereby, certified (in
form and substance reasonably satisfactory to Purchaser) by the Secretary of the
Company;

         (d)  certificates  issued  by  appropriate   governmental   authorities
evidencing  the good  standing of the Company in each state where the Company is
doing  business,  as of a date not more than  fourteen  (14)  days  prior to the
Closing Date and where possible a confirming telegram as of the Closing Date;

         (e) the certificate referred to in Section 6.2(c); and

         (f) such  other  documents  as Parent  or  Purchaser  shall  reasonably
request.

                                       31

<PAGE>

         6.4 Conditions to Obligations  of the Company.  The  obligations of the
Company to consummate the Purchase and the other  transactions  contemplated  by
this Agreement are subject to the satisfaction of the following  conditions (all
of which  may be  waived  by the  Purchaser  in  whole or in part to the  extent
permitted by law):

         (a)  Representations  and Warranties.  Each of the  representations and
warranties of the Parent and Purchaser contained in this Agreement shall be true
and  correct  (without  giving  effect to any  limitation  as to  "materiality,"
"material  adverse  effect" or similar  qualifying  language set forth  therein)
except to the extent the effect of any  breach  (either  individually  or in the
aggregate with all other such breaches) would not have a Material Adverse Effect
on the Parent and  Purchaser or materially  and adversely  affect the ability of
the Parent and Purchaser to consummate  the  transactions  contemplated  by this
Agreement.

         (b)  Performance of  Obligations  of Parent and  Purchaser.  Parent and
Purchaser shall have performed in all material respects all obligations required
to  be  performed  by  them  under  this  Agreement,   Exchange  Agreements  and
Registration Rights Agreement at or prior to the Closing.

         (c) Certificate.  The Company shall have received a certificate  signed
on behalf of Parent and  Purchaser by a duly  authorized  officer of each to the
effect set forth in Sections 6.4(a) and 6.4(b).

         (d)  Opinion of  Counsel.  The  Company  shall have  received  the duly
executed  opinion  of  Pillsbury  Madison & Sutro  LLP,  counsel  to Parent  and
Purchaser dated the Closing Date, substantially in the form of Exhibit G hereto.

         (e) Litigation. There shall be no pending suit, action or proceeding by
any person against Purchaser or the Company that has a reasonable  likelihood of
imposing material restrictions on the Company's operations and that would have a
Material Adverse Effect on the Company.

         (f) No  Material  Adverse  Effect.  No change,  development,  effect or
circumstance  shall have occurred that would have a Material Adverse Effect with
respect to Parent.

         (g) Replacement Policy. The Replacement Policy shall have been obtained
and shall, upon the Closing, be in full force and effect.

         6.5 Documents to be Delivered by Purchaser.  At the Closing,  Purchaser
shall deliver to the Company the following:

         (a) evidence of the wire transfer referred to in Section 1.1(b);

         (b) the certificate referred to in Section 6.4(c);

         (c) charter and bylaws of Parent and Purchaser;

         (d) the notes  purchased  pursuant to the Note  Purchase  Agreement for
cancellation; and

                                       32

<PAGE>

         (e) the Short-Term Note for cancellation.

                                  ARTICLE VII
                                  TERMINATION

         7.1 Termination.  This Agreement may be terminated at any time prior to
the Closing:

         (a) by mutual written consent of Parent and the Company;

         (b) by either  Parent or the Company upon  written  notice to the other
party:

         (i) if any  Governmental  Entity of competent  jurisdiction  shall have
    issued a final  nonappealable  order enjoining or otherwise  prohibiting the
    consummation of the Purchase or the Transactions; or

         (ii) if the  Purchase  shall  not have  been  consummated  on or before
    February 28,  2000,  unless the failure to  consummate  the Purchase by such
    date is the result of a breach of, or a delay in fulfilling  its  obligation
    under,  this  Agreement by the party  seeking to terminate  this  Agreement;
    provided,  however,  that if the Purchase shall not have been consummated by
    such date because of a failure by a Principal  Stockholder to perform in any
    material respect any material  obligation under or to comply in any material
    respect with  Sections  1.1, 4, or 5 of its Selling  Stockholder  Agreement,
    then this  Agreement may not be  terminated  pursuant to this clause (ii) by
    the Company prior to June 1, 2000.

         (c) by the Company if: (i) as of such time of determination, any of the
representations  and  warranties  of  Parent  or  Purchaser  contained  in  this
Agreement shall not be true and correct (without giving effect to any limitation
as to "materiality,"  "material adverse effect" or similar  qualifying  language
set forth  therein)  except to the  extent  the  effect of such  breach  (either
individually  or in the  aggregate  with all  other  such  breaches)  would  not
materially adversely affect the ability of Parent or Purchaser to consummate the
transactions  contemplated hereby, or (ii) Parent or Purchaser shall have failed
to perform in any material  respect any material  obligation or to comply in any
material respect with any material  agreement or covenant of Parent or Purchaser
under this Agreement,  and, in the case of (i), such untruth or incorrectness is
incapable  of being cured or is not cured within  fifteen (15) days,  and in the
case of (ii),  such  failure is  incapable of being cured or is not cured within
five (5) days, after the giving of written notice by Company to the Parent.

         (d) by  Parent,  if: (i) as of such time of  determination,  any of the
representations  and warranties of the Company contained in this Agreement shall
not  be  true  and  correct  (without  giving  effect  to any  limitation  as to
"materiality,"  "material  adverse  effect" or similar  qualifying  language set
forth  therein)  except  to  the  extent  the  effect  of  such  breach  (either
individually  or in the aggregate with all other such breaches) would not have a
Material  Adverse  Effect on the  Company  or  materially  adversely  affect the
ability of the Company to consummate the transactions  contemplated  hereby,  or
(ii) (A) the Company  shall have failed to perform in any  material  respect any
material  obligation  or to comply in any  material  respect  with any  material

                                       33

<PAGE>

agreement or covenant of the Company  under this  Agreement,  or (B) a Principal
Stockholder  shall have failed to perform in any  material  respect any material
obligation or to comply in any material respect with Sections 1.1, 4 or 5 of its
Selling  Stockholders  Agreement,  and,  in the  case of (i),  such  untruth  or
incorrectness  is incapable  of being cured or is not cured within  fifteen (15)
days,  and in the case of (ii),  such  failure is incapable of being cured or is
not cured within five (5) days,  after the giving of written notice by Parent to
the Company and, in the case of (ii)(B), the Principal Stockholders.

         7.2 Procedure Upon  Termination.  In the event of termination by Parent
or the Company, or both, pursuant to Section 7.1 hereof,  written notice thereof
shall  forthwith  be given to the other  party and no  further  action  shall be
required of Parent or the Company.  If this  Agreement is terminated as provided
herein each party shall redeliver all documents,  work papers and other material
of any other party relating to the transactions  contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the same.

         7.3 Effect of Termination.  In the event that this Agreement is validly
terminated  as provided  herein,  then each of the parties  shall be relieved of
their duties and obligations arising under this Agreement after the date of such
termination and such termination shall be without liability to Parent, Purchaser
or the Company; provided, however, that the obligations of the parties set forth
in Sections  9.1 through  9.14 hereof (and  Section 5.5 to the extent  Purchaser
remains  obligated under such sections)  shall survive any such  termination and
shall be enforceable hereunder; provided, further, however, that nothing in this
Section 7.3 shall relieve Parent,  Purchaser or the Company of any liability for
a breach of this Agreement.

                                  ARTICLE VIII
                             BUSINESS OPPORTUNITIES

         8.1  Competition.   The  Company   acknowledges  that  Parent  and  its
affiliates engage in the same or similar  activities or lines of business as the
Company and have an interest  in the same area of  business  opportunities.  The
Company agrees that Parent and its affiliates shall have the right to (a) engage
in the same or similar business  activities or lines of business as the Company,
(b) do  business  with any client or  customer  of the Company and (c) employ or
otherwise  engage  any  officer  or  employee  of the  Company  if (i)  prior to
employment  by the Company  such person was an officer,  director or employee of
Parent or an affiliate thereof,  or (ii) such employment or engagement by Parent
or its  affiliate  would not harm the  Company in any  significant  manner,  and
neither Parent nor any affiliate thereof,  nor any officer or director of Parent
or such  affiliate,  shall  be  liable  to the  Company  by  reason  of any such
activities  of  Parent  or its  affiliates  or of  such  person's  participation
therein.

         8.2 Business Opportunities.  In the event that (a) Parent or any of its
affiliates,  or (b) any officer, director or employee of the Company who is also
an officer,  director or employee of Parent or any affiliate  thereof,  acquires
knowledge  of a  potential  transaction  or  matter  which  may  be  a  business
opportunity  for both the  Company  and  Parent or any of its  affiliates,  such
business opportunity shall belong only to Parent and not to the Company, and any
such  officer,  director or employee  of the Company  shall treat such  business
opportunity as belonging  only to Parent and not to the Company,  subject to the
following sentence. In the case of clause (b) of the preceding sentence,  Parent
shall determine in good faith whether, based on the circum-

                                       34
<PAGE>

stances  under  which  such  person   acquired  his  knowledge,   such  business
opportunity  instead  was offered to such  person  solely in his  capacity as an
officer, director or employee of the Company ("Company Capacity").  For purposes
of the foregoing determination,  there shall be a presumption that such business
opportunity  was offered to such person in his capacity as an officer,  director
or employee of Parent or any affiliate  thereof.  In the event Parent determines
that it was so offered to such person in his  Company  Capacity,  such  business
opportunity shall belong only to the Company and not to Parent and such officer,
director or employee shall treat such business  opportunity as belonging only to
the  Company  and  not to  Parent.  With  respect  to any  business  opportunity
belonging to Parent  pursuant to this  Section  8.2,  Parent shall decide how to
allocate and pursue such business opportunity based on its sole determination of
what is in the best  interests  of Parent's  stockholders.  Parent's  good faith
determination  of the  allocation  of  business  opportunities  pursuant to this
Section shall be conclusive and binding for all purposes.

         8.3  Exclusive  European  Arrangement.  Parent and the Company agree to
cooperate  in good  faith  to  negotiate  promptly  after  the date  hereof  for
execution  at or prior to  Closing  a  definitive  distribution  and  publishing
agreement (the "Distribution Agreement") reflecting the terms and conditions set
forth on Schedule 8.3.

         8.4 Business Synergies. The parties intend to explore the potential for
realization of synergies from business initiatives and relationships between the
Company and Parent's United States operations. In furtherance of this objective,
the  Company  and  Parent  shall   identify  and  evaluate   together   mutually
advantageous  business  initiatives  and  relationships,   which  could  include
distribution  of product and  co-production  of titles.  The  parties  shall use
commercially  reasonable  efforts to implement any such business  initiatives or
relationships which the parties mutually decide to pursue.

                                   ARTICLE IX
                                  MISCELLANEOUS

         9.1 Confidentiality.

         (a) Unless (i) otherwise  expressly  provided in this  Agreement,  (ii)
required by  applicable  Law or any  listing  agreement  with,  or the rules and
regulations of,  Nasdaq/NMS or any other applicable  securities  exchange or the
NASD,  (iii)  necessary  to secure any  required  Consents as to which the other
party has been  advised  or (iv)  consented  to in  writing  by  Parent  and the
Company,  all information  (whether oral or written) and documents  furnished in
connection  herewith  together  with  analyses,  compilations,  studies or other
documents  prepared  by such party  which  contain  or  otherwise  reflect  such
information  shall  be  kept  strictly  confidential  by  the  Company,  Parent,
Purchaser and their respective officers, directors,  employees and agents. Prior
to any  disclosure  permitted  pursuant  to the  preceding  sentence,  the party
intending to make such  disclosure  shall consult with the other party regarding
the nature and extent of the disclosure. Nothing contained herein shall preclude
disclosures  to the extent  necessary to comply with  accounting,  SEC and other
disclosure  obligations imposed by applicable Law. In the event the transactions
contemplated by this Agreement are not  consummated,  each party shall return to
the other any documents  furnished by the other and all copies  thereof that any
of them may have made and will hold in confidence any information  obtained from
the other party except to the extent (A) such party is required to disclose such
information  by Law or such  disclosure  is neces-

                                       35

<PAGE>

sary or desirable in connection with the pursuit or defense of a claim, (B) such
information was known by such party prior to such disclosure (and provided that,
except with respect to information referred to in the following clause (C), such
party  shall have  advised the other  party of such  knowledge  upon or promptly
after its receipt of such  information) or was thereafter  developed or obtained
by such party  independent  of such  disclosure  or (C) such  information  is or
becomes  generally  available to the public other than by breach of this Section
9.1 (or, to such party's knowledge,  breach of a confidentiality  agreement with
the  other  party).  Prior to any  disclosure  of  information  pursuant  to the
exception  in clause  (A) of the  preceding  sentence,  the party  intending  to
disclose  the same shall so notify the party  which  provided  the same in order
that such party may seek a protective order or other  appropriate  remedy should
it choose to do so.

         (b) Parent and the  Company  further  acknowledge  that  certain of the
business  and  activities  of  each of them is  competitive  with  business  and
activities of the other party,  and each of them  therefore  agrees that it will
not seek to obtain any  competitive or other  business  advantage over the other
party  as a  result  of  the  information  or  documents  so  received  by it in
connection herewith,  each party acknowledging that such use would be unfair and
materially  detrimental to the other party, provided that the provisions of this
Section  9.1(b)  shall not apply to  information  referred  to in clause  (C) of
Section 9.1(a) hereof.

         9.2 Amendment and Modification. This Agreement may be amended, modified
or  supplemented  only by a written  agreement  among the  Company,  Parent  and
Purchaser.

         9.3 Waiver of Compliance;  Consents.  Any failure of the Company on the
one  hand,  or  Parent  and  Purchaser  on the other  hand,  to comply  with any
obligation,  covenant,  agreement or condition herein may be waived by Parent on
the one hand,  or the  Company on the other hand,  only by a written  instrument
signed by the party  granting such waiver,  but such waiver or failure to insist
upon strict  compliance with such obligation,  covenant,  agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other  failure.  Whenever this  Agreement  requires or permits  consent by or on
behalf of any party  hereto,  such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 9.3.

         9.4 Survival. The respective representations, warranties, covenants and
agreements of the Company and Parent  contained herein or in any certificates or
other documents delivered prior to or at the Closing shall survive the execution
and  delivery  of this  Agreement,  notwithstanding  any  investigation  made or
information  obtained by the other  party,  but shall  terminate at the Closing,
except for those contained in Sections 4.4, 4.6, 4.10, 4.11, 5.1, 5.4, 5.5, 5.6,
ARTICLE  VIII,  and 9.1 through 9.14 of ARTICLE IX hereof,  which shall  survive
beyond the Closing.

         9.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second  succeeding  business  day when sent by  registered  or
certified mail (postage  prepaid,  return  receipt  requested) to the respective
parties at the  following  addresses  (or at such other  address  for a party as
shall be specified by like notice):

                                       36

<PAGE>

                 (i)      if to the Company, to:

                                    GT Interactive Software Corp.
                                    417 Fifth Avenue
                                    New York, New York 10016
                                    Attention: Thomas Heymann
                                    Telecopy:  (212) 679-3424
                                    Confirm:   (212) 726-0749

                  with a copy to:

                                    Kramer Levin Naftalis & Frankel LLP
                                    919 Third Avenue
                                    New York, New York 10022
                                    Attention: David P. Levin, Esq.
                                    Telecopy:  (212) 715-8000
                                    Confirm:   (212) 715-9100

                  (ii)     if to Parent or Purchaser, to:

                                    Infogrames Entertainment S.A.
                                    84, rue du 1er Mars 1943
                                    Villeurbanne, 69100
                                    France
                                    Attention: Thomas Schmider
                                    Telecopy:  (011 33) 472 655116
                                    Confirm:   (011 33) 472 655000

                                    And

                                    Attention: Frederic Garnier
                                    Telecopy:  (011 33) 472 655059
                                    Confirm:   (011 33) 472 655000

                  with a copy to:

                                    Pillsbury Madison & Sutro LLP
                                    235 Montgomery Street
                                    San Francisco, California 94104
                                    Attention: Nathaniel M. Cartmell, Esq.
                                               Ronald E. Bornstein, Esq.
                                    Telecopy:  (415) 983-1200
                                    Confirm:   (415) 983-1000

         9.6  Binding  Effect;  Assignment.   This  Agreement  and  all  of  the
provisions  hereof shall be binding upon and inure to the benefit of the parties
hereto and their  respective  successors  and  permitted  assigns.  Neither this
Agreement nor any of the rights,  interests or

                                       37

<PAGE>

obligations  hereunder  shall be assigned by any of the parties  hereto prior to
the Closing without the prior written  consent of the Company,  in the case of a
proposed  assignment  by Parent or  Purchaser,  or by  Parent,  in the case of a
proposed assignment by the Company, except that Purchaser may assign its rights,
interest and obligations  hereunder to any other wholly owned direct or indirect
subsidiary of Parent.

         9.7 Expenses.

         (a)  Except  as  provided  below,  all fees and  expenses  incurred  in
connection with this Agreement and the transactions contemplated hereby shall be
paid  by the  party  incurring  such  fees  or  expenses,  whether  or  not  the
transactions contemplated hereby are consummated.

         (b) If Parent  terminates  this  Agreement  pursuant to Section  7.1(d)
(other than a  termination  pursuant to  7.1(d)(ii)(B)),  then the Company shall
pay, or cause to be paid to Parent, at the time of termination,  an amount equal
to Parent's  and  Purchaser's  actual and  documented  reasonable  out-of-pocket
expenses  incurred by Parent or Purchaser in connection  with this Agreement and
the consummation of the transactions  contemplated  hereby,  including,  without
limitation,  the  reasonable  fees and  expenses  payable to all  attorneys  and
accountants (and  specifically  excluding any fees owed to any investment banker
or other financial institution) (the "Parent Expenses"). The Company also agrees
that, in the event of the Closing, it shall pay the Parent Expenses,  but not in
excess of $2,000,000.  Any payments required to be made pursuant to this Section
9.7 shall be made by wire transfer of same day funds to an account designated by
Parent on the business day next following the date of termination.

         (c) If the  Company  terminates  this  Agreement  pursuant  to  Section
7.1(c),  then Parent shall pay, or cause to be paid to the Company,  at the time
of  termination,  an  amount  equal  to  the  Company's  actual  and  documented
reasonable  out-of-pocket  expenses  incurred by the Company in connection  with
this Agreement and the  consummation of the  transactions  contemplated  hereby,
including,  without limitation,  the reasonable fees and expenses payable to all
attorneys  and  accountants  (and  specifically  excluding  any fees owed to any
investment banker or other financial  institution).  Any payments required to be
made  pursuant to this  Section  9.7 shall be made by wire  transfer of same day
funds to an account designated by the Company on the business day next following
the date of termination.

         (d) The  expenses  provided for in this Section 9.7 are not intended to
be  exclusive  remedies  with  respect  to any  liability  for a breach  of this
Agreement,  and no party  hereto  shall be  precluded  from  seeking  damages or
remedies at law or in equity as a result of any such matter.

         9.8 Governing Law. This  Agreement  shall be governed by, and construed
in accordance  with,  the laws of the State of Delaware  applicable to contracts
executed in and to be performed in Delaware  without regard to any principles of
choice of law or  conflicts  of law of such State.  All actions and  proceedings
arising out of or relating to this  Agreement  shall be heard and  determined in
any state or federal court sitting in the State of Delaware. Each of the parties
hereto (a)  consents to submit such party to the  personal  jurisdiction  of the
Federal  court  located in the State of Delaware or any Delaware  state court in

                                       38
<PAGE>

the event any dispute  arises out of this  Agreement or any of the  transactions
contemplated  hereby,  (b) agrees  that such  party will not  attempt to deny or
defeat such personal  jurisdiction by motion or other request for leave from any
such  court,  (c) agrees  that such party will not bring any action  relating to
this Agreement or the transactions contemplated hereby in any court other than a
federal  court sitting in the State of Delaware or a Delaware  state court,  (d)
waives  any  right to trial by jury  with  respect  to any  claim or  proceeding
related  to or  arising  out of  this  Agreement  or  any  of  the  transactions
contemplated  hereby,  and (e) irrevocably  appoints CT Corporation  each as its
respective agent to receive service of process in respect of any action, suit or
proceeding   arising  under  or  relating  to  this  Agreement  or  any  of  the
transactions contemplated hereby.

         9.9  Counterparts.  This  Agreement  may be  executed  in  one or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

         9.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or  interpretation of
this Agreement. As used in this Agreement,  (a) the term "person" shall mean and
include an individual, a partnership,  a joint venture, a corporation, a limited
liability company, a trust, an association,  an unincorporated  organization,  a
Governmental  Authority and any other  entity,  (b) unless  otherwise  specified
herein, the term "affiliate," with respect to any person, shall mean and include
any person  controlling,  controlled by or under common control with such person
and (c) the term "subsidiary" of any specified person shall mean any corporation
fifty percent  (50%) or more of the  outstanding  voting power of which,  or any
partnership,  joint  venture,  limited  liability  company or other entity fifty
percent  (50%) or more of the total  equity  interest  of which,  is directly or
indirectly owned by such specified person.

         9.11 Entire Agreement.  This Agreement and the documents or instruments
referred to herein including,  but not limited to, the Company Disclosure Letter
referred to herein,  which Company  Disclosure Letter is incorporated  herein by
reference,  embody the entire agreement and  understanding of the parties hereto
in respect of the subject matter  contained  herein.  There are no restrictions,
promises,  representations,  warranties,  covenants,  or undertakings other than
those expressly set forth or referred to herein.  This Agreement  supersedes all
prior  agreements  and  understandings  among the parties  with  respect to such
subject  matter,  including,  without  limitation,  the  July  27,  1999  letter
agreement  between  the  Company and  Parent;  provided,  however,  that if this
Agreement  is  terminated  pursuant to Article VII hereof,  the portions of such
letter  captioned  "Disclosure  of  Evaluation  Materials,"  "Use of  Evaluation
Materials,"  "Compelled  Disclosure,"  (only as to the  portions  of such letter
surviving pursuant to this Section 9.11) "Legal Remedies," "Return of Documents"
and (if such  termination is due to Parent's  material breach of this Agreement)
"Non-Solicitation"   shall  again  become   effective  from  the  date  of  such
termination.

         9.12  Severability.  In case any provision in this  Agreement  shall be
held invalid,  illegal or unenforceable in a jurisdiction,  such provision shall
be modified  or deleted,  as to the  jurisdiction  involved,  only to the extent
necessary to render the same valid,  legal and  enforceable,  and the  validity,
legality and enforceability of the remaining  provisions hereof shall

                                       39
<PAGE>

not in any way be affected or impaired thereby nor shall the validity,  legality
or   enforceability   of  such  provision  be  affected  thereby  in  any  other
jurisdiction.

         9.13 Specific  Performance.  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.  Accordingly,  the  parties  further  agree that each  party  shall be
entitled  to an  injunction  or  restraining  order to prevent  breaches of this
Agreement and to enforce  specifically  the terms and  provisions  hereof in any
court of the  United  States or any state  having  jurisdiction,  this  being in
addition to any other right or remedy to which such party may be entitled  under
this Agreement, at law or in equity.

         9.14 Third  Parties.  Nothing  contained  in this  Agreement  or in any
instrument or document executed by any party in connection with the transactions
contemplated  hereby  shall  create  any  rights  in,  or be deemed to have been
executed for the benefit of, any person that is not a party hereto or thereto or
a successor  or permitted  assign of such a party;  provided  however,  that the
parties  hereto  specifically  acknowledge  that the  provisions  of Section 4.6
hereof are intended to be for the benefit of, and shall be  enforceable  by, the
Indemnified Parties.

         9.15 Disclosure Letter.  Parent and Purchaser each acknowledge that the
Company  Disclosure  Letter  (a)  relates  to  certain  matters  concerning  the
disclosures  required and  transactions  contemplated by this Agreement,  (b) is
qualified in its entirety by reference to specific provisions of this Agreement,
(c) is not intended to constitute and shall not be construed as indicating  that
any such  matter is  required  to be  disclosed,  nor shall such  disclosure  be
construed as an admission that such  information is material with respect to the
Company, except to the extent required by this Agreement.

         9.16  Effect  of  Investigation.   The   representations,   warranties,
covenants and agreements of each party hereto shall remain operative and in full
force and effect regardless of any investigation made (or knowledge acquired) by
or on behalf of any other party hereto,  any person  controlling any such party,
or any of their officers, directors or affiliates, whether prior to or after the
execution of this Agreement.

         9.17 Material Adverse Effect.  When used in connection with the Company
or any Company Subsidiary or Parent or any of its subsidiaries,  as the case may
be, the term "Material Adverse Effect" means any change,  effect or circumstance
that,  individually or when taken together with all other such changes,  effects
or  circumstances  that have occurred prior to the date of  determination of the
occurrence of the Material  Adverse  Effect,  is or is  reasonably  likely to be
materially  adverse  to the  business,  assets  (including  intangible  assets),
financial   condition  or  results  of   operations   of  the  Company  and  its
subsidiaries,  taken as a whole,  or  Parent  and its  subsidiaries,  taken as a
whole, as the case may be;  provided,  however,  that (a) any change,  effect or
circumstance   relating  to  conditions  affecting  the  United  States  economy
generally  or the economy of any nation or region in which such entity or any of
its  subsidiaries  conducts  business  that is material to the  business of such
entity and its subsidiaries,  taken as a whole,  shall not be taken into account
in determining whether there has been or would be a "Material Adverse Effect" on
or with respect to such entity; (b) any change,  effect or circumstance relating
-to conditions generally affecting the entertainment  software industry, and not
affecting  such entity in a  materially  disproportionate  manner,  shall not be
taken into account in

                                       40
<PAGE>

determining whether there has been or would be a "Material Adverse Effect" on or
with respect to such entity;  and (c) any change,  circumstance or effect caused
by  the  announcement  or  pendency  of  this  Agreement,  or  the  transactions
contemplated hereby shall not be taken into account in determining whether there
has been or would be a  "Material  Adverse  Effect"  on or with  respect to such
entity unless such change,  circumstance  or effect has resulted,  or reasonably
would be  expected  to result,  in a  substantial  impairment  to such  entity's
ability to continue to develop,  produce,  sell or distribute  the products that
are material to such entity's  business in  substantially  the same manner as it
has prior to the date of this Agreement.

                           [Intentionally left blank.]

                                       41

<PAGE>


                  IN WITNESS  WHEREOF,  Parent,  Purchaser  and the Company have
caused  this  Agreement  to be signed and  delivered  by their  respective  duly
authorized officers as of the date first above written.


                                      INFOGRAMES ENTERTAINMENT S.A.


                                      By: /s/ BONNELL BRUNO
                                         ----------------------------------
                                      Name:  Bonnell Bruno
                                      Title: President and Chief Executive
                                             Officer



                                      CALIFORNIA U.S. HOLDINGS, INC.


                                      By: /s/ BONNELL BRUNO
                                         ----------------------------------
                                      Name:  Bonnell Bruno
                                      Title: President and Chief Executive
                                             Officer



                                      GT INTERACTIVE SOFTWARE CORP.


                                      By: /s/ THOMAS A. HEYMANN
                                         ----------------------------------
                                      Name:  Thomas A. Heymann
                                      Title: Chief Executive Officer


                                       42