<PAGE>

                                                                     EXHIBIT 2.1


               AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER


                                BY AND BETWEEN


                          SPECIALTY ACQUISITION CORP.


                                      AND


                            SPECIALTY CATALOG CORP.


                                                               DATED MAY 4, 2001

<PAGE>

                               TABLE OF CONTENTS

TABLE OF DEFINED TERMS......................................................   1
  AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER.........................   1
RECITALS....................................................................   1
ARTICLE I...................................................................   2
THE MERGER..................................................................   2
1.1   The Merger............................................................   2
1.2   Company Action........................................................   2
1.3   Effects of the Recapitalization and Merger............................   2
1.4   Consummation of the Recapitalization and Merger.......................   2
1.5   Certificate of Incorporation; Bylaws; Directors and Officers..........   3
1.6   Conversion of Securities..............................................   3
1.7   Company Stock Options.................................................   4
1.8   Dissenting Shares.....................................................   4
1.9   Exchange of Certificates..............................................   4
1.10  Supplementary Action..................................................   6
1.11  Lost, Stolen or Destroyed Company Certificates........................   6
ARTICLE II..................................................................   6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................   6
2.1   Organization and Qualification........................................   6
2.2   Certificate of Incorporation; Bylaws; and Stock Transfer Records......   7
2.3   Capitalization of the Company.........................................   7
2.4   Corporate Power, Authorization and Enforceability.....................   7
2.5   No Conflict; Required Filings and Consents............................   8
2.6   SEC Reports; Financial Statements.....................................   9
2.7   No Default; Violation; Dispute........................................   9
2.8   Compliance with Law...................................................  10
2.9   Absence of Certain Changes............................................  10
2.10  No Undisclosed Liabilities............................................  10
2.11  Litigation; Claims....................................................  10
2.12  INTENTIONALLY OMITTED.................................................  11
2.13  Disclosure Documents..................................................  11
2.14  INTENTIONALLY OMITTED.................................................  11
2.15  Environmental Matters.................................................  11
2.16  Takeover Laws.........................................................  12
2.17  Board Recommendation; Fairness Opinion................................  12
2.18  INTENTIONALLY OMITTED.................................................  12
2.19  Brokers and Finders...................................................  13
ARTICLE III.................................................................  13
REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................  13
3.1   Organization and Qualification........................................  13
3.2   Corporate Power, Authorization and Enforceability.....................  13
3.3   No Conflict; Required Filings and Consents............................  13
3.4   Board and Stockholder Approval........................................  14
3.5   Brokers and Finders...................................................  14
3.6   Disclosure Documents..................................................  14
ARTICLE IV COVENANTS........................................................  15
4.1   Conduct of Business by the Company....................................  15
4.2   Access to Information; Confidentiality................................  16
4.3   Preparation of Proxy Statement; Stockholders Meeting; Schedule 13E-3..  17
4.4   Regulatory Filings....................................................  18
4.5   Acquisition Proposals.................................................  18
4.6   Public Announcements..................................................  19
4.7   Notification of Certain Matters.......................................  20
4.8   Officers' and Directors' Indemnification; Insurance...................  20
4.9   Additional Agreements.................................................  21
4.10  Company Indebtedness..................................................  22
4.11  Other Actions by the Company..........................................  22
4.12  Litigation Cooperation................................................  22
4.13  Future Filings........................................................  22
<PAGE>

4.14  Board Action Relating to Stock Option Plans...........................  22
4.15  Knowledge of Inaccuracies.............................................  22
4.16  Financing Matters.....................................................  23
4.17  Voting................................................................  24
4.18  Exemption from Liability Under Section 16(B)..........................  24
4.19  Delisting.............................................................  24
ARTICLE V...................................................................  24
CONDITIONS OF MERGER........................................................  24
5.1   Conditions to the Obligations of Each Party to Effect the Merger......  24
5.2   Conditions Precedent to Purchaser's Obligations.......................  25
5.3   Conditions to Obligations of the Company..............................  25
ARTICLE VI..................................................................  26
TERMINATION, AMENDMENT AND WAIVER...........................................  26
6.1   Termination...........................................................  26
6.2   Procedure and Effect of Termination...................................  27
6.3   Expenses..............................................................  27
6.4   Amendment.............................................................  28
6.5   Waiver................................................................  28
6.6   Termination decisions by the Company..................................  28
ARTICLE VII DEFINITIONS.....................................................  28
ARTICLE VIII MISCELLANEOUS..................................................  30
8.1   Severability..........................................................  30
8.2   Notices...............................................................  30
8.3   Headings..............................................................  31
8.4   Representations and Warranties, etc...................................  31
8.5   Miscellaneous.........................................................  31
8.6   Attorneys Fees........................................................  31
8.7   Governing Law.........................................................  31
8.8   Jurisdiction and Venue................................................  31
8.9   Binding Effect........................................................  32
8.10  Assignment............................................................  32
8.11  Further Assurances....................................................  32
8.12  Publicity.............................................................  32
<PAGE>

                             TABLE OF DEFINED TERMS

     Section
     -------

2000 10-K................................................................ 2.3(b)
Acquisition Proposal..................................................... 4.5(a)
Affiliate........................................................... Article VII
Agreement.......................................................... Introduction
Board.................................................................. Recitals
Board of Directors..................................................... Recitals
CERCLA.................................................................. 2.15(a)
Certificate.............................................................. 1.6(a)
Closing..................................................................... 1.4
Closing Date................................................................ 1.4
Commitments................................................................ 4.16
Common Stock........................................................... Recitals
Company............................................................ Introduction
Company Acquisition Agreement............................................ 4.5(a)
Company Disclosure Documents............................................ 2.13(a)
Company Disclosure Letter................................................... 1.7
Company Notice........................................................... 4.5(b)
Company Proxy Statement.................................................. 4.3(b)
Company Requisite Vote...................................................... 2.4
Company Rights Plan................................................. Article VII
Company Stock Option Plan................................................... 1.7
Confidential Information......................................... 4.2(d). 4.2(b)
Constituent Corporations.................................................... 1.3
D&O Insurance............................................................ 4.8(f)
Deposit Amount........................................................... 1.9(a)
DGCL........................................................................ 1.1
Dissenting Shares........................................................... 1.8
Dissenting Stockholder...................................................... 1.8
Effective Time.............................................................. 1.4
Eligible Shares............................................................. 1.7
Engagement Letter.......................................................... 2.19
Environmental Laws...................................................... 2.15(a)
Exchange Act............................................................. 2.5(b)
Exchange Agent........................................................... 1.9(a)
Expenses................................................................. 6.3(b)
Fairness Opinion........................................................ 2.17(b)
Financial Advisor...................................................... Recitals
Financial Statements........................................................ 2.6
Financing Condition...................................................... 5.2(a)
GAAP........................................................................ 2.6
Golub Engagement Letter................................................. 4.16(c)
Governmental Entities.................................................... 2.5(b)
Hazardous Substances.................................................... 2.15(b)
HSR Act.................................................................. 2.5(b)
Indebtedness........................................................ Article VII
Lending Sources......................................................... 4.16(a)
Material Adverse Effect............................................... Article V
Maximum Premium.......................................................... 4.8(f)
Merger...................................................................... 1.1
Option...................................................................... 1.7
Per Share Merger Consideration........................................... 1.6(a)
Permitted Investments.................................................... 1.9(a)
Person.............................................................. Article VII
Preliminary Proxy Statement.............................................. 4.3(b)
Purchaser.......................................................... Introduction
Purchaser Disclosure Documents........................................... 3.6(a)
<PAGE>

RCRA.................................................................... 2.15(a)
Regulatory Consents...................................................... 2.5(b)
Representatives.......................................................... 4.2(a)
Rights Plan.............................................................. 2.3(a)
SARA.................................................................... 2.15(a)
Schedule 13E-3........................................................... 4.3(b)
SEC......................................................................... 2.6
SEC Reports................................................................. 2.6
Securities Act.............................................................. 2.6
Shares................................................................... 1.6(a)
Special Committee...................................................... Recitals
Subsidiary.......................................................... Article VII
Superior Proposal........................................................ 4.5(a)
Surviving Corporation....................................................... 1.1
Tax or Taxes........................................................ Article VII
<PAGE>

               AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER

     THIS AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER (the "Agreement") is
made and entered into as of this 4th day of May, 2001, by and between SPECIALTY
ACQUISITION CORP., a Delaware corporation ("Purchaser"), and SPECIALTY CATOLOG
CORP., a Delaware corporation (the "Company").

                                    RECITALS

     WHEREAS, Purchaser desires to acquire the entire equity interest in the
Company and to provide for the payment of $3.75 per share in cash for all shares
of the common stock, par value $.01 per share, of the Company (the "Common
Stock") not held by Purchaser; and

     WHEREAS, the stockholders of Purchaser intend to contribute shares of
Common Stock held by them to the Purchaser and to acquire in exchange therefor
common stock of the Purchaser; and

     WHEREAS, the Special Committee (the "Special Committe") of the Board of
Directors of the Company (the "Board of Directors" or the "Board") has approved
this Agreement, determined that this Agreement, the Merger and the other
transactions contemplated hereby are fair to, advisable, and in the best
interests of, the Company's stockholders (other than the Purchaser and its
current and future stockholders) and adopted the Merger as set forth herein and
has recommended approval of the Merger and adoption of the Agreement by the
Board of Directors and the stockholders of the Company;

     WHEREAS, the Special Committee has received the opinion of Burnham
Securities Inc. (the "Financial Advisor"), dated as of the date of this
Agreement, to the effect that, based on, and subject to, the various assumptions
and qualifications set forth therein, as of the date of such opinion, the Per
Share Merger Consideration (as hereinafter defined) to be received by the
holders of the Common Stock (other than the Purchaser and its current and future
stockholders) pursuant to the Merger (as hereinafter defined) is fair from a
financial point of view to such holders;

     WHEREAS, the Board of Directors, after receiving the recommendation of
the Special Committee, has approved this Agreement, determined that this
Agreement, the Merger and the other transactions contemplated hereby are fair
to, advisable and in the best interests of the Company's stockholders (other
than the Purchaser and its current and future stockholders) and has adopted the
Merger as set forth herein and has recommended approval of the Merger and
adoption of this Agreement by the stockholders of the Company;

     WHEREAS, the Board of Directors of the Purchaser has approved this
Agreement, determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to, advisable and in the best interests of the
Purchaser's stockholders and adopted the Merger as set forth herein and has
recommended approval of the Merger and adoption of this Agreement by the
stockholders of the Company; and
<PAGE>

     WHEREAS, the stockholders of Purchaser have, by unanimous written consent,
approved the Merger and adoption of this Agreement by the Purchaser;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Company hereby agree
as follows:



                                   THE MERGER

  The Merger.
  ----------

  At the Effective Time (as defined in Section 1.4 hereof), in accordance with
     this Agreement and Section 251 of the Delaware General Corporation Law (the
     "DGCL"), Purchaser shall be merged with and into the Company, the separate
     existence of the Purchaser (except as may be continued by operation of law)
     shall cease, and the Company shall continue as the surviving corporation
     under the corporate name it possesses immediately prior to the Effective
     Time (the "Merger"). The Company after the Merger sometimes is referred to
     hereinafter as the Surviving Corporation (the "Surviving Corporation").

  Company Action.
  --------------

  The Company hereby consents to the Merger and represents that each of the
     Special Committee and the Board of Directors, upon the recommendation of
     the Special Committee, each at meetings duly called and held, have
     determined, that this Agreement, the Merger and the other transactions
     contemplated hereby are fair to, advisable and in the best interests of the
     Company's stockholders (other than Purchaser and its current and future
     stockholders), (ii) approved this Agreement, and the transactions
     contemplated hereby, including the Merger, which approvals, and prior
     actions taken by such Board immediately prior to the execution of this
     Agreement, are sufficient to render entirely inapplicable to the Merger and
     Purchaser and its Affiliates, as of the date hereof, the provisions of
     Section 203 of the DGCL, (iii) resolved to recommend approval of this
     Agreement and adoption of the Merger by its stockholders and (iv) resolved
     to amend the Company Rights Plan (as hereinafter defined) so as to render
     it inapplicable to the Merger and Purchaser, or to redeem all of the
     outstanding rights under the Company Rights Plan.

     Effects of the Recapitalization and Merger.
     ------------------------------------------

  At the Effective Time, the effect of the Merger shall be as provided in the
     applicable provisions of this Agreement and as set forth in Section 251 of
     the DGCL. Without limiting the generality of the foregoing, and subject
     thereto, at the Effective Time all the rights and property of the Company
     and the Purchaser (the "Constituent Corporations") shall vest in the
     Surviving Corporation, and all debts and liabilities of the Company and the
     Purchaser shall become the debts and liabilities of the Surviving
     Corporation.

          1.1  Consummation of the Recapitalization and Merger.
               -----------------------------------------------

  Unless this Agreement shall have been terminated and the transactions herein
     contemplated shall have been abandoned pursuant to Section 6.1 hereof, in
     the event of, and as soon as is practicable after,

                                       2
<PAGE>

     the satisfaction or waiver of the conditions set forth in Article V hereof,
     the parties hereto will cause the Merger to be consummated by filing with
     the Secretary of State of the State of Delaware, a certificate of merger or
     other appropriate documents, executed in accordance with the relevant
     provisions of the DGCL (the time of confirmation of such filing or such
     later time as is specified in such certificate of merger being the
     "Effective Time"). Contemporaneous with the filing referred to in this
     Section 1.4, a closing (the "Closing") will be held at the offices of Kane
     Kessler, P.C., 1350 Avenue of the Americas, New York, NY 10019 or at such
     other location as the parties may establish for the purpose of confirming
     all the foregoing. The date and time of such Closing is referred to as the
     "Closing Date."

          1.2  Certificate of Incorporation; Bylaws; Directors and Officers.
               ------------------------------------------------------------

  The Certificate of Incorporation and Bylaws of the Surviving Corporation shall
     be the Certificate of Incorporation and Bylaws of the Company, as in effect
     immediately prior to the Effective Time, until thereafter amended as
     provided therein and under the DGCL.  The directors of Purchaser
     immediately prior to the Effective Time will be the initial directors of
     the Surviving Corporation, and the officers of the Company immediately
     prior to the Effective Time will be the initial officers of the Surviving
     Corporation, in each case until the earlier of their resignation or removal
     or until their respective successors are duly elected and qualified, as the
     case may be.

          1.3  Conversion of Securities.
               ------------------------

   At the Effective Time, by virtue of the Merger and without any action on the
     part of the Purchaser, the Company, the Surviving Corporation or the holder
     of any of the following securities:

          (a) Each share of Common Stock, $.01 par value per share of the
     Company (the "Shares"), issued and outstanding immediately prior to the
     Effective Time (other than Shares to be cancelled pursuant to Section
     1.6(b) hereof, and, subject to Section 1.6(d) and Section 1.8 hereof, any
     Dissenting Shares (as hereinafter defined)), shall be cancelled and
     extinguished and be automatically converted into and become a right to
     receive $3.75 per share in cash (the "Per Share Merger Consideration") upon
     surrender in the manner provided in Section 1.9 of the certificate that
     evidenced the Shares (the "Certificate").

          (b) Each Share which is issued and held in the treasury of the Company
     immediately prior to the Effective Time or issued and outstanding and owned
     by the Company or by the Purchaser, shall be cancelled and retired, and no
     payment shall be made with respect thereto.

          (c) Each share of capital stock of the Purchaser issued and
     outstanding immediately prior to the Effective Time shall be converted into
     capital stock of the Surviving Corporation with the same rights and terms
     as immediately prior to the Merger.

          (d) The holders of Dissenting Shares (as hereinafter defined), if any,
     shall be entitled to payment for such Shares only to the extent permitted
     by and in accordance with the provisions of the DGCL; provided, however,
     that if, in accordance with the applicable provisions of the DGCL, any
     holder of Dissenting Shares shall forfeit such right to payment of the fair
     cash value of such Shares, such Shares shall thereupon be deemed to have
     been converted into and to have become exchangeable for, as of the
     Effective Time, the right to receive the Per Share Merger Consideration
     provided in Section 1.6(a), without interest.

                                       3
<PAGE>

          1.4  Company Stock Options.
               ---------------------

  Immediately prior to the Effective Time, and except as may be set forth on
     Schedule 1.7 of the Company's Disclosure Letter annexed hereto (the
     ------------
     "Company Disclosure Letter") or otherwise consented to by the Purchaser,
     each outstanding, unexercised option, warrant or other right to purchase
     the Company's Common Stock (an "Option"), including but not limited to
     Options to purchase Shares heretofore granted under each of the Company's
     1996 Stock Incentive Plan, as amended, and the Company's 2000 Stock
     Incentive Plan (collectively, the "Company Stock Option Plan"), whether or
     not exercisable, shall be cancelled by the Company in consideration of a
     cash payment, if applicable, from the Surviving Corporation in an amount
     equal to the product of multiplying (a) the excess, if any, of (x) the Per
     Share Merger Consideration over (y) the per Share exercise price of such
     Option, by (b) the number of Eligible Shares (as defined below) subject to
     such Option. Such cash payment shall be net of any required withholding
     taxes. The term "Eligible Shares shall mean the aggregate number of Shares
     that shall then be subject to purchase under any option which shall be
     vested and exercisable as of the Effective Time. The obligation to make any
     such cash payment (1) shall be subject to the obtaining of any necessary
     consents of optionees to the cancellation of such Options, in form and
     substance reasonably satisfactory to Purchaser, and (2) shall not require
     any action which violates the Company Stock Option Plan. Options with an
     exercise price equal to or greater than the Per Share Merger Consideration
     will be cancelled without any consideration. The Company shall, at
     Purchaser's request, use its commercially reasonable efforts to effectuate
     the provisions of this Section 1.7. From and after the Effective Time,
     other than as expressly set forth in this Section 1.7, no holder of an
     Option shall have any other rights in respect thereof other than to receive
     payment for his or Options as set forth in this Section 1.7. The Company
     shall, at Purchaser's request, take all necessary actions to terminate
     effective as of the Effective Time the Company Stock Option Plans, stock
     option agreements and similar arrangements.

          1.5  Dissenting Shares.
               -----------------

  Notwithstanding anything in this Agreement to the contrary, Shares issued and
     outstanding immediately prior to the Effective Time and held by a holder (a
     "Dissenting Stockholder"), if any, who has the right to demand, and who
     properly demand, an appraisal of such shares in accordance with Section 262
     of the DGCL or any successor provision ("Dissenting Shares") shall not be
     converted into a right to receive the Per Share Merger Consideration unless
     such Dissenting Stockholder fails to perfect or otherwise loses or
     withdraws such Dissenting Stockholder's right to such appraisal, if any.
     Provided the holder of any Dissenting Shares complies with the provisions
     of the DGCL, such holder shall have with respect thereto solely the
     appraisal rights provided under Section 262 of the DGCL. If, after the
     Effective Time, such Dissenting Stockholder fails to perfect or otherwise
     loses or withdraws any such right to appraisal, each such share of such
     Dissenting Stockholder shall be treated as a share that had been converted
     as of the Effective Time into the right to receive the Per Share Merger
     Consideration in accordance with this Section 1.8. The Company shall give
     prompt notice to Purchaser of any demands received by the Company for
     appraisal of any Dissenting Shares, and Purchaser shall have the right to
     participate in and direct all negotiations and proceedings with respect to
     such demands. The Company shall not, except with the prior written consent
     of Purchaser, which consent shall not be unreasonably withheld, make any
     payment with respect to, or settle or offer to settle, any such demands.

          1.6  Exchange of Certificates.
               ------------------------

                                       4
<PAGE>

          (a) Prior to the Effective Time, a bank or trust company to be
     designated by the Purchaser (the "Exchange Agent") shall act as exchange
     agent in effecting the exchange of the Per Share Merger Consideration for
     Certificates which, prior to the Effective Time, represented Shares
     entitled to payment pursuant to Section 1.6 hereof.  Prior to the Effective
     Time, the Purchaser shall deposit with the Exchange Agent the aggregate Per
     Share Merger Consideration necessary to make the payments contemplated
     hereby on a timely basis (the "Deposit Amount") in trust for the benefit of
     the holders of Certificates. Pending distribution pursuant to this Section
     1.9(a) of the Deposit Amount deposited with the Exchange Agent, the
     Surviving Corporation may direct the Exchange Agent to invest such Deposit
     Amount, provided that such investments (i) shall be obligations of or
     guaranteed by the United States of America, in commercial paper obligations
     receiving the highest rating from either Moody's Investors Services, Inc.
     or Standard & Poor's Ratings Services, a division of The McGraw Hill
     Companies, Inc., or in certificates of deposit, bank repurchase agreements
     or bankers acceptances of commercial banks with capital exceeding
     $500,000,000 (collectively "Permitted Investments") or in money market
     funds which are invested solely in Permitted Investments and (ii) shall
     have maturities that will not prevent or delay payments to be made pursuant
     to this Section 1.9(a). Upon the surrender of each such Certificate and the
     issuance and delivery by the Exchange Agent of the Per Share Merger
     Consideration in exchange therefor, such Certificate shall forthwith be
     cancelled. Until so surrendered and exchanged, each such Certificate (other
     than Certificates representing Shares held by the Company or the Purchaser
     and by Dissenting Shares) shall represent solely the right to receive the
     Per Share Merger Consideration, without interest, multiplied by the number
     of Shares represented by such Certificate. Promptly after the Effective
     Time, the Exchange Agent shall mail to each record holder of Certificates
     which immediately prior to the Effective Time represented Shares a form of
     letter of transmittal and instructions for use in surrendering such
     Certificates and receiving the Per Share Merger Consideration therefor.
     Upon the surrender to the Exchange Agent of such an outstanding Certificate
     together with such letter of transmittal, duly completed and validly
     executed in accordance with the instructions thereto, and such other
     documents as may be required pursuant to such instructions, the holder
     shall receive the Per Share Merger Consideration, without any interest
     thereon. If any Per Share Merger Consideration is to be paid to a name
     other than the name in which the Certificate representing Shares
     surrendered in exchange therefor is registered, it shall be a condition to
     such payment or exchange that the Person requesting such payment or
     exchange shall pay to the Exchange Agent any transfer or other taxes
     required by reason of the payment of such Per Share Merger Consideration to
     a name other than that of the registered holder of the Certificate
     surrendered, or such Person shall establish to the satisfaction of the
     Exchange Agent that such tax has been paid or is not applicable.
     Notwithstanding the foregoing, neither the Exchange Agent nor any party
     hereto shall be liable to a holder of Shares for any Per Share Merger
     Consideration delivered to a public official pursuant to applicable
     abandoned property, escheat or similar laws.

          (b) The Surviving Corporation shall not be entitled to the return of
     any amount in the possession of the Exchange Agent relating to the
     transactions described in this Agreement until the date which is 180 days
     after the Effective Time. Thereafter, each holder of a Certificate
     representing a Share may surrender such Certificate to the Surviving
     Corporation and (subject to applicable abandoned property, escheat and
     similar laws) receive in exchange therefor the Per Share Merger
     Consideration, without any interest thereon, but shall have no greater
     rights against the Surviving Corporation than may be accorded to general
     creditors of the Surviving Corporation.

          (c) At and after the Effective Time, the holders of Certificates to be
     exchanged for the Per Share Merger Consideration pursuant to this Agreement
     shall cease to have any rights as stockholders of the Company except for
     the right to surrender such holder's Certificates in

                                       5
<PAGE>

     exchange for payment of the Per Share Merger Consideration, and after the
     Effective Time there shall be no transfers on the stock transfer books of
     the Surviving Corporation of the Shares which were outstanding immediately
     prior to the Effective Time. If, after the Effective Time, Certificates are
     presented to the Surviving Corporation or the Exchange Agent, they shall be
     cancelled and exchanged for the Per Share Merger Consideration, as provided
     in this Article I, subject to applicable law in the case of Dissenting
     Shares.

          (d) The provisions of this Section 1.9 shall also apply to Dissenting
     Shares that lose their status as such, except that the obligations of the
     Exchange Agent under this Section 1.9 shall commence on the date of loss of
     such status.

          1.7  Supplementary Action.
               --------------------

  If at any time after the Effective Time, any further assignments or assurances
     in law or any other things are necessary or desirable to vest or to perfect
     or confirm of record in the Surviving Corporation the title to any property
     or rights of either the Company or Purchaser, or otherwise to carry out the
     provisions of this Agreement, the officers and directors of the Surviving
     Corporation are hereby authorized and empowered, in the name of and on
     behalf of the Company and Purchaser, to execute and deliver any and all
     things necessary or proper to vest or to perfect or confirm title to such
     property or rights in the Surviving Corporation, and otherwise to carry out
     the purposes and provisions of this Agreement.

          1.8  Lost, Stolen or Destroyed Company Certificates.
               ----------------------------------------------

  In the event any Certificates shall have been lost, stolen or destroyed, the
     Exchange Agent shall issue in exchange for such lost, stolen or destroyed
     Certificates, upon making of an affidavit of the fact by the holder
     thereof, certificates representing such shares of Company Common Stock to
     be exchanged in the manner described in this Article I; provided, however,
     that Purchaser may, in its discretion and as a condition precedent to the
     issuance thereof, require the owner of such lost, stolen or destroyed
     Certificates to indemnify Purchaser against any claim that may be made
     against Purchaser the Surviving Corporation or the Exchange Agent with
     respect to the Certificates alleged to have been lost, stolen or destroyed.


                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants to the Purchaser that:

          1.9  Organization and Qualification.
               ------------------------------

  The Company is a corporation duly organized, validly existing and in good
     standing under the laws of the State of Delaware. Each Subsidiary of the
     Company is a corporation duly organized, validly existing and in good
     standing under the laws of the jurisdiction of its incorporation. The
     Company and its Subsidiaries have all requisite corporate power and
     authority to own, operate and lease their properties and to carry on their
     business in all material respects as it is now being conducted. Each of the
     Company and its Subsidiaries is duly qualified as a foreign corporation,
     and is in good standing, in each jurisdiction where the character of its
     properties owned or held under lease or the nature of its activities makes
     such qualification necessary, other than in jurisdictions where the failure
     to be so qualified, individually and in the aggregate, has not had

                                       6
<PAGE>

     and would not reasonably be expected to have a Material Adverse Effect.
     Other than the Company's ownership interest in its Subsidiaries, and except
     as set forth on Schedule 2.1 to the Company Disclosure Letter, the Company
                     ------------
     has no direct or indirect equity interest in any partnership, corporation,
     limited liability company, joint venture, business association or other
     entity.

         1.10  Certificate of Incorporation; Bylaws; and Stock Transfer Records.
               ----------------------------------------------------------------

  The Company has made available to the Purchaser prior to the date of this
     Agreement complete and correct copies of (i) the Certificate of
     Incorporation (or other charter document) and By-laws of the Company and
     each of its Subsidiaries, and (ii) a shareholder list of each of the
     Company and each of its Subsidiaries.

         1.11  Capitalization of the Company.
               -----------------------------

  (a) As of the date of this Agreement, the authorized capital stock of the
      Company consists of (i) 1,000,000 shares of Preferred Stock, par value
      $.01 per share, of which none are issued and outstanding, and (ii)
      10,000,000 shares of Common Stock, par value $.01 per share, of which
      5,239,774 Shares are issued and 4,337,886 Shares are outstanding. Except
      for (i) the rights created pursuant to this Agreement, the Company Stock
      Option Plan and the Company Rights Plan and (ii) as set forth in Schedule
                                                                       --------
      1.7 and Schedule 2.3(a) of the Company Disclosure Letter, there are no
      ---     ---------------
      other options, warrants, calls, rights, commitments or agreements of any
      character to which the Company is a party or by which it is bound
      obligating the Company to issue, sell, deliver, repurchase or redeem or
      cause to be issued, sold, delivered, repurchased or redeemed any shares of
      capital stock of, or equity interests in, the Company. All outstanding
      Shares are, and all Shares subject to issuance as aforesaid, upon issuance
      on the terms and conditions specified in the instruments pursuant to which
      they are issuable, will be, duly authorized, validly issued, fully paid
      and nonassessable and free of preemptive rights or rights of first
      refusal. None of the Company or any of its Subsidiaries is required to
      redeem, repurchase or otherwise acquire shares of capital stock of the
      Company or any of its Subsidiaries, respectively, as a result of the
      transactions contemplated by this Agreement. Except as set forth in
      Schedule 2.3(a) of the Company Disclosure Letter or other than the Company
      ---------------
      Rights Plan, the Company has no stockholder rights plan or agreement in
      force providing for the issuance to holders of Shares of rights to
      purchase or receive stock, cash or other assets upon the acquisition or
      proposed acquisition of Shares by a Person (a "Rights Plan"), nor has the
      Company's Board of Directors or stockholders ever adopted a Rights Plan.

  (b) All of the Company's Subsidiaries are listed in Schedule 2.3(b) of the
                                                      ---------------
      Company Disclosure Letter. Except as set forth in the Company's Annual
      Report on Form 10-K for the fiscal year ended December 30, 2000 (the "2000
      10-K") or Schedule 2.3(b) of the Company Disclosure Letter, the Company
                ---------------
      owns all of the outstanding capital stock of its Subsidiaries.

         1.12  Corporate Power, Authorization and Enforceability.
               -------------------------------------------------

  The Company has all requisite corporate power and authority to enter into this
     Agreement and to perform its obligations hereunder and to consummate all
     the transactions contemplated hereby. The execution and delivery of this
     Agreement by the Company, the performance by the Company of its obligations
     hereunder and the consummation by the Company of the transactions
     contemplated hereby have been duly and validly authorized by the Board of
     Directors and no other corporate action on the part of the Company is
     necessary to authorize this Agreement or to

                                       7
<PAGE>

     consummate the transactions contemplated hereby (other than, with respect
     to the Merger, the approval and adoption of this Agreement by stockholders
     holding a majority of the outstanding Shares entitled to vote thereon (the
     "Company Requisite Vote")). This Agreement has been duly executed and
     delivered by the Company and is a legal, valid and binding obligation of
     the Company, enforceable against the Company in accordance with its terms,
     subject to the effect of any applicable bankruptcy, moratorium, insolvency,
     reorganization or other similar law affecting the enforceability of
     creditors' rights generally and to the effect of general principles of
     equity which may limit the availability of remedies (whether in a
     proceeding at law or in equity). The Company Requisite Vote is the only
     vote of the holders of any class or series of capital stock of the Company
     necessary to adopt this Agreement and approve the transactions contemplated
     hereby, including the Merger. No other vote or consent of the stockholders
     of the Company is required by law, the Certificate of Incorporation or
     Bylaws of the Company or otherwise in order for the Company to adopt this
     Agreement or to approve the transactions contemplated hereby, including the
     Merger.

         1.13  No Conflict; Required Filings and Consents.
               ------------------------------------------

 (a) Except as set forth on Schedule 2.5 of the Company Disclosure Letter, and
                            ------------
     assuming satisfaction of any applicable requirements referred to in Section
     2.5(b) below, the execution and delivery by the Company of this Agreement,
     the compliance by the Company with the provisions hereof and the
     consummation by the Company of the transactions contemplated hereby:

               (A)  will not conflict with or violate any statute, law,
          ordinance, rule, regulation, order, writ, judgment, award, injunction,
          decree or ruling applicable to the Company or any of its Subsidiaries
          or any of their properties, or conflict with, violate or result in any
          breach of or constitute a default (or an event which with notice or
          lapse of time or both would become a default) under, or give to others
          any rights of termination, amendment, cancellation or acceleration of,
          or the loss of a benefit under, or result in the creation of a lien,
          security interest, charge or encumbrance on any of the properties or
          assets of the Company or any of its Subsidiaries, including pursuant
          to (i) the Certificate of Incorporation (or other charter document) or
          Bylaws of the Company or any of its Subsidiaries, or (ii) any
          contract, lease, agreement, note, bond, mortgage, indenture, deed of
          trust, or other instrument or obligation, or any license,
          authorization, permit, certificate or other franchise, other than such
          conflicts, violations, breaches, defaults, losses, rights of
          termination, amendment, cancellation or acceleration, liens, security
          interests, charges or encumbrances as to which requisite waivers have
          been obtained or which in either case individually or in the aggregate
          have not had and would not reasonably be expected to have a Material
          Adverse Effect; and

               (B)  subject to shareholder dissenters' rights, do not and will
          not result in any grant of rights to any other party under the
          Certificate of Incorporation (or other charter document) or Bylaws of
          the Company or any of its Subsidiaries or restrict or impair the
          ability of the Purchaser or any of its Subsidiaries to vote, or
          otherwise exercise the rights of a stockholder with respect to shares
          of the Company or any of its Subsidiaries that may be directly or
          indirectly acquired or controlled by them.

 (b) Other than in connection with or in compliance with the provisions of the
     DGCL, the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
     the "blue sky" laws of various states, approvals, registrations, permits,
     licenses, authorizations, waivers or consents required to be obtained under
     applicable state or local laws, including but not limited to NASDAQ rules,
     applicable state takeover laws, the premerger notification requirement of
     the Hart-Scott-Rodino

                                       8
<PAGE>

     Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if
     applicable to the transactions contemplated hereby, and the filing and
     recordation of the Certificate of merger as required under the DGCL
     (collectively, "Regulatory Consents"), (i) the Company is not required to
     submit any notice, report, registration, declaration or other filing with
     any federal, state or local government, court, administrative agency or
     commission or other governmental authority or instrumentality, domestic or
     foreign (collectively, "Governmental Entities"), in connection with the
     execution or delivery of this Agreement by the Company or the performance
     by the Company of its obligations hereunder or the consummation by the
     Company of the transactions contemplated by this Agreement and (ii) no
     waiver, consent, approval, order or authorization of any Governmental
     Entity is required to be obtained in connection with the execution or
     delivery of this Agreement by the Company or the performance by the Company
     of its obligations hereunder or the consummation by the Company of the
     transactions contemplated by this Agreement, other than such notices,
     reports, registrations, declarations, filings, waivers, consents,
     approvals, orders, or authorizations, the absence of which would not,
     individually and in the aggregate, subject the Company or its Subsidiaries
     to any criminal penalties or otherwise reasonably be expected to have a
     Material Adverse Effect.

         1.14  SEC Reports; Financial Statements.
               ---------------------------------

  The Company has filed all required reports, schedules, forms, statements and
     other documents with the Securities and Exchange Commission (the "SEC")
     from January 1, 1998 through the date hereof (collectively, the "SEC
     Reports"). The financial statements contained in the SEC Reports (or
     incorporated therein by reference) and the consolidated financial
     statements of the Company and its Subsidiaries for the fiscal year ended
     December 30, 2000 included in the 2000 10-K (collectively, the "Financial
     Statements"), were prepared in accordance with generally accepted
     accounting principles applied on a consistent basis throughout the periods
     involved ("GAAP") (except as may be indicated in the notes or schedules
     thereto and except, in the case of the unaudited interim statements, as may
     be permitted under Form 10-Q of the Exchange Act) and present fairly in all
     material respects the consolidated financial position of the Company and
     its consolidated Subsidiaries as of the dates thereof and the consolidated
     results of their operations and cash flows as of the dates and for the
     fiscal periods indicated therein (subject, in the case of unaudited interim
     financial statements, to normal year-end adjustments). On the date of
     filing thereof, and as of the date hereof, each SEC Report filed with the
     SEC complied in all material respects with the then applicable requirements
     of the Exchange Act and the Securities Act of 1933, as amended (the
     "Securities Act"), and the rules and regulations of the SEC promulgated
     thereunder and do not contain any untrue statement of a material fact or
     omit to state a material fact required to be stated therein or necessary to
     make the statements therein, in light of the circumstances under which they
     were made, not misleading. None of the Company's Subsidiaries is required
     to file any statements or reports with the SEC.

         1.15  No Default; Violation; Dispute.
               ------------------------------

  Neither the Company nor any of its Subsidiaries is in default or violation,
     and, to the Company's knowledge, no claims exist with respect to (and no
     event has occurred which with or without notice, the lapse of time or the
     happening or occurrence of any other event would constitute a default or
     violation or claim) any term, condition or provision of (i) its Certificate
     of Incorporation (or other charter document) or Bylaws, or (ii) except as
     set forth in Schedule 2.7 of the Company Disclosure Letter, any contract,
                  ------------
     lease, agreement, license, note, bond, employee benefit agreement or plan,
     arrangement under which it owns or leases real or personal property,
     mortgage, indenture, deed of trust or other instrument or obligation to
     which the Company or any

                                       9
<PAGE>

     of its Subsidiaries is a party or by which the Company or its Subsidiaries
     or any of their properties or assets may be bound (nor to the knowledge of
     the Company is any other party thereto in breach thereof or default
     thereunder), except in the case of this clause (ii) for any defaults,
     violations or claims that individually and in the aggregate would not have
     a Material Adverse Effect.

         1.16  Compliance with Law.
               -------------------

  Except as set forth in Schedule 2.8 of the Company Disclosure Letter, each of
                         ------------
     the Company and its Subsidiaries is in compliance, and has conducted its
     respective businesses so as to comply with, all statutes, laws, ordinances,
     rules, regulations, permits and approvals applicable to its operations,
     except for violations which, individually and in the aggregate, do not and
     insofar as reasonably can be foreseen in the future would not have a
     Material Adverse Effect. Except as disclosed in the SEC Reports, as of the
     date hereof no investigation or review by any Governmental Entity with
     respect to the Company, any of its Subsidiaries or any property owned or
     leased by the Company or any of its Subsidiaries is pending or, to the
     knowledge of the Company, threatened, except for any investigation or
     review that would not individually and in the aggregate have a Material
     Adverse Effect.

         1.17  Absence of Certain Changes.
               --------------------------

  As of the date of this Agreement, except as disclosed in Schedule 2.9 of the
                                                           ------------
     Company Disclosure Letter, or in the 2000 10-K, since December 30, 2000,
     the Company and its Subsidiaries have conducted their business in the
     ordinary course consistent with past practice and have not taken any of the
     actions set forth in paragraphs (i) through (vi) of Section 4.1, and there
     has not been any occurrence, including the commencement or to the knowledge
     of the Company, threat of any action, suit, investigation or proceeding
     against the Company or its Subsidiaries, that has had or would reasonably
     be expected to have a Material Adverse Effect, other than occurrences
     relating to or arising out of the economy in general or the industries of
     the Company and its Subsidiaries in general and not specifically relating
     to the Company or any of its Subsidiaries, occurrences related to the
     execution of this Agreement and the announcement of the transactions
     contemplated hereby, or occurrences otherwise agreed to in writing by
     Purchaser.

         1.18  No Undisclosed Liabilities.
               --------------------------

  Except for liabilities and obligations incurred since December 30, 2000 in the
     ordinary course of business, liabilities and obligations incurred in
     connection with this Agreement or any of the agreements to be entered into
     pursuant to this Agreement, and liabilities and obligations identified in
     Schedule 2.10 of the Company Disclosure Letter, neither the Company nor any
     -------------
     of its Subsidiaries has any liabilities or obligations of any nature
     whatsoever, including guarantees or other similar obligations, (whether
     absolute, accrued, fixed, contingent, liquidated, unliquidated or
     otherwise), other than liabilities or obligations recognized or disclosed
     in the Financial Statements or disclosed in the 2000 10-K, or which
     individually or in the aggregate would not have a Material Adverse Effect.

         1.19  Litigation; Claims.
               ------------------

  There are no actions, suits or proceedings pending or, to the knowledge of the
     Company, threatened against the Company arising out of or in any way
     related to this Agreement, the Merger or any of the transactions
     contemplated hereby or thereby.

                                       10
<PAGE>

         1.20  INTENTIONALLY OMITTED.

         1.21  Disclosure Documents.
               --------------------

 (a) Each document required to be filed by the Company with the SEC in
     connection with the transactions contemplated by this Agreement, including
     on Schedule 13E-3, (the "Company Disclosure Documents") and any amendments
     or supplements thereto, will, when filed, comply as to form with the
     applicable requirements of the Exchange Act and the rules and regulations
     thereunder.

 (b) At the time any Company Disclosure Document or any amendment or supplement
     thereto is first mailed to stockholders of the Company, it will not contain
     any untrue statement of a material fact or omit to state any material fact
     necessary in order to make the statements made therein, in the light of the
     filing of any Company Disclosure Documents or any amendment or supplement
     thereto, not misleading, and from the time of any distribution thereof
     through the Effective Time each such Company Disclosure Document will not
     contain any untrue statement of a material fact or omit to state a material
     fact necessary in order to make the statements made therein, in light of
     the circumstances under which they were made, not misleading. The
     representations and warranties contained in paragraphs (a) and (b) of this
     Section 2.13 will not apply to statements or omissions included in the
     Company Disclosure Documents, if any, based upon information furnished to
     the Company in writing by Purchaser specifically for use therein.

 (c) The information with respect to the Company or any Subsidiary that the
     Company furnishes to Purchaser in writing specifically for use in the
     Schedule 13E-3 (as defined herein), the Preliminary Proxy Statement and the
     Company Proxy Statement will not, at the time of the filing thereof, and
     from the time of any distribution thereof through the Effective Time,
     contain any untrue statement of a material fact or omit to state any
     material fact required to be stated therein or necessary in order to make
     the statements made therein, in the light of the circumstances under which
     they were made, not misleading.  The representations and warranties
     contained in this Section 2.13(c) will not apply to statements or omissions
     included in the Schedule 13E-3, the Preliminary Proxy Statement (as
     hereinafter defined) and Company Proxy Statement (as hereinafter defined),
     if any, based upon information furnished by Purchaser, or its Affiliates
     specifically for use therein.

         1.22  INTENTIONALLY OMITTED.

         1.23  Environmental Matters.
               ---------------------

     Except as would not individually or in the aggregate have a Material
     Adverse Effect:

  (a) Neither the Company nor any of its Subsidiaries nor to the knowledge of
      the Company as of the date of this Agreement any operator or owner of
      their respective past or present properties is in violation, or alleged
      violation, of any judgment, decree, order, law, license, rule or
      regulation pertaining to environmental matters, including without
      limitation, those arising under the Resource Conservation and Recovery Act
      ("RCRA") the Comprehensive Environmental Response, Compensation and
      Liability Act of 1980, as amended ("CERCLA"), the Super fund Amendments
      and Reauthorization Act of 1986 ("SARA") the Federal Water Pollution
      Control Act, the Solid Waste Disposal Act, as amended, the Federal Clean
      Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
      the Occupational Safety and Health Act of 1970, as amended, or any state
      or local statute, regulation, ordinance, order or decree relating to
      health, safety or the environment (hereinafter "Environmental Laws").

                                       11
<PAGE>

  (b) There have been no releases (i.e., any past or present releasing,
      spilling, leaking, pumping, pouring, emitting, emptying, discharging,
      injecting, escaping, disposing or dumping) or threatened releases of any
      hazardous waste as defined by 42 U.S.C. (S)6903(5), any hazardous
      substances as defined by 42 U.S.C.(S)9601(33) or any toxic substance, oil
      or hazardous materials or other chemicals or substances regulated by any
      Environmental Laws ("Hazardous Substances") on, upon, into or from any
      properties of the Company or its Subsidiaries.

  (c) As of the date of this Agreement, no amounts of Hazardous Substance has
      been discharged, generated, treated, manufactured, handled, stored,
      transported, emitted, released or is present at any property now or
      previously owned, leased or operated by the Company except in compliance
      with all applicable Environmental Laws.

         1.24  Takeover Laws.
               -------------

  The provisions of Sections 203 of the DGCL either does not apply to the
     execution, delivery and performance of this Agreement and the consummation
     of the Merger or has been rendered inapplicable because of a vote of the
     Board of Directors approving the consummation of the Merger and the
     transactions contemplated by this Agreement.  No "fair price," "control
     share acquisition" or other similar anti-take over statute or regulation
     enacted in any jurisdiction other than Delaware is applicable to the
     execution, delivery and performance of this Agreement, or the consummation
     of the Merger.

         1.25  Board Recommendation; Fairness Opinion.
               --------------------------------------

  (a) The Company represents that each of the Special Committee and the Board of
      Directors, upon the recommendation of the Special Committee, each at
      meetings duly called and held, have (i) determined, that this Agreement,
      the Merger and the other transactions contemplated hereby are fair to,
      advisable and in the best interests of the Company's stockholders (other
      than Purchaser and its current and future stockholders), (ii) approved
      this Agreement, and the transactions contemplated hereby, including the
      Merger, which approvals, and prior actions taken by such Board immediately
      prior to the execution of this Agreement, are sufficient to render
      entirely inapplicable to the Merger and Purchaser and its Affiliates, as
      of the date hereof, the provisions of Section 203 of the DGCL, (iii)
      resolved to recommend approval of this Agreement and adoption of the
      Merger by its stockholders and (iv) resolved to amend the Company Rights
      Plan so as to render it inapplicable to the Merger and Purchaser, or to
      redeem all of the outstanding rights under the Company Rights Plan.

  (b) The Special Committee has received the written opinion of its Financial
      Advisor, dated as of the date of this Agreement, to the effect that, based
      on, and subject to, the various assumptions and qualifications set forth
      therein, as of the date of such opinion, the Per Share Merger
      Consideration to be received by holders of Shares (other than Purchaser
      and its current and future stockholders) pursuant to the Merger is fair
      from a financial point of view to such holders (the "Fairness Opinion").
      The Company has delivered to the Purchaser a copy of the Fairness Opinion,
      together with the Financial Advisor's written consent to the inclusion of
      or reference to the Fairness Opinion in the Schedule 13E-3, the
      Preliminary Proxy Statement and the Company Proxy Statement.

         1.26  INTENTIONALLY OMITTED.

                                       12
<PAGE>

         1.27  Brokers and Finders.
               -------------------

  The Special Committee has furnished to Purchaser or its counsel a true and
     complete copy of the letter agreement (the "Engagement Letter")  between
     the Company and the Financial Advisor, such Engagement Letter being the
     only agreement pursuant to which such firm would be entitled to any payment
     relating to the transactions contemplated hereunder. Other than as set
     forth herein or in Schedule 2.19 of the Company Disclosure Letter, no
                        -------------
     broker, financial advisor or investment banker or other person is entitled
     to any brokerage, finder's or other fee or commission in connection with
     the transactions contemplated by this Agreement based upon arrangements
     made by or on behalf of the Company or any of its Subsidiaries.


                  REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Purchaser represents and warrants to the Company that:

         1.28  Organization and Qualification.
               ------------------------------

  The Purchaser is a corporation or other entity duly organized, validly
     existing and in good standing under the laws of the jurisdiction of its
     incorporation, and has all requisite power and authority to own, operate
     and lease its properties and to carry on its business in all material
     respects as it is now being conducted. Purchaser is a new corporation that
     was formed for the purpose of consummating the transactions contemplated by
     this Agreement. Purchaser has not conducted any business or engaged in any
     activities unrelated to the transactions contemplated by this Agreement.
     Purchaser has no material liabilities other than in connection with the
     transactions contemplated by this Agreement and the financing arrangements
     with the Lending Sources.

         1.29  Corporate Power, Authorization and Enforceability.
               -------------------------------------------------

  The Purchaser has all requisite power and authority to enter into this
     Agreement and to perform its obligations hereunder and to consummate all
     the transactions contemplated hereby. The execution and delivery of this
     Agreement by Purchaser, the performance by the Purchaser of its obligations
     hereunder and the consummation by Purchaser of the transactions
     contemplated hereby have been duly and validly authorized by the Board of
     Directors of Purchaser and the stockholders of the Purchaser, and no other
     corporate action on the part of Purchaser is necessary to authorize this
     Agreement or to consummate the transactions contemplated hereby. This
     Agreement has been duly executed and delivered by the Purchaser and is a
     legal, valid and binding obligation of the Purchaser, enforceable against
     the Purchaser in accordance with its terms.

         1.30  No Conflict; Required Filings and Consents.
               ------------------------------------------

  (a) Assuming satisfaction of all applicable requirements referred to in
      Section 3.3(b) below, the execution and delivery of this Agreement by the
      Purchaser, the compliance by the Purchaser with the provisions hereof and
      the consummation by the Purchaser of the transactions contemplated hereby
      will not conflict with or violate any statute, law, ordinance, rule,
      regulation, order, writ, judgment, award, injunction, decree or ruling
      applicable to the Purchaser or any of its properties, or conflict with,
      violate or result in any breach of or constitute a default (or an event
      which with notice or lapse of time or both would become a default) under,
      or give to others any rights of termination, amendment, cancellation or
      acceleration of, or the loss of a benefit under, or result in the creation
      of a lien, security interest, charge or encumbrance on any of the
      properties or assets of Purchaser pursuant to (i) the organizational
      documents of the Purchaser or (ii) any contract,

                                       13
<PAGE>

      lease, agreement, note, bond, mortgage, indenture, deed of trust, or other
      instrument or obligation, or any license, authorization, permit,
      certificate or other franchise, other than such conflicts, violations,
      breaches, defaults, losses, rights of termination, amendment, cancellation
      or acceleration, liens, security interests, charges or encumbrances as to
      which requisite waivers have been obtained or which individually and in
      the aggregate would not have a material adverse effect on the ability of
      the Purchaser to perform its obligations under this Agreement.

  (b) Other than in connection with or in compliance with the provisions of the
      DGCL, the Exchange Act, the "blue sky" laws of various states and the HSR
      Act, if applicable (i) the Purchaser is not required to submit any notice,
      report, registration, declaration or other filing with any Governmental
      Entity in connection with the execution or delivery of this Agreement by
      Purchaser or the performance by Purchaser of its obligations hereunder or
      the consummation by Purchaser of the transactions contemplated by this
      Agreement and (ii) no waiver, consent, approval, order or authorization of
      any Governmental Entity is required to be obtained by the Purchaser in
      connection with the execution or delivery of this Agreement by Purchaser
      or the performance by the Purchaser of its obligations hereunder or the
      consummation by the Purchaser of the transactions contemplated by this
      Agreement.

         1.31  Board and Stockholder Approval.
               ------------------------------

  The Board of Directors and stockholders of the Purchaser has approved this
     Agreement and the Merger and has authorized the proper officers to execute
     and deliver this Agreement and all necessary action has been taken in
     connection therewith.

         1.32  Brokers and Finders.
               -------------------

  No broker, finder or investment banker, other than any whose fees and expenses
     will be paid by the Purchaser, is entitled to any brokerage, finder's or
     other fee or commission in connection with the transactions contemplated by
     this Agreement based upon arrangements made by or on behalf of the
     Purchaser.

         1.33  Disclosure Documents.
               --------------------

  (a) Each document required to be filed by the Purchaser with the SEC in
      connection with the transactions contemplated by this Agreement, including
      on Schedule 13E-3 (the "Purchaser Disclosure Documents") and any
      amendments or supplements thereto, will, when filed, comply as to form
      with the applicable requirements of the Exchange Act and the rules and
      regulations thereunder.

  (b) The information with respect to the Purchaser that Purchaser furnishes to
      the Company in writing specifically for use in any Company Disclosure
      Documents will not contain any untrue statement of a material fact or omit
      to state any material fact required to be stated therein or necessary in
      order to make the statements made therein, in the light of the
      circumstances under which they made, not misleading; provided that no
      representation is made by Purchaser with respect to statements or
      omissions in the Company Disclosure Documents based upon information
      furnished to Purchaser by the Company specifically for use therein.

  (c) The Schedule 13E-3, the Preliminary Proxy Statement and Company Proxy
      Statement will comply with the applicable requirements of the Exchange Act
      and will not, at the time of the filing thereof, or from the time of any
      distribution thereof through the Effective Time contain any untrue
      statement of material fact or omit to state any material fact required to
      be stated therein or

                                       14
<PAGE>

      necessary to make the statements made therein, in the light of the
      circumstances under which they were made, not misleading; provided, that
      no representation is made by the Purchaser with respect to the statements
      or omissions in the Schedule 13E-3, the Preliminary Proxy Statement or the
      Company Proxy Statement based upon information furnished to Purchaser in
      writing by the Company specifically for use therein.

  (d) The information contained in the Schedule 13D and the amendments thereto
      filed by the current stockholders of Purchaser is true and accurate in all
      material respects. In addition, neither Purchaser nor any of its
      Affiliates were, prior to the execution of this Agreement, subject to the
      prohibitions on transactions generally applicable to "interested
      stockholders" within the meaning of Section 203 of the DGCL.

                                   COVENANTS

         1.34  Conduct of Business by the Company.
               ----------------------------------

  Except as required or permitted by this Agreement, during the period from the
     date of this Agreement until the Effective Time, the Company agrees as to
     itself and its Subsidiaries that (except to the extent that Purchaser shall
     otherwise consent in writing) the Company and its Subsidiaries shall
     conduct their respective operations in the ordinary course of business
     consistent with past practice, and each of the Company and its Subsidiaries
     will use its commercially reasonable efforts to preserve intact its present
     business organization, to keep available the services of its present
     officers and employees and to maintain satisfactory relationships with
     licensors, licensees, suppliers, contractors, distributors, customers and
     others having business relationships with it and to maintain insurance on
     the same terms as are in effect on the date of this Agreement. Without
     limiting the generality of the foregoing, during the period from the date
     of this Agreement to the Effective Time, neither the Company nor any of its
     Subsidiaries shall, without the prior written consent of Purchaser:

          (i) amend its Certificate of Incorporation or other charter document
     or Bylaws;

          (ii) authorize for issuance, issue, sell, deliver, pledge or agree or
     commit to issue, sell, deliver or pledge (whether through the issuance or
     granting of options, warrants, commitments, subscriptions, rights to
     purchase or otherwise) any capital stock of any class or any debt or other
     securities convertible into capital stock or equivalents (including,
     without limitation, stock appreciation rights), or amend any of the terms
     of any of the foregoing, other than the issuance of shares of capital stock
     upon the exercise of outstanding options under the Company Stock Option
     Plan;

          (iii)  (A) split, combine or reclassify any shares of its capital
     stock, or authorize or propose the issuance or authorization of any other
     securities in respect of, in lieu of or in substitution for shares of its
     capital stock, or declare, set aside or pay any dividend or other
     distribution (whether in cash, stock or property or any combination
     thereof) in respect of its capital stock, adopt or approve any Rights Plan,
     or repurchase, redeem or otherwise acquire any of its securities or any
     securities of its Subsidiaries, or (B) declare or pay any dividend of any
     kind, make any payment of cash or other property to shareholders or to
     terminate, cancel or otherwise settle any outstanding Options under the
     Company Stock Option Plan, other than in the case of clauses (A) or (B)
     above for the issuance of Shares in connection with the exercise of options
     or the repurchase of Shares to the extent contractually required pursuant
     to the terms of existing employee stock repurchase agreements or this
     Agreement, or the cancellation of non-

                                       15
<PAGE>

     vested options of terminated employees; or issue any new Options or
     equivalent instruments of any kind;

          (iv) without prior consultation with the Purchaser (in addition to the
     consent requirement described above) commence any litigation or arbitration
     other than in accordance with past practice or settle any litigation or
     arbitration for money damages or other relief in excess of $50,000 or if as
     part of such settlement the Company or any Subsidiary would agree to any
     restrictions on its operations;

          (v) waive, release or amend its rights under any confidentiality,
     "standstill" or similar agreement that the Company entered into in
     connection with its consideration of a potential strategic transaction;
     provided, however, that the Company may waive, release or amend its rights
     under any such confidentiality, "standstill" or similar agreement if the
     Company's Board determines, after consultation with its independent legal
     counsel, that failure to do so would be reasonably likely to constitute a
     breach of its fiduciary duties to the Company's stockholders under
     applicable law; or

          (vi) take, or agree in writing or otherwise to take, any of the
     actions described in Sections 4.1(i) through 4.1(v).

         1.35  Access to Information; Confidentiality.
               --------------------------------------

  (a) From the date of this Agreement to the Effective Time, the Company shall,
      and shall cause its Subsidiaries, officers, directors, employees and
      agents to, afford the officers, employees and agents of Purchaser and its
      Affiliates and the attorneys, accountants, banks, other financial
      institutions and investment banks working with Purchaser, and its
      respective officers, employees and agents ("Representatives") reasonable
      access, at all reasonable times upon reasonable notice and in such manner
      as will not unreasonably interfere with the conduct of the Company's
      business, to its officers, employees, agents, properties, books, records
      and contracts, and shall furnish, Purchaser and its Affiliates and the
      attorneys, banks, other financial institutions and investment banks
      working with Purchaser, all financial, operating and other data and
      information as they reasonably request.

  (b) Any information heretofore or hereafter furnished by the Company which is
      non-public, confidential or proprietary in nature is referred to in this
      Agreement as "Confidential Information". The Purchaser agrees that the
      Confidential Information will be used solely for the purpose of
      consummating the transactions contemplated by this Agreement, and until
      the Effective Time, such information will be kept confidential by the
      Purchaser and its Representatives (as defined below), except that the
      Confidential Information or portions thereof may be disclosed to those
      Representatives of the Purchaser who need to know such information solely
      for the purpose of evaluating the transactions contemplated by this
      Agreement.

  (c) In the event that the Purchaser or any of its Representatives become
      legally compelled (by deposition, interrogatory, request for documents,
      subpoena, civil investigative demand or similar process) to disclose any
      of the Confidential Information, the Purchaser shall provide the Company
      with prompt prior written notice of such requirement so that the Company
      may seek a protective order or other appropriate remedy and/or waive
      compliance with the terms of this Section 4.2. In the event that such
      protective order or other remedy is not obtained, or that the Company
      waives compliance with the provisions hereof, the Purchaser agree, to
      furnish only that portion of the Confidential Information which the
      Purchaser is advised by counsel is legally

                                       16
<PAGE>

      required and to exercise commercially reasonable efforts to obtain
      assurance that confidential treatment will be accorded such Confidential
      Information.

  (d) The term "Confidential Information" does not include any information
      that the Purchaser can demonstrate that at the time of disclosure or
      thereafter is generally available to the public (other than as a result of
      its disclosure directly or indirectly by the Purchaser or its
      Representatives).

  (e) If this Agreement is terminated pursuant to Article VI, upon the Company's
      request, the Purchaser will promptly return to the Company any and all
      copies of the Confidential Information in its possession or in the
      possession of its Representatives, and the Purchaser and its
      Representatives will promptly destroy all copies of any analyses,
      compilations, studies or other documents prepared by or for the Purchaser
      which reflect or contain any Confidential Information, except for any of
      the foregoing which Purchaser or its counsel deems advisable to retain in
      connection with pending or future litigation, provided that such
      Confidential Information is retained by the Purchaser's counsel and only
      for so long as considered advisable in light of any pending or future
      litigation.

  (f) No investigation pursuant to this Section 4.2 shall affect any
      representations or warranties of the parties herein or the conditions to
      the obligations of the parties hereto.

         1.36  Preparation of Proxy Statement; Stockholders Meeting;
               -----------------------------------------------------
               Schedule 13E-3.
               --------------

  (a) The Company will, as promptly as practicable following the date of this
      Agreement and in consultation with Purchaser, duly call, give notice of,
      convene and hold a meeting of its stockholders (the "Stockholders'
      Meeting") for the purpose of approving this Agreement, the Merger and the
      transaction contemplated by this Agreement, except as otherwise provided
      in Section 4.3(f) below. Nothing herein shall prevent the company from
      adjourning or postponing the Company's stockholders meeting if there are
      insufficient shares of Company Common Stock necessary to conduct business
      at its meeting of the Stockholders. Subject to Section 4.5, the Company
      will, through the Board of Directors and the Special Committee, recommend
      to its stockholders approval of the foregoing matters and seek to obtain
      all necessary votes and approvals thereof by the stockholders required to
      approve the Merger.

  (b) In connection with the Stockholders' Meeting contemplated hereby, the
      Company will promptly prepare and file, and Purchaser will cooperate with
      the Company in the preparation and filing of, a preliminary proxy
      statement (the "Preliminary Proxy Statement") with the SEC and will use
      its commercially reasonable efforts to respond to the comments of the SEC
      concerning the Preliminary Proxy Statement and to cause a final proxy
      statement (the "Company Proxy Statement") to be mailed to the Company's
      stockholders, in each case as soon as reasonably practicable. The
      Purchaser will promptly prepare, and the Company will cooperate with the
      Purchaser in the preparation and filing of the Rule 13E-3 Transaction
      Statement on Schedule 13E-3 (the "Schedule 13E-3") with the SEC and will
      use its commercially reasonable efforts to respond to comments by the SEC
      concerning the Schedule 13E-3. Purchaser shall be given a reasonable
      opportunity to review and comment on all filings with the SEC and all
      mailings to the Company's stockholders in connection with the Merger prior
      to the filing or mailing thereof, and the Company shall use its
      commercially reasonable efforts to reflect all such comments. The Company
      shall pay the filing fees for any Company Schedule 13E-3 and the
      Preliminary Proxy Statement. Each party to this Agreement will notify the
      other parties promptly of the receipt of the comments of the SEC, if any,
      notification of SEC approval of the Company Proxy Statement and of any
      request by the SEC for amendments or supplements to the Schedule 13E-3,
      the Preliminary Proxy Statement or the Company Proxy Statement or for
      additional information, and

                                       17
<PAGE>

      will promptly supply the other parties with copies of all correspondence
      between such party or its representatives, on the one hand, and the SEC
      or members of its staff, on the other hand, with respect to the Schedule
      13E-3, the Preliminary Proxy Statement, the Company Proxy Statement or the
      Merger.

  (c) If at any time prior to the Stockholders' Meeting, any event should occur
      relating to the Company or any of the Subsidiaries which should be set
      forth in an amendment of, or a supplement to, the Schedule 13E-3 or the
      Company Proxy Statement, the Company will promptly inform Purchaser. If at
      any time prior to the Stockholders' Meeting, any event should occur
      relating to Purchaser or any of its Associates or Affiliates, or relating
      to the plans of any such persons for the Surviving Corporation after the
      Effective Time of the Merger, or relating to the Financing, that should be
      set forth in an amendment of, or a supplement to, the Schedule 13E-3 or
      the Company Proxy Statement, the Purchaser, with the cooperation of
      Company, will, upon learning of such event, promptly prepare, file and, if
      required, mail such amendment or supplement to the Company's stockholders;
      provided that, prior to such filing or mailing, the Company shall consult
      with Purchaser with respect to such amendment or supplement and shall
      afford Purchaser reasonable opportunity to comment thereon.

  (d) Purchaser shall furnish to the Company the information relating to
      Purchaser and its Affiliates and the plans of such persons for the
      Surviving Corporation after the Effective Time of the Merger, and relating
      to any financing matters, which is required to be set forth in the
      Preliminary Proxy Statement or the Company Proxy Statement under the
      Exchange Act and the rules and regulations of the SEC thereunder. The
      Company shall cause, to the extent available, to be included as an exhibit
      to the Preliminary Proxy Statement and the Company Proxy Statement, the
      written Fairness Opinion as an exhibit to the Schedule 13E-3, and any
      reports or opinion delivered to the Board of Directors or the Special
      Committee by the Financial Advisor in connection with the delivery of the
      Fairness Opinion which are required under Schedule 13E-3 to be filed as
      exhibits.

  (e) The Company will cause its transfer agent to make stock transfer records
      relating to the Company available to the extent reasonably necessary to
      effectuate the intent of this Agreement.

  (f) The parties hereto understand and agree that if the Special Committee
      withdraws its approval or recommendation of the Merger pursuant to and in
      compliance with the provisions of Section 4.5 below, the Company will not
      convene or hold a Stockholder Meeting without obtaining the prior consent
      of the Special Committee.

         1.37  Regulatory Filings.
               ------------------

  Promptly after the delivery of the Commitments, the parties will cooperate in
     making any filings necessary under any government regulatory requirements
     that may be applicable to the Merger, including filings, if any, necessary
     under the HSR Act.

         1.38  Acquisition Proposals.
               ---------------------

  (a) Except as expressly permitted by this Section 4.5, neither the Board of
      Directors nor the Special Committee shall (i) withdraw or modify, or
      propose publicly to withdraw or modify, in a manner adverse to the
      Purchaser, its approval or recommendation of the Merger or this Agreement,
      (ii) approve or recommend, or propose publicly to approve or recommend,
      any Acquisition Proposal, or (iii) cause the Company to enter into any
      outline, letter of intent, agreement in principle, acquisition agreement
      or other similar agreement, whether or not binding on the parties, (each,
      a "Company Acquisition Agreement") related to any Acquisition Proposal
      (as hereinafter defined).

                                       18
<PAGE>

      Notwithstanding the foregoing, if at anytime the Board of Directors or the
      Special Committee determines in good faith, after consultation with and
      receipt of advice from outside counsel or its financial advisor, that it
      is necessary to do so in order to act in a manner consistent with its
      fiduciary duties to the Company's stockholders under applicable law,
      subject to compliance with paragraph (b) below, (x) either the Board of
      Directors or the Special Committee may withdraw or modify, or propose
      publicly to withdraw or modify, its approval or recommendation of the
      Merger or this Agreement, (y) the Board of Directors may approve or
      recommend, or propose publicly to approve or recommend, a Superior
      Proposal, and (z) the Board of Directors may cause the Company to enter
      into a Company Acquisition Agreement upon termination of this Agreement
      pursuant to Section 6.1(d) and accept such Superior Proposal. For purposes
      of this Agreement, a "Superior Proposal" means an Acquisition Proposal
      that the Special Committee of the Board of Directors of the Company, in
      good faith, after consultation with its outside counsel and its financial
      advisor, and taking into account the proposed financing thereof,
      determines to be of a higher price per Share and more favorable to the
      stockholders of the Company than the transaction contemplated hereunder.
      For purposes of this Agreement, an "Acquisition Proposal" means any
      inquiry or the making of any proposal or offer from any third party, other
      than the Purchaser or its Affiliates regarding any merger, consolidation,
      share exchange, recapitalization, business combination, the sale of
      substantial assets (other than in the ordinary course of business), the
      sale or purchase of (or right to sell or purchase) shares of capital stock
      (other than pursuant to the exercise of stock options outstanding on the
      date of this Agreement), tender offer or similar transactions, whether in
      a single transaction or a series of transactions, involving the Company or
      any of its Subsidiaries.

  (b) In addition to the obligations of the Company as set forth in Section
      4.5(a), the Company promptly shall advise the Purchaser orally and in
      writing of any request for non-public information, any Acquisition
      Proposal, including all of the material proposed terms of such Acquisition
      Proposal, the identity of the third party, or any decision by the Company
      to take any actions with respect to any of the foregoing (with any such
      notice referred to as a "Company Notice". Any such Company Notice will be
      delivered promptly after (and in no event later than 24 hours after)
      receipt of any request for non-public information or of any Acquisition
      Proposal and prior to the Company taking any of such actions. In addition,
      in the event the Company intends to enter into a Company Acquisition
      Agreement, the Company will deliver a Company Notice at least twenty-four
      (24) hours (but Company Notices given on a non-business day, or after 6:00
      p.m. on a business day, shall take effect on the first business day
      thereafter) prior to entering into such Company Acquisition Agreement,
      which Company Notice will identify the third party and the material
      proposed terms of such Company Acquisition Agreement. Subject to
      confidentiality agreement requirements imposed by any such third party
      which shall be substantially similar to those set forth in Section 4.2
      hereof and which the Board of Directors determines in good faith, after
      consultation with its outside counsel, are necessary to enter into in
      order to act in a manner consistent with its fiduciary duties to the
      Company's stockholders under applicable law, the Company will update the
      information required to be provided in the Company Notice upon the request
      of the Purchaser.

         1.39  Public Announcements.
               --------------------

  Purchaser on the one hand, and the Company on the other hand, will consult
     with each other before, and obtain the other party's consent with respect
     to, issuing any press release, any filing with the SEC on Form 8-K or
     otherwise making any public statements with respect to this Agreement or
     the Merger or the other transactions contemplated hereby, and shall not
     issue any such press release, SEC Form 8-K filing or make any such public
     statement prior to such consultation and consent, except to the extent that
     compliance with legal requirements and NASDAQ rules require

                                       19
<PAGE>

     a party to issue a press release or public announcement or make an 8-K
     filing. Any consent required pursuant to the preceding sentence shall not
     be unreasonably withheld or delayed.

         1.40  Notification of Certain Matters.
               -------------------------------

  (a) The Company shall give prompt notice (which notice shall state that it is
      delivered pursuant to Section 4.7 of this Agreement) in writing to
      Purchaser, and Purchaser shall give prompt notice in writing to the
      Company, of (i) the occurrence, or failure to occur, of any event which
      occurrence or failure would be likely to cause any representation or
      warranty of such party contained in this Agreement to be untrue or
      inaccurate in any material respect as of the time such representation or
      warranty is made and (ii) any material failure of the Company, Purchaser,
      as the case may be, or of any officer, director, employee or agent
      thereof, to comply with or satisfy any covenant, condition or agreement to
      be complied with or satisfied by it under this Agreement; provided,
      however, no such notification shall affect the representations or
      warranties of the parties or the conditions to the obligations of the
      parties hereunder.

  (b) The Company shall give reasonably prompt notice (which notice shall state
      that it is delivered pursuant to Section 4.7 of this Agreement) in writing
      to Purchaser, of any occurrence that has had or may reasonably be expected
      to have a Material Adverse Effect, other than occurrences relating to or
      arising out of the economy in general or the industries of the Company and
      its Subsidiaries in general and not specifically relating to the Company
      or any of its Subsidiaries and occurrences related to the execution of
      this Agreement and the announcement of the transactions contemplated
      hereby.

         1.41  Officers' and Directors' Indemnification; Insurance.
               ---------------------------------------------------

  (a) The Purchaser and Surviving Corporation agree that for a period ending on
      the sixth anniversary of the Effective Time, the Surviving Corporation
      will maintain all rights to indemnification (including with respect to the
      advancement of expenses incurred in the defense of any action or suit)
      existing on the date of this Agreement in favor of the present and former
      directors, officers, employees and agents of the Company as provided in
      the Company's Certificate of Incorporation and Bylaws, in each case as in
      effect on the date of this Agreement, and that during such period, neither
      the Certificate of Incorporation nor the Bylaws of the Surviving
      Corporation shall be amended to reduce or limit the rights of indemnity
      afforded to the present and former directors, officers, employees and
      agents of the Company, or the ability of the Surviving Corporation to
      indemnify them, nor to hinder, delay or make more difficult the exercise
      of such rights or indemnity or the ability to indemnify; provided;
      however, that in the event any claim or claims are asserted or made within
      such six-year period, all rights to indemnification in respect to any such
      claim or claims shall continue until the disposition of any and all such
      claims.

  (b) The Purchaser and Surviving Corporation agree to cause the Surviving
      Corporation to indemnify to the fullest extent permitted under its
      Certificate of Incorporation, its Bylaws and applicable law the present
      and former directors, officers, employees and agents of the Company
      against all losses, damages, liabilities or claims made against them
      arising from their service in such capacities prior to and including the
      Effective Time, to at least the same extent as such persons are currently
      permitted to be indemnified pursuant to the Company's Certificate of
      Incorporation and Bylaws, for a period ending on the sixth anniversary of
      the Effective Time.

  (c) Should any claim or claims be made against any present or former director,
      officer, employee or agent of the Company, on or prior to the sixth
      anniversary of the Effective Time, arising from

                                       20
<PAGE>

      such person's service as such at any time prior to the Effective Time, the
      provisions of this Section 4.8 respecting the Certificate of Incorporation
      and Bylaws and the obligation of indemnity of the Surviving Corporation
      shall continue in effect until the final disposition of all such claims.

  (d) The Company and the Purchaser agree that in the event that the Surviving
      Corporation or any of its successors or assigns consolidates with or
      merges into any other Person and shall not be the continuing or surviving
      corporation or entity of such consolidation or merger, then and in each
      such case, proper provisions shall be made so that the successors and
      assigns of the Surviving Corporation shall assume the obligations of the
      surviving Corporation, set forth in this Section 4.8. The provisions of
      this Section 4.8(d) are in addition to, and not substitution for, any
      other rights or indemnification that any such person may have by contract
      or otherwise.

  (e) The provisions of this Section 4.8 are intended to be for the benefit of,
      and shall be enforceable by, each indemnified party and such party's heirs
      and representatives.

  (f) The Surviving Corporation shall maintain for a period of six years from
      the Effective Time the Company's current directors' and officers'
      insurance and indemnification policy to the extent that it provides
      coverage for events occurring prior to the Effective Time (the "D&O
      Insurance") for all persons who are directors and officers of the Company
      on the date of this Agreement, so long as such insurance is available on
      commercially reasonable terms and the annual premium therefor would not be
      in excess of 200% of the last annual premium paid prior to the date of
      this Agreement (the "Maximum Premium").

  If the existing D&O Insurance expires, is terminated or cancelled during such
     six-year period, the Purchaser will use all reasonable efforts to cause to
     be obtained as much D&O Insurance as can be obtained for the remainder of
     such period for an annualized premium not in excess of the Maximum Premium,
     on terms and conditions no less advantageous than the existing D&O
     Insurance.

         1.42  Additional Agreements.
               ---------------------

  (a) Subject to the terms and conditions hereof, each of the parties to this
      Agreement agrees to use commercially reasonable efforts to take, or cause
      to be taken, all actions, and to do, or cause to be done, all things
      necessary, proper or advisable under applicable laws and regulations to
      consummate and make effective as promptly as practicable the transactions
      contemplated by this Agreement (including consummation of the Merger) and
      to cooperate with each other in connection with the foregoing.

  (b) Subject to the terms and conditions hereof, each of the parties to this
      Agreement agrees to use commercially reasonable efforts to: (i) obtain all
      necessary waivers, consents and approvals from other parties to loan
      agreements, leases, licenses and other contracts, (ii) obtain all
      necessary consents, approvals and authorizations as required to be
      obtained under any federal, state or foreign law or regulations,
      including, but not limited to, those required under the HSR Act, if
      required, (iii) defend all lawsuits or other legal proceedings challenging
      this Agreement or the consummation of the transactions contemplated
      hereby, (iv) lift or rescind any injunction or restraining order or other
      order adversely affecting the ability of the parties to consummate the
      transactions contemplated hereby, (v) effect all necessary registrations
      and filings, including, but not limited to, filings under the HSR Act and
      submissions of information requested by Governmental Entities, and (vi)
      fulfill all conditions to this Agreement.

                                       21
<PAGE>

         1.43  Company Indebtedness.
               --------------------

  Prior to the Effective Time, the Company and Purchaser shall cooperate with
     each other in taking such actions requested by the Purchaser as are
     reasonably appropriate or necessary in connection with obtaining the prior
     written consent of Fleet National Bank, N.A. prior to the Effective Time.

         1.44  Other Actions by the Company.
               ----------------------------

  If any "fair price," "control share acquisition," "shareholder protection" or
     other form of anti-takeover statute, regulation or charter provision or
     contract is or shall become applicable to the Merger or the transactions
     contemplated hereby, the Company, the Special Committee and the Board of
     Directors shall, promptly upon the request of the Purchaser, grant such
     approvals and take such actions as are necessary under such laws and
     provisions so that the transactions contemplated hereby may be consummated
     as promptly as practicable on the terms contemplated hereby and otherwise
     act to the extent allowable to eliminate or minimize the effects of such
     statute, regulation, provision or contract on the transactions contemplated
     hereby. The Board of Directors and the Company have taken and shall
     continue to take such actions as are necessary to either amend the Company
     Rights Plan or redeem any outstanding rights under the Company Rights Plan,
     so that the transactions contemplated by this Agreement may be consummated
     as promptly as practicable on the terms contemplated by this Agreement, and
     otherwise act to eliminate or minimize the effects of such Company Rights
     Plan on such transaction.

         1.45  Litigation Cooperation.
               ----------------------

  Promptly upon execution of this Agreement and until the Effective Time, each
     of the Company and Purchaser shall cooperate with each other in connection
     with any litigation by a third party arising out of or in connection with
     this Agreement or any of the transactions contemplated by this Agreement.

         1.46  Future Filings.
               --------------

  The Company will deliver to the Purchaser as soon as they become available
     true and complete copies of any report or statement mailed by it to its
     stockholders generally or filed by it with the SEC subsequent to the date
     of this Agreement and prior to the Effective Time.  The Purchaser shall
     deliver to the Company as soon as they become available, true and complete
     copies of any report or statement mailed by it to the Company's
     stockholders generally or filed by it with the SEC subsequent to the date
     of this Agreement and prior to the Effective Time.

         1.47  Board Action Relating to Stock Option Plans.
               -------------------------------------------

  As soon as practicable following the date of this Agreement, the Board of
     Directors of the Company (or, if appropriate, any committee administering a
     Company Stock Option Plan) shall adopt such resolutions or take such
     actions as may be required to adjust the terms of all outstanding Company
     Stock Options in accordance with Section 1.7 and shall make such other
     changes to the Company Stock Option Plan in accordance with the terms of
     the Company Stock Option Plan as the Purchaser, the Special Committee and
     the Company deem appropriate to give effect to the Merger, and, at
     Purchaser's request, to terminate such plans as of the Effective Time.

         1.48  Knowledge of Inaccuracies.
               -------------------------

                                       22
<PAGE>

  In the event that Purchaser, its stockholders or any senior executive officer
     of the Company shall have knowledge on or prior to the date of this
     Agreement of the existence or occurrence of any fact, circumstance, or
     event the failure of the Company to disclose which in this Agreement or the
     Company Disclosure Schedule otherwise would cause, or be reasonably likely
     to cause, any inaccuracy or breach by the Company of any representation,
     warranty, covenant or other obligation hereunder, then such fact,
     circumstance or event shall be deemed to have been disclosed by the Company
     to the Purchaser in this Agreement or Company Disclosure Letter.

         1.49  Financing Matters.
               -----------------

  (a) Purchaser has had discussions with one or more banks, financial
      institutions or other public or private financing sources (the "Lending
      Sources") to determine the available terms of financing and reasonably
      expects that such commitments regarding junior or subordinated debt
      financing, together with equity contributions to the Purchaser made or to
      be made by certain stockholders of the Purchaser (collectively, the
      "Commitments"), sufficient to consummate the transactions contemplated by
      the Merger Agreement, will be obtainable from such Lending Sources and
      stockholders of the Purchaser, as the case may be. The Company
      acknowledges that the Lending Sources have not had the opportunity to
      complete due diligence on all aspects of the Company's operations,
      agreements and finances, including with respect to the Company's
      operations for the period ended December 30, 2000, and that the results of
      such investigation may result in the Commitments being unavailable or
      available only in amounts and on terms not acceptable to the Purchaser.

  (b) The Company agrees to provide, and will cause its Subsidiaries and its and
      their respective officers, employees and advisors to provide, all
      cooperation reasonably necessary in connection with the arrangement of any
      financing to be consummated contemporaneously with or at or after the
      expiration of the Effective Time in respect of the transactions
      contemplated by this Agreement, including participation in meetings and,
      due diligence sessions, the execution and delivery of any commitment
      letters, underwriting or placement agreements, pledge and security
      documents, other definitive financing documents, or other requested
      certificates or documents, including a certificate of the chief financial
      officer of the Company, comfort letters of accountants and legal opinions
      as may be reasonably requested by Purchaser and taking such other actions
      as are reasonably required to be taken by the Company in the Commitments,
      provided that Purchaser shall use reasonable efforts not to materially
      interfere with the duties of such officers, employees and advisors such
      that the Company's business and results of operations would be materially
      adversely affected thereby.

  (c) The Company has entered into or agrees to enter into the engagement letter
      agreement (the "Golub Engagement Letter") among Golub Associates
      Incorporated, LEG Partners III SBIC, L.P., LEG Partners Debentures SBIC,
      L.P. the Purchaser and the Company.

  (d) Notwithstanding anything to the contrary contained in this Agreement, the
      Company shall not enter into any Commitments or any other letters,
      agreements or other documents contemplated by Sections 4.16(b), 4.16(c) or
      5.2(f) if, in the aggregate, such Commitments, letters, agreements or
      other documents obligate the Company to pay more than $400,000.00 of fees,
      costs and expenses (excluding contingent liabilities such as
      indemnification obligations), without the prior consent of the Special
      Committee.

                                       23
<PAGE>

         1.50  Voting.
               ------

  Each of the Purchaser and its stockholders will vote any and all shares of the
     Company's Common Stock held by them, or which they have the right to vote,
     in favor of approval of the Merger, in person, or by proxy.

         1.51  Exemption from Liability Under Section 16(B).
               --------------------------------------------

  Purchaser and the Company shall take all such steps as may be required or
     reasonably requested to cause the transactions contemplated by this
     Agreement and any other dispositions of Company equity securities
     (including derivative securities) in connection with this Agreement by each
     individual who is a director, officer or ten (10%) percent stockholder of
     the Company to be exempt under Rule 16b-2 promulgated under the Exchange
     Act and the rules and regulations promulgated thereunder, such steps to be
     taken in accordance with the No-Action Letter dated January 12, 1999,
     issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP, or as may
     otherwise be reasonably requested by the Company.

         1.52  Delisting.
               ---------

  Each of the parties agrees to cooperate with each other in taking, or causing
     to be taken, all actions necessary to delist the Company Common Stock from
     NASDAQ and to terminate registration under the Exchange Act, provided that
     such delisting and termination shall not be effective until after the
     Effective Time of the Merger.


                              CONDITIONS OF MERGER

         1.53  Conditions to the Obligations of Each Party to Effect the Merger.
               ----------------------------------------------------------------

  The respective obligations of each party to effect the Merger shall be subject
     to the fulfillment at or prior to the Effective Time of each of the
     following conditions:

  (a) This Agreement and the Merger shall have been approved and adopted by the
      affirmative vote of a majority of Shares held by the stockholders of the
      Company, as required under the laws of the State of Delaware;

  (b) No temporary restraining order, preliminary or permanent injunction,
      judgment or other order, decree or ruling nor any statute, rule,
      regulation, SEC stop order or other order shall be in effect which would
      make the acquisition or holding by Purchaser or its Affiliates of Shares
      or shares of Common Stock of the Surviving Corporation illegal or
      otherwise prevent the consummation of the Merger; and

  (c) Upon the written request of either the Purchaser or the Special Committee
      prior to the Closing, the Company shall have delivered to the Purchaser or
      the Special Committee, as applicable, (i) a pro forma balance sheet of the
      Surviving Corporation, on a consolidated basis, as of the Effective Time
      (and reflecting any debt incurred by the Surviving Corporation to finance
      the Merger), (ii) projections for the Surviving Corporation's operations,
      on a consolidated basis, for such period reasonably necessary to deliver
      the certificate described in clause (iii) below, and (iii) a Solvency
      Certificate (as hereinafter defined), duly executed by the Company's Chief
      Financial Officer or

                                       24
<PAGE>

      such other mutually acceptable person, in form and substance reasonably
      satisfactory to the Purchaser or the Special Committee, as applicable.

         1.54  Conditions Precedent to Purchaser's Obligations.
               -----------------------------------------------

  In addition to the conditions set forth in Section 5.1, the Purchaser shall be
     obligated to perform the acts contemplated for performance by them under
     Article I only if each of the following conditions is satisfied at or prior
     to the Closing Date, unless any such condition is waived in writing by
     Purchaser:

  (a) The receipt of cash proceeds from debt and equity financings sufficient to
      consummate the transactions contemplated by this Agreement ("Financing
      Condition").

  (b) The representations and warranties of the Company set forth in Article 2
      shall be true and correct in all material respects as of the Closing Date
      with the same force and effect as though made again at and as of the
      Closing Date, except for any representations and warranties that address
      matters only as of a particular date specifically set forth in such
      representation, other than the date hereof, (which shall remain true and
      correct as of such date).

  (c) The Company shall have performed and complied in all material respects,
      individually or in the aggregate, (without giving duplicative effect to
      any materiality qualification contained in the applicable obligation) with
      all other covenants and agreements contained in this Agreement required to
      be performed or complied with by it on or before the Closing Date.

  (d) Since the date of this Agreement, there shall not have been the occurrence
      of any event or condition, or series of events or conditions, that has had
      or would reasonably be expected to have a Material Adverse Effect.

  (e) The Company shall have executed and delivered to Purchaser at and as of
      the Closing a certificate, duly executed by the Company's Chief Financial
      Officer, in form and substance reasonably satisfactory to Purchaser and
      Purchaser's counsel, certifying that to such officers' knowledge, the
      conditions specified in (b), (c) and (d) have been satisfied.

  (f) The Company shall have obtained the material third party consents
      necessary to consummate the Merger including the consent of Fleet National
      Bank, N.A..

  (g) As of the Effective Time, the effects of the Company Rights Plan shall
      have been eliminated to the Purchaser's reasonable satisfaction.

  (h) Shareholders holding Common Stock representing more than five percent (5%)
      of the Company's outstanding stock shall not have dissented from the
      Merger and exercised their rights under Section 262 of the DGCL.

         1.55  Conditions to Obligations of the Company.
               ----------------------------------------

  In addition to the conditions set forth in Section 5.1, the Company shall be
     obligated to perform the acts contemplated for performance by it under
     Article I only if each of the following conditions is satisfied at or prior
     to the Closing Date, unless any such condition is waived in writing by the
     Company:

                                       25
<PAGE>

  (a) The representations and warranties of the Purchaser set forth in Article
      III shall be true and correct in all material respects as of the Closing
      Date with the same force and effect as though made again at and as of the
      Closing Date, except for any representations and warranties that address
      matters only as of a particular date specifically set forth in the
      particular representation or warranty which shall remain true and correct
      as of such particular date.

  (b) The Purchaser shall have performed and complied in all material respects,
      individually or in the aggregate, (without giving duplicative effect to
      any materiality qualification contained in the applicable obligation) with
      all covenants and agreements contained in this Agreement required to be
      performed or complied with by them on or before the Closing Date.

  (c) The Purchaser shall have deposited with the Exchange Agent the Deposit
      Amount in trust for the benefit of the holders of certificates.

  (d) The Purchaser shall have executed and delivered to the Company at and as
      of the Closing a certificate, duly executed by the Purchaser's President
      and/or Chief Financial Officer, in form and substance reasonably
      satisfactory to the Company and the Company's counsel, certifying that to
      such officers' knowledge, the conditions specified in (a), (b) and (c)
      have been satisfied.


                       TERMINATION, AMENDMENT AND WAIVER

         1.56  Termination.
               -----------

  This Agreement may be terminated, at any time prior to the Effective Time,
     whether before or after approval by the stockholders of the Company:

  (a) by mutual written agreement of the boards of directors of Purchaser and
      the Company; or

  (b) by either Purchaser or Company:

          (i) if any court of competent jurisdiction or other governmental body
     shall have issued an order, decree or ruling or taken any other action
     restraining, enjoining or otherwise prohibiting the Merger and such order,
     decree, ruling or other action shall have become final and non appealable;
     or

          (ii) if there has been a material breach by the other party of any
     representation or warranty set forth in this Agreement unless such breach
     is capable of being cured and is cured within 20 days after the giving of
     written notice of the material breach.

          (iii)  if there has been a material breach by the other party of any
     covenant or agreement set forth in this Agreement unless such breach is
     capable of being cured and is cured within 20 days after the giving of
     written notice of the material breach.

  (c) by Company, in the case of (i), (ii) or (iii) below, or by Purchaser, (i)
      if the Board of Directors shall have approved or recommended or proposed
      publicly to approve or recommend an Acquisition Proposal by a third party,
      or (ii) the Board of Directors or the Special Committee shall have
      withdrawn or modified in a manner adverse to Purchaser its approval or
      recommendation of this Agreement or the transactions contemplated hereby,
      or (iii) the Board of Directors or the Special Committee shall have failed
      to include in the Company Proxy Statement

                                       26
<PAGE>

      such recommendation (including the recommendation that the stockholders
      of the Company vote in favor of the Merger) or publicly announced an
      intention to do any of the foregoing, (iv) if the Company enters into a
      Company Acquisition Agreement, or (v) if there has been a material breach
      by the Company of any covenant or agreement set forth in this Agreement
      including, a material breach of Section 4.5 hereof, which breach arises
      primarily from the actions taken, or the failure to act, by the Special
      Committee, unless such breach is capable of being cured and is cured
      within 20 days after the giving of written notice of the material breach;

  (d) by the Company, pursuant to Section 4.5, in the event the Company has
      complied with all the provisions of Section 4.5 and has determined to
      enter into a Company Acquisition Agreement.

  (e) by either Purchaser or Company, if the Effective Time shall not have
      occurred on or before August 31, 2001, or it becomes manifestly evident
      that the conditions to the transaction shall not be satisfied by such
      date; provided, however, that the right to terminate this agreement under
      this Section 6.1(e) shall not be available to any party whose failure to
      fulfill any obligation under this Agreement shall have principally caused,
      or resulted in, the failure of the Effective Time to occur on or before
      such date.

         1.57  Procedure and Effect of Termination.
               -----------------------------------

  In the event of the termination of this Agreement by the Company or Purchaser
     or both of them pursuant to Section 6.1, the terminating party shall
     provide written notice of such termination to the other party and this
     Agreement shall forthwith become void and there shall be no liability on
     the part of Purchaser or the Company, except as set forth in this Section
     6.2 and in Sections 4.2(b)-(f) and 6.3 of this Agreement. The foregoing
     shall be an exclusive remedy and shall relieve any party for liability for
     any and all damages actually incurred as a result of any breach of this
     Agreement or otherwise, except for any deliberate and wilful breach of this
     Agreement.  Sections 4.2(b)-(f), 6.2, 6.3 and Article VIII of this
     Agreement shall survive the termination of this Agreement.

         1.58  Expenses.
               --------

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

  (b) In the event that the Company or Purchaser terminates this Agreement
      pursuant to Section 6.1(c) or the Company terminates this Agreement
      pursuant to Section 6.1(d), then the Company shall reimburse Purchaser for
      all of the Purchaser's reasonable Expenses (as defined below) as
      liquidated damages; provided, that such Expenses for which Purchaser is
      entitled to reimbursement shall not exceed an amount equal to $400,000.00
      less the aggregate amount of Company obligations paid by the Company
      contemplated by Section 4.16(d) hereof; and provided, however, that such
      limitation of $400,000 shall not be applicable in the event that the
      Company consummates an Acquisition Proposal that was inquired or made
      prior to the termination of this Agreement. Any such payment shall be made
      within five (5) business days after a termination by the Purchaser
      pursuant to Section 6.1(c) or at the time of any termination by the
      Company pursuant to Sections 6.1(c) or 6.1(d). For purposes of this
      Agreement, "Expenses" shall mean out-of-pocket expenses incurred by the
      Purchaser or on its behalf (other than by the Company) in connection with
      the Merger and the consummation of the transactions contemplated by this
      Agreement, (including, reasonable attorneys' fees and disbursements,
      depository fees and expenses, fees payable to the Lending Sources, the
      fees of accountants and

                                       27
<PAGE>

      financial advisors, and filing fees and printing costs). Notwithstanding
      anything to the contrary contained above, in the event that this Agreement
      and the Merger shall not have been approved and adopted by the affirmative
      vote of a majority of the Shares held by the stockholders of the Company
      at a duly called Stockholders' Meeting, then in such event the Purchaser
      shall not be entitled to reimbursement by the Company of any Expenses.

         1.59  Amendment.
               ---------

  This Agreement may be amended by each of the parties by action taken by or on
     behalf of their respective boards of directors at any time prior to the
     Effective Time; provided, however, that (i) such amendment shall be in
     writing signed by all of the parties, and (ii) after adoption of this
     Agreement and the Merger by the stockholders of the Company, no amendment
     may be made without the further approval of the stockholders of the Company
     to the extent such approval is required by applicable law; provided,
     however, that any modification or amendment hereto shall have been approved
     by the Special Committee.

         1.60  Waiver.
               ------

  Subject to the requirements of applicable law, at any time prior to the
     Effective Time, whether before or after the Special Meeting, any party
     hereto, by action taken by its Board of Directors, may (i) extend the time
     for the performance of any of the obligations or other acts of any other
     party hereto or (ii) waive compliance with any of the agreements of any
     other party or with any conditions to its own obligations; provided,
     however, that any waiver by the Company shall have been approved by the
     Special Committee.  Any agreement on the part of a party hereto to any such
     extension or waiver shall be valid only if set forth in an instrument in
     writing signed on behalf of such party by a duly authorized officer of such
     party. Notwithstanding the above, any waiver given shall not apply to any
     subsequent failure of compliance with agreements of the other party or
     conditions to its own obligations.

         1.61  Termination decisions by the Company.
               ------------------------------------

  The Board of Directors shall terminate this Agreement in connection with any
     action by the Special Committee contemplated by Section 6.1(c)(ii) or (iii)
     hereof upon, and only upon, the recommendation of the Special Committee.

                                  ARTICLE II
                                  DEFINITIONS

     As used herein the following terms not otherwise defined have the following
respective meanings:

     "Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person. As used
in this definition the term "control" (including the terms "controlled by" and
"under common control with") means, with respect to the relationship between or
among two or more Persons, the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership,

                                       28
<PAGE>

directly or indirectly, of securities having the power to elect a majority of
the board of directors or similar body governing the affairs of such Person.

    "Company Rights Plan" means the Company's stockholder rights plan pursuant
to a Rights Agreement dated as of April 11, 2000, between the Company and
Continental Stock Transfer and Trust Company as Rights Agreement.

     "Indebtedness" means (i) all indebtedness of the Company or any of its
Subsidiaries for borrowed money, whether current or funded, or secured or
unsecured, (ii) all indebtedness of the Company or any of its Subsidiaries for
the deferred purchase price of property or services represented by a note or
other security, (iii) all indebtedness of the Company created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by the Company or any of its Subsidiaries (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all indebtedness of
the Company or any of its Subsidiaries secured by a purchase money mortgage or
other lien to secure all or part of the purchase price of property subject to
such mortgage or lien, (v) all obligations under leases which shall have been or
must be, in accordance with generally accepted accounting principles, recorded
as capital leases in respect of which the Company or any of its Subsidiaries is
liable as lessee,(vi) any liability of the Company or any of its Subsidiaries in
respect of banker's acceptances or letters of credit, and (vii) all indebtedness
referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above which is
directly or indirectly guaranteed by the Company or any of its Subsidiaries or
which the Company or any of its Subsidiaries has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which it has
otherwise assured a creditor against loss.

     "Material Adverse Effect" means any material adverse effect on the
business, properties, assets, results of operations or financial condition of
the Company and its Subsidiaries taken as a whole.

     "Person" means any corporation, association, partnership, limited liability
company, organization, business, individual, government or political subdivision
thereof or governmental agency.

   "Solvency Certificate" shall mean a certificate of the Chief Financial
Officer of the Company regarding solvency matters of the Company in
substantially the form previously delivered by the Company to the Purchaser.

     "Subsidiary" means, with respect to any Person, any corporation a majority
(by number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof, even
though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.

     "Tax" or "Taxes" means any federal, state, local, or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, intangibles, social security,
unemployment, disability, payroll, license, employee, or other tax or levy, of
any kind whatsoever, including any interest, penalties, or additions to tax in
respect of the foregoing.

                                       29
<PAGE>

                                 MISCELLANEOUS

         2.1  Severability.
              ------------

  If any term or other provision of this Agreement is invalid, illegal or
     incapable of being enforced by rule of law or public policy, all other
     conditions and provisions of this Agreement shall nevertheless remain in
     full force and effect so long as the economic or legal substance of the
     transactions contemplated hereby is not affected in any manner adverse to
     any party. Upon such determination that any term or other provision is
     invalid, illegal or incapable of being enforced, the parties hereto shall
     negotiate in good faith to modify this Agreement so as to effect the
     original intent of the parties as closely as possible in an acceptable
     manner to the end that transactions contemplated hereby are fulfilled to
     the extent possible.

         2.2  Notices.
              -------

  All notices and other communications given or made pursuant hereto shall be in
     writing and shall be deemed to have been duly given or made as of the date
     delivered if sent via telecopier or delivered personally(including, without
     limitation, delivery by commercial carrier warranting next-day delivery) to
     the parties at the following addresses (or at such other address for a
     party as shall be specified by similar notice, except that notices of
     changes of address shall be effective upon receipt):

          (a)  If to Company:
               Specialty Catalog Corp.
               21 Bristol Drive
               South Easton, MA 02375
               Attention:  Special Committee
               Fax:        (508) 238-3305

               With copies to:
               Sullivan & Cromwell
               125 Broad Street
               New York, New York 10004
               Attention:  Stephen Kotran, Esq.
               Fax:        (212) 558-3588

               If to Purchaser:
               Specialty Acquisition Corp.
               c/o Kane Kessler, P.C.
               1350 Avenue of the Americas
               26th Floor
               New York, New York  10019
               Attn:  Guy Naggar and
                      Jeffrey S. Tullman, Esq.
               Fax:  (212) 245-3009

               With copies to:
               Kane Kessler, P.C.
               1350 Avenue of the Americas
               New York, New York 10019

                                       30
<PAGE>

               Attention: Robert L. Lawrence, Esq.
               Fax: (212) 245-3009

         2.3  Headings.
              --------

  The headings contained in this Agreement are for reference purposes only and
     shall not affect in any way the meaning or interpretation of this
     Agreement.  Any reference in this Agreement to a section, exhibit or
     schedule shall, unless otherwise expressly indicated, refer to a section of
     or an exhibit or schedule to this Agreement.

         2.4  Representations and Warranties, etc.
              -----------------------------------

  The respective representations and warranties of the Company and Purchaser
     contained herein shall survive until, and shall expire with, and be
     terminated and extinguished upon the earlier to occur of (a) the
     termination of this Agreement pursuant to Section 6.1 and (b) the Effective
     Time. This Section 8.4 shall have no effect upon any other obligation of
     the parties hereto, whether to be performed before or after the
     consummation of the Merger.

         2.5  Miscellaneous.
              -------------

  This Agreement and the documents delivered pursuant hereto or in connection
     herewith (i) constitute the entire agreement and supersede all other prior
     agreements and undertakings, both written and oral (including, without
     limitation, any agreement or proposed agreement relating to the timing of
     execution of this Agreement and the payment of any amount in connection
     therewith), among the parties, or any of them, with respect to the subject
     matter hereof, (ii) are not intended to confer upon any Person other than
     the parties hereto any rights or remedies hereunder, other than Sections
     4.8 (which is intended for the benefit of the present and former directors,
     officers, employees and agents of the Company and may be enforced by any
     such indemnified persons), and (iii) the Purchaser may assign this
     Agreement to its lenders as collateral security; provided, however, that no
     such assignment shall relieve the assignor of its obligations hereunder.
     This Agreement may be executed in one or more counterparts which together
     shall constitute a single agreement.

         2.6  Attorneys Fees.
              --------------

  If any legal proceeding is initiated by any party to enforce this Agreement
     or otherwise with respect to the subject matter of this Agreement, the
     prevailing party or parties shall be entitled to recover reasonable
     attorney's fees incurred in connection with such proceedings.

         2.7  Governing Law.
              -------------

  This Agreement shall be governed by, and construed in accordance with, the
     laws of Delaware, regardless of the laws that might otherwise governs under
     applicable principals of conflicts of laws thereof.

         2.8  Jurisdiction and Venue.
              ----------------------

  This Agreement shall be subject to the exclusive jurisdiction of the state or
     federal courts sitting in New York County, New York.  The parties to this
     Agreement agree that any breach of any term or condition of this Agreement
     shall be deemed to be a breach occurring in the State of New York by virtue
     of a failure to perform an act required to be performed in the State of New
     York and

                                       31
<PAGE>

     irrevocably and expressly agree to submit to the jurisdiction of the United
     States District Court for the Southern District of New York or courts of
     the State of New York for the purpose of resolving any disputes among the
     parties relating to this Agreement or the transactions contemplated hereby.
     The parties irrevocably waive, to the fullest extent permitted by law, any
     objection which they may now or hereafter have to the laying of venue of
     any suit, action or proceeding arising out of or relating to this
     Agreement, or any judgment entered by any court in respect hereof brought
     in New York County, New York, and further irrevocably waive any claim that
     any suit, action or proceeding brought in New York County, New York has
     been brought in an inconvenient forum. The parties hereto agree to service
     of process by certified or registered United States mail, postage prepaid,
     addressed to the party in question.

         2.9  Binding Effect.
              --------------


This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.

         2.10  Assignment.
               ----------

  This Agreement may not be assigned by any party without the written consent of
     the other party; provided, that the Purchaser may assign this Agreement to
     a corporation, partnership, or limited liability company of which the
     stockholders of the Purchaser maintain majority control.

         2.11  Further Assurances.
               ------------------

  The parties hereto shall deliver any and all other instruments or documents
     reasonably requested by the other party in order to give effect to all of
     the terms and provisions of this Agreement.

         2.12  Publicity.
               ---------

  No public announcement or other publicity regarding this Agreement or the
     transactions contemplated hereby shall be made without the prior written
     consent of the Purchaser and the Company as to form, content, timing and
     manner of distribution.  Notwithstanding the foregoing, nothing in this
     Agreement shall preclude the Company from making any public announcement or
     filing required pursuant to any federal or state securities laws or stock
     exchange rules; provided that prior to such filing Purchaser shall be given
     a reasonable opportunity to review and comment on such public announcement
     or filing.


                            [SIGNATURE PAGE FOLLOWS]

                                       32
<PAGE>

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


                              SPECIALTY ACQUISITION CORP.


                              By: /s/ Guy Naggar
                                 -----------------------------------
                                 Name: Guy Naggar
                                 Title: President



                              SPECIALTY CATALOG CORP.


                              By: /s/ Thomas McCain
                                 -----------------------------------
                                 Name: Thomas McCain
                                 Title: Senior Vice President and
                                        Chief Financial Officer

                                       33