Document:

EXHIBIT 10.3

                               PURCHASE AGREEMENT

                                      among

                                  PEAPOD, INC.,
                             a Delaware corporation

                                       and

                             KONINKLIJKE AHOLD N.V.

                           __________________________

                                      Dated

                                 April 14, 2000

                           ___________________________

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

DEFINITIONS....................................................................1

                                   ARTICLE II

SALE AND PURCHASE..............................................................9

         SECTION 2.1.  Sale and Issuance of Shares and Warrants................9
         SECTION 2.2.  Closings...............................................10

                                   ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................11

         SECTION 3.1.  Organization and Standing..............................11
         SECTION 3.2.  Capital Stock..........................................11
         SECTION 3.3.  Subsidiaries...........................................12
         SECTION 3.4.  Authorization; Enforceability..........................12
         SECTION 3.5.  No Violation; Consents.................................13
         SECTION 3.6.  Permits................................................14
         SECTION 3.7.  Litigation.............................................14
         SECTION 3.8.  SEC Documents; Financial Statements....................14
         SECTION 3.9.  Change in Condition....................................15
         SECTION 3.10.  Employee Benefit Plans and Labor Matters..............16
         SECTION 3.11.  Interests in Real Property............................20
         SECTION 3.12.  Leases................................................21
         SECTION 3.13.  Compliance with Law...................................21
         SECTION 3.14.  Related Party Transactions............................21
         SECTION 3.15.  Tax Matters...........................................22
         SECTION 3.16.  Environmental Matters.................................23
         SECTION 3.17.  Intellectual Property.................................25
         SECTION 3.18.  Registration Rights...................................28
         SECTION 3.19.  Insurance.............................................28
         SECTION 3.20.  Contracts.............................................29
         SECTION 3.21.  Questionable Payments.................................30
         SECTION 3.22.  Accuracy of Information...............................31
         SECTION 3.23.  Private Offering......................................31
         SECTION 3.24.  Split Pea.............................................31
         SECTION 3.25.  Brokers...............................................31
         SECTION 3.26.  Voting and Proxy Agreements...........................32
         SECTION 3.27.  Rights Agreement......................................32
         SECTION 3.28.  Determination of Amount of Capital....................33
         SECTION 3.29.  Fairness Opinion......................................33
         SECTION 3.30  State Takeover Statutes................................33
         SECTION 3.31.  Malloy Stock, Options and Note........................33
         SECTION 3.32  Other Interests........................................33
         SECTION 3.33  Books and Records......................................33
         SECTION 3.34  Personal Property......................................34
         SECTION 3.35  Accounts Receivable....................................34
         SECTION 3.36  Inventory..............................................34
         SECTION 3.37  Product Liability......................................34
         SECTION 3.38  Copies of Documents....................................35

                                   ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............................35

         SECTION 4.1.  Authorization; Enforceability; No Violations...........35
         SECTION 4.2.  Consents...............................................35
         SECTION 4.3.  Private Placement......................................36

                                    ARTICLE V

COVENANTS OF THE COMPANY......................................................36

         SECTION 5.1.  Operation of Business..................................36
         SECTION 5.2.  Negative Covenants.....................................37
         SECTION 5.3.  Access to Books and Records............................41
         SECTION 5.4.  Agreement to Take Necessary and
                         Desirable Actions....................................42
         SECTION 5.5.  Compliance with Conditions;
                         Commercially Reasonably Efforts......................42
         SECTION 5.6.  Consents and Approvals.................................42
         SECTION 5.7.  Stockholder Approval...................................42
         SECTION 5.8.  Tax Treatment of Preferred Stock.......................43
         SECTION 5.9.  Other Activities of Purchaser..........................43
         SECTION 5.10.  HSR Act Filings.......................................43
         SECTION 5.11.  No Solicitation.......................................44
         SECTION 5.12.  Use of Proceeds.......................................46
         SECTION 5.13.  Reduction of Capital..................................46
         SECTION 5.14.  Amendment of Bylaws...................................46
         SECTION 5.15.  Transfer Agent; CUSIP.................................46
         SECTION 5.16.  Notification of Certain Matters.......................46
         SECTION 5.17.  Malloy Shares.........................................47

                                   ARTICLE VI

COVENANTS OF THE PURCHASER....................................................47

         SECTION 6.1.  Agreement to Take Necessary and Desirable Actions......47
         SECTION 6.2.  Compliance with Conditions; Commercially
                         Reasonable Efforts...................................47
         SECTION 6.3.  HSR Act Filings........................................47
         SECTION 6.4.  Confidential Information...............................48
         SECTION 6.5   Notification of Certain Matters........................48
         SECTION 6.6   Restrictions on Mergers................................49

                                   ARTICLE VII

CONDITIONS PRECEDENT TO CLOSING...............................................49

         SECTION 7.1.  Conditions to the Company's Obligations................49
         SECTION 7.2.  Conditions to The Purchaser's Obligations..............50

                                  ARTICLE VIII

INFORMATION; DIRECTORS; RESERVATION OF STOCK..................................53

         SECTION 8.1.  Access to Information..................................53
         SECTION 8.2.  Information Rights of Purchaser........................53
         SECTION 8.3.  Information Rights.....................................55
         SECTION 8.4.  Directors..............................................55
         SECTION 8.5. Reservation of Common Stock.............................57

                                   ARTICLE IX

MISCELLANEOUS.................................................................58

         SECTION 9.1.  Survival; Indemnification..............................58
         SECTION 9.2.  Notices................................................60
         SECTION 9.3.  Governing Law..........................................62
         SECTION 9.4.  Termination; Fees......................................62
         SECTION 9.5.  Entire Agreement.......................................63
         SECTION 9.6.  Modifications and Amendments...........................63
         SECTION 9.7.  Waivers and Extensions.................................63
         SECTION 9.8.  Titles and Headings; Interpretation....................63
         SECTION 9.9.  Exhibits and Schedules.................................63
         SECTION 9.10.  Expenses; Brokers.....................................63
         SECTION 9.11.  Press Releases and Public Announcements...............64
         SECTION 9.12.  Assignment; No Third Party Beneficiaries..............64
         SECTION 9.13.  Severability..........................................64
         SECTION 9.14.  Counterparts; Facsimile...............................64
         SECTION 9.15.  Further Assurances....................................65
         SECTION 9.16.  Remedies Cumulative...................................65

<PAGE>
                                    SCHEDULES

Schedule I           Series B Preferred Stock and Warrants to be Purchased

Schedule 3.2         Capital Stock
Schedule 3.3         Subsidiaries
Schedule 3.5         No Violation; Consents
Schedule 3.7         Litigation
Schedule 3.8         SEC Documents; Financial Statements
Schedule 3.9         Change in Condition
Schedule 3.10        Employee Benefit Plans and Labor Matters
Schedule 3.10(n)     Employee Severance Arrangements
Schedule 3.11        Interests in Real Property
Schedule 3.12        Leases
Schedule 3.13        Compliance with Law
Schedule 3.14        Related Party Transactions
Schedule 3.17        Intellectual Property
Schedule 3.18        Registration Rights
Schedule 3.20        Contracts
Schedule 3.31        Malloy Agreement
Schedule 3.32        Other Interests
Schedule 5.1(d)      Key Employees
Schedule 5.2         Negative Covenants

                                       EXHIBITS

Exhibit A.........   Credit Agreement
Exhibit B.........   Amended and Restated Security Agreement
Exhibit C            Amended and Restated Collateral Assignment of
                       Intellectual Property Agreement
Exhibit D.........   Registration Rights Agreement
Exhibit E.........   Services Agreement
Exhibit F.........   Voting Agreement
Exhibit G.........   Warrant (Credit Agreement)
Exhibit H.........   Warrant (Preferred Stock)
Exhibit I.........   Certificate of Designation
Exhibit J.........   Opinion of Sidley & Austin

<PAGE>
                               PURCHASE AGREEMENT

     THIS PURCHASE AGREEMENT (this "Agreement") is made as of April 14, 2000, by
and among Peapod, Inc., a Delaware corporation (the "Company"),  and KONINKLIJKE
AHOLD N.V., a public company with limited liability organized and existing under
the laws of the Netherlands (the "Purchaser").

     WHEREAS,  in  contemplation  of this  Agreement,  the  Company  issued  the
Promissory  Note  dated  April  5,  2000 in  favor  of  BEW,  Inc.,  a  Delaware
Corporation ("BEW"), an Affiliate of the Purchaser,  and entered into a Security
Agreement  dated  April 5, 2000  with BEW (as  amended,  the "Note and  Security
Agreement"), whereby BEW advanced $3,000,000 to the Company;

     WHEREAS,  in  connection  with the Note and Security  Agreement the Company
issued a warrant (the "Previously Issued Warrant") dated April 10, 2000 in favor
of the Purchaser, for 100,000 shares of Common Stock (as defined below);

     WHEREAS,  in connection with the execution of this  Agreement,  the Company
will enter  into the  Credit  and  Security  Agreements  (as  defined  below) to
refinance the Note and Security Agreement;

     WHEREAS,  on the date hereof A. Michael Meurs,  Steve Odland and William J.
Grice,  nominees of the  Purchaser,  have been  appointed  as  directors  of the
Company;

     WHEREAS,  the Board of  Directors  of the Company has approved the issue of
the  Securities  (as defined  below) by the Company to the Purchaser and each of
the Supervisory  Board and the Executive Board of the Purchaser has approved the
subscription of the Securities by the Purchaser; and

     WHEREAS,  in connection with the execution of this  Agreement,  the Company
will enter into a Services  Agreement  (as defined  below) for the  provision of
services between the Company and the Purchaser and its Affiliates, and the other
Documents (as defined below);

     NOW, THEREFORE, the parties hereto hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     As used in this  Agreement,  the  following  terms shall have the following
meanings:

     "Affiliate"  shall  mean,  with  respect to any  person,  any other  person
directly or indirectly  controlling or controlled by or under direct or indirect
common control with such specified  person and, shall include (a) in the case of
a person who is an individual,  (i) members of such specified person's immediate
family (as defined in  Instruction 2 of Item 404(a) of Regulation  S-K under the
Securities Act) and (ii) trusts,  the trustee and all beneficiaries of which are
such specified person or members of such person's immediate family as determined
in accordance with the foregoing clause (i), and (b) any person that directly or
indirectly  owns more than 5% of any class of capital stock or other interest of
such specified person. For the purposes of this definition, "control," when used
with respect to any person means the power to direct the management and policies
of such person, directly or indirectly,  whether through the ownership of voting
securities, by contract or otherwise; and the terms "affiliated,"  "controlling"
and "controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, for purposes of this Agreement, Nevis, Tribune, the Purchaser and its
Affiliates shall not be deemed Affiliates of the Company.

     "Associates" shall have the meaning provided in the Rights Agreement.

     "Aggregate Number" shall have the meaning set forth in Section 2.1(b).

     "Agreement" shall have the meaning set forth in the Preamble.

     "Alternative Transaction" shall have the meaning set forth in Section 5.11.

     "Alternative Transaction Documentation" shall have the meaning set forth in
Section 5.11.

     "Applicable Law" shall mean, with respect to any person,  any law, statute,
rule,  regulation,   order,  writ,   injunction,   judgment  or  decree  of  any
Governmental  Authority to which such person or any of its subsidiaries is bound
or to which any of their respective properties is subject.

     "Audited  Financial  Statements"  shall  have  the  meaning  set  forth  in
Section 3.8.

     "Benefit Plan" shall have the meaning set forth in Section 3.10.

     "BEW" shall have the meaning set forth in the Recitals.

     "Business Day" shall mean any day except a Saturday,  a Sunday or any other
day on which  commercial  banks are required or  authorized to close in Chicago,
Illinois or New York, New York.

     "Certificate  of  Designation"  shall have the meaning set forth in Section
2.1.

     "Charter"  with respect to any  corporation  shall mean the  certificate of
incorporation or articles of incorporation of such corporation.

     "Closing" shall have the meaning set forth in Section 2.1(b).

     "Closing Date" shall have the meaning set forth in Section 2.2(a).

     "Code" shall mean have the meaning set forth in Section 3.10.

     "Commission"   shall  mean  the  United  States   Securities  and  Exchange
Commission.

     "Commitments" shall have the meaning set forth in Section 3.20.

     "Common  Stock" shall mean the common stock,  par value $.01 per share,  of
the Company.

     "Company" shall have the meaning set forth in the Preamble.

     "Credit and Security  Agreements"  shall mean the Credit  Agreement,  to be
entered  into by and between the Company and the  Purchaser  on the date hereof,
substantially in the form attached as Exhibit A hereto (the "Credit Agreement"),
the Amended and Restated Security  Agreement,  dated as of April 5, 2000, by and
among BEW, the Purchaser and the Company,  substantially in the form attached as
Exhibit B hereto, the Amended and Restated Collateral Assignment of Intellectual
Property  Agreement,  to be entered  into by and between the  Purchaser  and the
Company,  on the date hereof,  substantially  in the form  attached as Exhibit C
hereto,  together with all documents,  agreements,  certificates and instruments
entered into in connection therewith on or after the date hereof.

     "Date Data" shall have the meaning set forth in Section 3.17(l).

     "DGCL" shall mean the Delaware General Corporation Law.

     "Documents"  shall mean (i) this  Agreement,  (ii) the Warrants,  (iii) the
Certificate of Designation,  (iv) the  Registration  Rights  Agreement,  (v) the
Credit and Security  Agreements,  (v) the Services Agreement,  (vi) the Wareroom
License Agreement,  (vii) the Technology Partnership and License Agreement,  and
(viii) the Voting Agreements.

     "Employee" shall have the meaning set forth in Section 3.10.

     "Environmental Claim" shall have the meaning set forth in Section 3.16(c).

     "Environmental Laws" shall have the meaning set forth in Section 3.16(a).

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended.

     "ERISA Affiliate" shall mean with respect to any person (within the meaning
of section 3(9) of ERISA) any other person that would be regarded  together with
such person as a single  employer under section  414(b),  (c), (m) or (o) of the
Code.

     "Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

     "Final Closing" shall have the meaning set forth in Section 2.1(b).

     "Final Closing Date" shall have the meaning set forth in Section 2.1(b).

     "Financial  Statements" shall mean the Audited Financial Statements and the
Interim Financial Statements.

     "GAAP" shall mean generally accepted accounting principles set forth in the
opinions and  pronouncements of the Accounting  Principles Board of the American
Institute of Certified Public  Accountants and statements and  pronouncements of
the Financial Accounting Standards Board, which are in effect from time to time,
consistently applied.

     "Governmental  Authority" shall mean any foreign,  Federal,  state or local
court or governmental or regulatory authority.

     "Holder"  shall mean any  person  that is the  beneficial  owner of Shares,
Warrants,  or shares of Common  Stock issued upon  conversion  of Shares or upon
exercise of Warrants,  as a result of the sale,  assignment or other transfer of
Securities  originally  issued to the  Purchaser  or issuable or issued upon the
conversion or exercise of any such Securities.

     "Houlihan Lokey" shall have the meaning set forth in Section 3.25.

     "HSR Act" shall mean the  Hart-Scott-Rodino  Antitrust  Improvements Act of
1976, as amended,  and applicable  rules and  regulations  and any similar state
acts.

     "HSR Approval"  shall mean the expiration of all waiting  periods under the
HSR Act applicable to the issuance of Series B Preferred  Stock as  contemplated
by the Documents.

     "Indemnified Party" shall have the meaning set forth in Section 9.1(c).

     "Indemnifying Party" shall have the meaning set forth in Section 9.1(c).

     "Intellectual  Property"  shall mean all domestic  and foreign  trademarks,
service marks, trade names,  corporate and business names, brand names, Internet
domain names, universal resource locators ("URLs"), designs, logos, trade dress,
slogans,  and general  intangibles  of like nature,  together with all goodwill,
registrations   and  applications   related  to  the  foregoing   (collectively,
"Trademarks");  patents and industrial  designs  (including  any  continuations,
divisionals,   continuations-in-part,   renewals,  provisionals,  reissues,  and
applications for any of the foregoing);  copyrights (including any registrations
and applications for any of the foregoing);  Software;  "mask works" (as defined
under 17 USC  section  901) and any  registrations  and  applications  for "mask
works"; inventions (whether or not patentable), invention disclosures, moral and
economic rights of authors and inventors (however  denominated),  technical data
and  customer   lists;   technology,   trade  secrets  and  other   confidential
information,  know-how, proprietary processes, formulae, algorithms, models, and
methodologies (whether or not patentable)  (collectively,  "Trade Secrets"); all
improvements  and  refinements of any of the foregoing;  rights of publicity and
privacy  relating to the use of the names,  likenesses,  voices,  signatures and
biographical  information of real persons; in each case used in or necessary for
the business of the Company and any Subsidiary.

     "Key Stockholders" shall mean Tribune,  Nevis, Thomas L. Parkinson,  Andrew
B.  Parkinson,  Trygve E.  Myhren,  Robert S.  Goodale,  Tasso H. Coin,  Seth L.
Pierrepont, Mark VanStekelenburg and Drayton McLane.

     "Leases" shall have the meaning set forth in Section 3.12.

     "License Agreements" shall have the meaning set forth in Section 3.17.

     "Lien"  shall  mean  any  pledge,  lien,  claim,  restriction,   charge  or
encumbrance of any kind.

     "Malloy Agreement" shall have the meaning set forth in Section 3.31.

     "Material  Adverse Effect" shall mean a material  adverse effect (i) on the
business, operations,  prospects,  properties,  earnings, assets, liabilities or
condition  (financial or other) of the Company and its Subsidiaries,  taken as a
whole,  or (ii) on the  ability  of the  Company or any of its  Subsidiaries  to
perform its obligations hereunder or under any of the other Documents.

     "Materials of  Environmental  Concern"  shall have the meaning set forth in
Section 3.16.

     "NASD" shall mean the National Association of Security Dealers.

     "NASDAQ" shall mean the NASDAQ quotation system, or any successor reporting
system.

     "Nevis" shall mean Nevis Capital Management, Inc., a Maryland corporation.

     "Note and  Security  Agreement"  shall  have the  meaning  set forth in the
Recitals.

     "Notices" shall have the meaning set forth in Section 9.2.

     "PBGC" shall have the meaning set forth in Section 3.10.

     "Permitted  Liens" shall mean:  (i) liens for Taxes and other  governmental
charges and assessments arising in the ordinary course of business which are not
yet  due  and  payable,   (ii)  liens  of  landlords   and  liens  of  carriers,
warehousemen,  mechanics  and  materialmen  and other like liens  arising in the
ordinary  course of business for sums not yet due and payable  (iii) other liens
or imperfections on property which are not material in amount,  do not interfere
with, and are not violated by, the consummation of the transactions contemplated
by this Agreement, and do not impair the marketability of, or materially detract
from the  value of or  materially  impair  the  existing  use of,  the  property
affected by such lien or  imperfection,  and (iv) liens  created or  permissible
under the Credit and Security Agreements.

     "Permitted Transferee" shall mean any person.

     "person"  shall  mean any  individual,  partnership,  corporation,  limited
liability  company,  joint venture,  association,  joint-stock  company,  trust,
unincorporated  organization,  government  or  agency or  political  subdivision
thereof, or other entity.

     "Preferred Stock" shall mean the preferred stock, par value $.01 per share,
of the Company.

     "Previously  Issued  Warrant"  shall  have  the  meaning  set  forth in the
Recitals.

     "Purchaser" shall have the meaning set forth in the Preamble.

     "Purchaser  Nominees"  shall mean the nominees of the Purchaser to serve as
directors of the Company.

     "Registration   Rights  Agreement"  shall  mean  the  Registration   Rights
Agreement to be entered  into by and among the Company and the  Purchaser on the
date hereof, substantially in the form attached as Exhibit D hereto.

     "Related Party" shall have the meaning set forth in Section 3.14.

     "Rights" shall have the meaning set forth in Section 3.27.

     "Rights Agreement" shall have the meaning set forth in Section 3.5.

     "SEC Documents" shall have the meaning set forth in Section 3.8(c).

     "Securities" shall mean the Shares and the Warrants.

     "Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.

     "Series B Preferred  Stock" shall mean the Series B  Convertible  Preferred
Stock, par value $0.01 per share, of the Company.

     "Services  Agreement"  shall mean the Supply and  Services  Agreement to be
entered into by and between the Company and the Purchaser or its  Affiliate,  on
the date hereof, substantially in the form attached as Exhibit E hereto.

     "Shares" shall mean the shares of Series B Preferred Stock to be issued and
sold by the Company to the Purchaser under Section 2.1(b) hereof.

     "Software" shall mean any and all (a) computer programs,  including any and
all software implementation of algorithms, models and methodologies,  whether in
source code or object code form, (b) databases and  compilations,  including any
and all data and  collections  of data, (c) designs,  processes,  procedures and
data collectors, and (d) all documentation,  including user manuals and training
materials, relating to any of the foregoing.

     "Split Pea" shall have the meaning set forth in Section 3.24.

     "Stockholder Approval" shall have the meaning set forth in Section 5.7.

     "Stockholder Meeting" shall have the meaning set forth in Section 5.7.

     "Subsequent Filings" shall have the meaning set forth in Section 3.8.

     "subsidiary"  shall mean,  with respect to any person,  (a) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such person,
by a subsidiary of such person,  or by such person and one or more  subsidiaries
of such person,  (b) a partnership  in which such person or a subsidiary of such
person is, at the date of determination,  a general partner of such partnership,
or (c) any other  person  (other than a  corporation)  in which such  person,  a
subsidiary  of such person or such person and one or more  subsidiaries  of such
person, directly or indirectly, at the date of determination thereof, has (i) at
least a  majority  ownership  interest,  (ii) the power to elect or  direct  the
election of the directors or other  governing body of such person,  or (iii) the
power to direct or cause the  direction  of the  affairs or  management  of such
person.  For purposes of this definition,  a person is deemed to own any capital
stock or other  ownership  interest if such person has the right to acquire such
capital stock or other ownership  interest,  whether through the exercise of any
purchase option, conversion privilege or similar right.

     "Subsidiary" shall mean a subsidiary of the Company.

     "Taxes" shall mean all foreign,  Federal, State and local taxes, including,
without limitation, any interest,  penalties or additions to tax that may become
payable in respect thereof,  imposed by any Governmental Authority,  which taxes
shall include,  without  limiting the  generality of the  foregoing,  all income
taxes,   profits,   capital  gains,  payroll  and  employee  withholding  taxes,
unemployment  insurance,  social  security,  sales and use taxes,  excise taxes,
franchise  taxes,  gross receipts  taxes,  occupation  taxes,  real and personal
property taxes, stamp taxes,  transfer taxes,  workmen's  compensation taxes and
other obligations of the same or a similar nature, whether arising before, on or
after the Closing  Date and shall  include any  liability  for such amounts as a
result  of  either  being a  member  of a  combined,  consolidated,  unitary  or
affiliated group or of a contractual obligation to indemnify any person or other
entity.

     "Tax Returns" shall mean all returns, declarations,  statements, schedules,
forms, reports, information returns or other documents (including any related or
supporting  information),  and any amendments  thereto,  filed or required to be
filed with any  Governmental  Authority in  connection  with the  determination,
assessment, collection or administration of any Taxes.

     "Technology  Partnership and License  Agreement"  shall mean the Technology
Partnership and License  Agreement to be entered into by and between the Company
and the Purchaser or its Affiliate,  on or prior to the first  Closing,  in form
and substance, reasonably satisfactory to the Company and the Purchaser.

     "Threshold  Securities"  shall mean a number of  securities  of the Company
that constitute, or if exercised, exchanged or converted into Common Stock would
constitute, at least 10% of the aggregate issued and outstanding Common Stock.

     "Trade  Secrets"  shall have the  meaning  set forth in the  definition  of
"Intellectual Property" in this Article I.

     "Trademarks"  shall  have  the  meaning  set  forth  in the  definition  of
"Intellectual Property" in this Article I.

     "Tribune"  shall  mean  Tribune  National  Marketing  Company,  a  Delaware
corporation.

     "Voting  Agreements"  shall mean one or more voting  agreements dated April
14, 2000, by and among the Key Stockholders substantially in the form of Exhibit
F hereto.

     "Wareroom  License  Agreement" shall mean the Wareroom License Agreement to
be entered into by and between the Company and the  Purchaser or its  Affiliate,
on or  prior to the  first  Closing,  substantially  in the  form of  Exhibit  B
attached to the Services Agreement.

     "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act
of 1988, as amended, and any applicable state or local law with regard to "plant
closings"  or  "mass  layoffs"  as such  terms  are  defined  in the WARN Act or
applicable state or local law.

     "Warrants"  shall mean the Warrant  (Credit  Agreement) to be issued on the
date hereof by the Company in favor of the  Purchaser to purchase  Common Stock,
substantially  in the  form of  Exhibit  G  attached  hereto,  and  the  Warrant
(Preferred  Stock) to be  issued by the  Company  in favor of the  Purchaser  to
purchase Common Stock,  substantially  in the form of Exhibit H attached hereto,
in accordance with Section 2.1(b).

     "Wasserstein" shall have the meaning set forth in Section 3.25.

     "Year 2000 Compliance" shall have the meaning set forth in Section 3.17.

                                   ARTICLE II

                                SALE AND PURCHASE

     SECTION 2.1. Sale and Issuance of Shares and Warrants.

     (a) On the date hereof and  concurrently  with the  execution of the Credit
and  Security  Agreements,  the  Purchaser  shall  purchase  and accept from the
Company the Warrants  (Credit  Agreement)  for the purchase  price  indicated on
Schedule I.

     (b)  Upon  the  terms  and  subject  to the  conditions  set  forth in this
Agreement,  the Company shall issue and the Purchaser  shall purchase and accept
from the  Company  the number  (the  "Aggregate  Number")  of shares of Series B
Preferred Stock and Warrants (Preferred Stock) for the purchase prices indicated
on Schedule I as soon as  practicable  after all of the  conditions set forth in
Article VII hereof shall have been satisfied or duly waived, including,  without
limitation,  receipt of Stockholder  Approval,  but in no event later than three
Business  Days  thereafter  (the  "Final  Closing  Date").  Notwithstanding  the
foregoing,  the  Purchaser  shall have the right to purchase  shares of Series B
Preferred Stock and Warrants  (Preferred Stock) in one or more closings,  but no
more than three closings  (each, a "Closing",  and the Closing  occurring on the
Final  Closing  Date,  the  "Final  Closing")  such that the number of shares of
Series B Preferred  Stock and Warrants  equals the Aggregate  Number;  provided,
that,  any such  purchase by Purchaser  shall be in  accordance  with and not in
violation of NASD rules and  regulations.  At each Closing,  the Purchaser shall
purchase  and accept  from the Company  shares of Series B  Preferred  Stock and
Warrants  (Preferred  Stock) on a pro rata basis (for example,  if at a Closing,
the Purchaser  purchases 10% of the shares of Series B Preferred Stock set forth
in Schedule I, the  Purchaser  shall  purchase  10% of the  Warrants  (Preferred
Stock) set forth in Schedule I).

     (c) On or before the first  Closing,  the Company shall adopt and file with
the Secretary of State of Delaware the  Certificate of  Designation  relating to
the Series B Preferred Stock (the "Certificate of  Designation"),  substantially
in the form attached as Exhibit I hereto.

     SECTION 2.2. Closings.

     (a) Each Closing (other than the Final  Closing),  shall take place at 9:00
a.m.,  New York time,  on the date five  Business  Days after the  Purchaser has
provided  written notice to the Company that all of the  conditions  relating to
such Closing set forth in Article VII hereof  shall have been  satisfied or duly
waived or at such  other  time and date as the  parties  hereto  shall  agree in
writing (the "Closing Date"), at the offices of White & Case LLP, 1155 Avenue of
the Americas,  New York,  New York or at such other place as the parties  hereto
shall agree in writing.

     (b) The Final Closing,  shall take place at 9:00 a.m., New York time on the
Final  Closing  Date or at such other time and date as the parties  hereto shall
agree in  writing,  at the  offices  of White & Case  LLP,  1155  Avenue  of the
Americas,  New York, New York or at such other place as the parties hereto shall
agree in writing.

     (c) On each  Closing  Date  (i) the  Purchaser  shall  deposit  into a bank
account  designated by the Company not later than one Business Day prior to such
Closing Date, by wire transfer of immediately  available  funds, an amount equal
to the  aggregate  purchase  price  of the  Securities  being  purchased  by the
Purchaser  from the  Company  pursuant to Section  2.2(a),  and (ii) the Company
shall deliver to the Purchaser,  against payment of the purchase price therefor,
certificates  representing  the  Shares and  Warrants,  being  purchased  by the
Purchaser  pursuant  to Section  2.2(a).  The Shares  and  Warrants  shall be in
definitive  form and  registered  in the name of the Purchaser or its nominee or
designee  and  in  such  denominations  (including  fractional  shares)  as  the
Purchaser  shall  request not later than one  Business  Day prior to the Closing
Date.

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants to the Purchaser as follows:

     SECTION 3.1.  Organization and Standing.  The Company is duly incorporated,
validly existing and in good standing as a domestic  corporation  under the laws
of the State of Delaware and has all requisite  corporate power and authority to
own its  properties  and assets and to carry on its  business as it is now being
conducted  and as proposed to be  conducted.  The Company is duly  qualified  to
transact  business  as a foreign  corporation  and is in good  standing  in each
jurisdiction  in which the character of the properties  owned or leased by it or
the nature of its business makes such qualification necessary,  except where the
failure to so qualify or be in good standing could not,  individually  or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

     SECTION 3.2.  Capital Stock.  On the date hereof,  the  authorized  capital
stock of the Company  will  consist  solely of (a)  50,000,000  shares of Common
Stock and (b)  5,000,000  shares of Preferred  Stock.  Immediately  prior to the
Closing, or if there is more than one Closing, the Final Closing,  following the
filing of the  amendment to the  Company's  Charter  increasing  the  authorized
shares of stock of the Company, the authorized capital stock of the Company will
consist  solely of (a)  100,000,000  shares of Common  Stock and (b)  10,000,000
shares of Preferred  Stock. As of the date hereof,  of the 50,000,000  shares of
Common Stock  authorized,  (i) 18,260,842  shares of Common Stock are issued and
outstanding,  (ii)  3,611,716  shares are  reserved  for  issuance  pursuant  to
outstanding  options and  warrants  and existing  employee  stock  plans,  (iii)
19,369,873  shares are reserved for issuance  upon  conversion  of the shares of
Series B Preferred Stock, (iv) 100,000 shares will be reserved for issuance upon
exercise of the Previously Issued Warrant and 36,460,937 shares will be reserved
for  issuance  upon  exercise of the  Warrants.  As of the date  hereof,  of the
5,000,000 shares of Preferred Stock  authorized,  (i) 1,000,000 shares have been
designated Series A Preferred Stock, none of which will be issued or outstanding
but all of which have been  reserved  for  issuance  upon the exercise of rights
under the Rights Agreement.  Immediately prior to the first Closing, or if there
is more than one  Closing,  the Final  Closing,  730,000  shares  will have been
designated Series B Preferred Stock. As of the date hereof, there are securities
convertible, exchangeable or exercisable into 661,319 shares of Common Stock  at
or below $3.75 per share of Common Stock.  Immediately  following  each Closing,
each share of capital stock of the Company that is issued and  outstanding  will
be duly authorized,  validly issued, fully paid and nonassessable,  and will not
be subject to nor issued in violation of, any preemptive  rights.  All shares of
Series  B  Preferred  Stock  issued  in a  Closing,  or  as a  dividend  on  any
outstanding shares of Series B Preferred Stock, will be duly authorized, validly
issued,  fully paid and  nonassessable.  The  Previously  Issued Warrant and all
Warrants issued at a Closing will be duly authorized, validly issued, fully paid
and nonassessable.  Upon conversion of any shares of Series B Preferred Stock in
accordance with their terms, all of the Common Stock issued upon such conversion
will be duly  authorized,  validly issued,  fully paid and  nonassessable.  Upon
exercise of the Previously  Issued  Warrant and the Warrants in accordance  with
their terms, the Common Stock issued upon such exercise will be duly authorized,
validly issued,  fully paid and nonassessable.  Except for the Previously Issued
Warrant and as set forth on Schedule 3.2 or as  contemplated  by this Agreement,
at the date hereof there are, and immediately  following each Closing there will
be (a) no outstanding or authorized options,  warrants,  agreements,  conversion
rights, preemptive rights, other rights, subscriptions, claims of any character,
obligations,  convertible  or  exchangeable  securities,  or other  commitments,
contingent or  otherwise,  relating to shares of capital stock of the Company or
any  of  its  Subsidiaries  or  pursuant  to  which  the  Company  or any of its
Subsidiaries is or may become  obligated to issue shares of its capital stock or
any securities  convertible  into,  exchangeable for, or evidencing the right to
subscribe  for,  purchase  or acquire,  any shares of the  capital  stock of the
Company or any of its  Subsidiaries,  (b) no  restrictions  upon the  dividends,
voting or transfer of any shares of capital stock of the Company pursuant to its
Charter,  Bylaws  or  other  governing  documents  or  any  agreement  or  other
instruments to which it is a party or by which it is bound, and (c) no shares of
Common Stock or Preferred Stock held by the Company in its treasury. The holders
of the Series B Preferred Stock will, upon issuance thereof, have the rights set
forth in the  Certificate  of  Designation.  Neither  the Company nor any of its
Subsidiaries  has authorized or outstanding  bonds,  debentures,  notes or other
indebtedness  the  holders  of which have the right to vote (or  convertible  or
exercisable  for or  exchangeable  into securities the holders of which have the
right to vote) with the  stockholders  of such person on any  matter.  Except as
contemplated  by this  Agreement  or the  Rights  Agreement  or as set  forth on
Schedule 3.2, there are no outstanding contractual obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Common Stock or the capital stock of the Company or any of its Subsidiaries.

     SECTION 3.3. Subsidiaries. The Company has no Subsidiaries.

     SECTION 3.4. Authorization;  Enforceability.  The Company has the corporate
power  to  execute,  deliver  and  perform  its  obligations  under  each of the
Documents  and has  taken  all  necessary  corporate  action  to  authorize  the
execution,  delivery  and  performance  by it of  each of the  Documents  and to
consummate the transactions contemplated hereby and thereby except, with respect
to the Closing,  or the Final Closing if the Purchaser  elects to have more than
one Closing,  the Stockholder  Approval.  No other corporate  proceedings on the
part of the Company are  necessary  therefor.  The Company has duly executed and
delivered  this  Agreement.  This Agreement  constitutes,  and each of the other
Documents,  when  executed  and  delivered  by the  Company  and,  assuming  due
execution by the other parties hereto and thereto (other than the Subsidiaries),
will constitute legal, valid and binding  obligations of the Company enforceable
against it in  accordance  with their  terms,  except as  enforceability  may be
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
similar laws  affecting the  enforcement of creditors'  rights  generally and by
general principles of equity  (regardless of whether  enforcement is sought in a
proceeding in equity or at law).

     SECTION 3.5. No Violation; Consents.

     (a) The execution,  delivery and  performance by the Company of each of the
Documents  to which it is a party,  all  actions  taken in  connection  with the
execution  of  the  Voting  Agreement,  the  consummation  of  the  transactions
contemplated  hereby and thereby does not and will not contravene any Applicable
Law, except for any such contraventions  that could not,  individually or in the
aggregate,  reasonably be expected to have a Material Adverse Effect. No actions
taken in connection with the execution of the Voting  Agreement  contravenes any
Applicable  Law. The execution,  delivery and  performance by the Company of the
Documents  to  which  it is a party  and the  consummation  of the  transactions
contemplated hereby and thereby (i) will not (x) violate,  result in a breach of
or  constitute  (with due  notice or lapse of time or both) a default  under any
contract,  lease, loan agreement,  Benefit Plan,  mortgage,  security agreement,
trust  indenture or other agreement or instrument to which the Company or any of
its  Subsidiaries is a party or by which any of them is bound or to which any of
their properties or assets is subject, except to the extent any such conflict or
breach,  singly or in the aggregate,  would not have a Material  Adverse Effect,
(y) result in the  creation  or  imposition  of any Lien (other than a Permitted
Lien) upon any of the  properties or assets of any of them, or (z) except as set
forth on Schedule 3.5(a),  obligate the Company to make any payment or incur any
additional  obligation,  or give rise to any right of any person with respect to
the  Company,  under any term or provision  of any  contract or  agreement,  the
Charter or Bylaws of the Company,  any Benefit Plan or any Applicable  Law, that
relates to a change of  control  or  ownership  of the  Company  or any  similar
provision,  (ii) will not violate any  provision  of its Charter or Bylaws,  and
(iii) will not result in the Purchaser or any of its  Affiliates,  Associates or
Permitted  Transferees  being (x) an  "Acquiring  Person"  under the Amended and
Restated  Stockholder Rights Agreement,  dated as of April 14, 2000 (the "Rights
Agreement"),  by and between the Company and First  Chicago Trust Company of New
York,  a  division  of  Equiserve,   as  Rights  Agent,  or  (y) an  "interested
stockholder," under Section 203 of the DGCL.

     (b) Except as set forth on Schedule  3.5(b),  no consent,  authorization or
order of, or filing or registration  with, any  Governmental  Authority or other
person  is  required  to be  obtained  or  made  by  the  Company  or any of its
Subsidiaries  for  the  execution,  delivery  and  performance  of  any  of  the
Documents, or the consummation of any of the transactions contemplated hereby or
thereby,  except (i) the HSR Approval, and (ii) the Stockholder Approval,  which
will have been  obtained on or prior to the Closing  Date,  or the Final Closing
Date if the Purchaser elects to have more than one Closing.

     SECTION 3.6.  Permits.  Each of the Company and its  Subsidiaries  has such
licenses, permits,  exemptions,  consents, waivers,  authorizations,  orders and
approvals from appropriate Governmental Authorities ("Permits") as are necessary
to own,  lease or operate their  properties  and to conduct their  businesses as
currently  owned and  conducted and all such Permits are valid and in full force
and effect,  except such Permits that the failure to have or to be in full force
and effect could not,  individually or in the aggregate,  reasonably be expected
to have a  Material  Adverse  Effect.  No  action by the  Company  or any of its
Subsidiaries outside the normal course of business is required in order that all
material  Permits shall remain in full force and effect  following either of the
Closings.

     SECTION 3.7. Litigation.  Except as set forth on Schedule 3.7, there are no
pending or, to the best knowledge of the Company,  threatened  claims,  actions,
suits,  labor  disputes,  grievances,  administrative  or  arbitration  or other
proceedings or, to the best knowledge of the Company, investigations against the
Company,  its Subsidiaries or their respective assets or properties before or by
any Governmental Authority or before any arbitrator that could,  individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect. None
of the  transactions  contemplated  by any of the  Documents  is  restrained  or
enjoined (either  temporarily,  preliminarily  or permanently),  and no material
adverse  conditions have been imposed thereon by any  Governmental  Authority or
arbitrator.  None of the Company,  its  Subsidiaries or any of their  respective
assets or properties, is subject to any order, writ, judgment, award, injunction
or decree of any Governmental Authority or arbitrator,  that could, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     SECTION 3.8. SEC Documents; Financial Statements.

     (a) The  Company  has  provided  to the  Purchaser  copies  of the  audited
consolidated  balance sheet of the Company and its consolidated  Subsidiaries as
of December  31, 1998 (the "1998  Financials")  and December 31, 1999 (the "1999
Financials"),  together  with the related  audited  consolidated  statements  of
operations,  stockholders' equity and cash flows for the fiscal year then ended,
and the notes thereto,  accompanied  with respect to the 1998  Financials by the
unqualified  opinion thereon of KPMG LLP and with respect to the 1999 Financials
by  the  qualified  opinion  of  KPMG  (collectively,   the  "Audited  Financial
Statements").  The Audited  Financial  Statements  (including the notes thereto)
were  prepared in  accordance  with GAAP and  present  fairly,  in all  material
respects,  the consolidated  financial  position and results of operation of the
Company and its  consolidated  Subsidiaries as of December 31, 1998 and December
31, 1999 and for the periods then ended.

     (b)  Neither  the  Company  nor any of its  Subsidiaries  has any  material
claims,  liabilities  or  indebtedness,  contingent  or  otherwise  of any  kind
whatsoever  (whether accrued,  absolute,  contingent or otherwise and whether or
not required to be reflected in the Company's financial statements in accordance
with GAAP),  except (i) as set forth in the Audited Financial  Statements,  (ii)
the Credit and Security  Agreements,  and (iii)  liabilities to trade  creditors
incurred  subsequent  to December  31, 1999 in the  ordinary  course of business
consistent  with past  practices not involving  borrowings by the Company or any
Subsidiary.

     (c) Since  January 1, 1997,  the Company  has filed all forms,  reports and
documents with the Commission  (including all exhibits  thereto)  required under
the Securities Act or the Exchange Act or the rules and regulations  promulgated
thereunder  (collectively,  the "SEC Documents"),  each of which complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act as in effect on the dates so filed.  None of the SEC  Documents (as
of their  respective  filing dates) contained any untrue statement of a material
fact or  omitted  to state a  material  fact  required  to be stated  therein or
necessary  in  order  to make  the  statements  made  therein,  in  light of the
circumstances under which they were made, not misleading. Any forms, reports and
documents filed by the Company with the Commission subsequent to the date hereof
and prior to the Final Closing Date  (collectively,  the  "Subsequent  Filings")
will comply in all material  respects with all  applicable  requirements  of the
Securities Act and the Exchange Act and will not contain any untrue statement of
a material fact or omit to state a material  fact required to be stated  therein
or  necessary  in order to make the  statements  made  therein,  in light of the
circumstances  under  which they were made,  not  misleading.  The  Company  has
heretofore furnished to the Purchaser copies of each of the SEC Documents (other
than  exhibits  or  schedules  to the SEC  Documents)  and will  furnish  to the
Purchaser  copies  of each  Subsequent  Filing  promptly  after the date of such
filing.

     (d) No representation or warranty of the Company contained in any document,
certificate  or  written  statement  furnished  to  the  Purchaser  by or at the
direction  of  the  Company  for  use  in  connection   with  the   transactions
contemplated by this Agreement, contains any untrue statement of a material fact
or omits to state  any  material  fact  (known  to the  Company,  in the case of
information  not  furnished by them)  necessary in order to make the  statements
contained  herein or therein not  misleading  in light of the  circumstances  in
which the same were made.  There are no facts known to any of the Company or its
Subsidiaries  (other  than  matters of a general  economic  nature)  that could,
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse  Effect  and that have not been  disclosed  in the SEC  Documents,  this
Agreement or in such other documents,  certificates and statements  furnished to
the Purchaser for use in connection with the  transactions  contemplated by this
Agreement.

     SECTION 3.9. Change in Condition.

     (a) Except as set forth on Schedule  3.9,  since  December  31,  1999,  the
Company and its Subsidiaries  have operated their respective  businesses only in
the ordinary  course  consistent  with past practices and there has not occurred
(i) any  event,  occurrence  or  conditions,  or to the  best  knowledge  of the
Company,  any  circumstance  or development  that could,  individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, or (ii) any
action specified in Section 5.2 of this Agreement.

     SECTION 3.10. Employee Benefit Plans and Labor Matters.

     (a) For purposes of this Agreement:

          (i)  "Benefit  Plan" means any  employee  benefit  plan,  arrangement,
     policy  or  commitment,  including,  without  limitation,  any  employment,
     consulting,   severance  or  deferred  compensation  agreement,   executive
     compensation,   bonus,   incentive,   pension,   profit-sharing,   savings,
     retirement,  stock option,  stock purchase or severance pay plan, any life,
     health,  disability or accidental death and  dismemberment  insurance plan,
     any  holiday and  vacation  practice or any other  employee  benefit  plan,
     within the meaning of section  3(3) of ERISA,  whether  formal or informal,
     written or oral and whether  legally  binding or not,  that is  maintained,
     administered  or  contributed  to  or  was   maintained,   administered  or
     contributed  to at any time by the  Company or any of its ERISA  Affiliates
     for the benefit of any employee,  former employee,  consultant,  officer or
     director of the Company or any ERISA Affiliate;

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

          (iii) "Employee"  means any individual  employed by the Company or any
     of its ERISA Affiliates;

          (iv) "IRS" means the United States Internal Revenue Service; and

          (v) "PBGC" means the Pension Benefit Guaranty Corporation.

     (b) Schedule 3.10 lists all Benefit Plans.  With respect to each such plan,
the  Company has  delivered  or made  available  to the  Purchasers  correct and
complete  copies of (i) all plan  documents and  agreements and related trust or
other funding arrangements  (including all amendments thereto); (ii) all summary
plan descriptions and material employee communications;  (iii) the annual report
and actuarial report  (including all schedules  thereto) if required under ERISA
or other applicable law, for the last three most recently  completed plan years;
(iv) the most recent  annual  audited  financial  statement;  (v) if the plan is
intended  to  qualify  under Code  section  401(a) or  403(a),  the most  recent
determination  letter,  if any,  received  from the IRS;  and (vi) all  material
communications with any Governmental  Authority (including,  without limitation,
the PBGC, the U.S. Department of Labor and the IRS).

     (c) There are no Benefit  Plans  that (i) are  covered by or subject to any
liability  under Code section 412, ERISA section 302 or Title IV of ERISA and no
condition  exists  that  presents  a material  risk to the  Company or any ERISA
Affiliate of incurring such  liability;  (ii) are intended to qualify under Code
section  401(a) or 403(a)  other  than the Peapod  401(k)  Savings  Plan;  (iii)
provide   benefits  to  current  or  former   Employees   or  their   respective
beneficiaries  beyond their  retirement or other  termination  of service (other
than coverage  mandated by Code section 4980B or Part 6 of Title I of ERISA); or
(iv) are self-insured  "multiple employer welfare arrangements," as such term is
defined in section 3(40) of ERISA.

     (d) Each Benefit Plan  conforms in all respects to, and its  administration
is in all  respects  in  compliance  with,  its  terms and all  Applicable  Law,
including  but not limited to ERISA and the Code,  except to the extent that the
failure to conform or to be  administered  would not  reasonably  be expected to
result in a material liability.

     (e) The  consummation  of the  transactions  contemplated by this Agreement
will not (i) entitle any current or former Employee,  officer or director of the
Company or any ERISA  Affiliate to severance pay,  unemployment  compensation or
any similar  payment;  or (ii)  accelerate the time of payment or vesting of any
right or  privilege,  or  increase  the amount of any  compensation  due to, any
current or former Employee, officer or director of the Company.

     (f) No Benefit Plan is a "multiple employer plan" or a "multiemployer plan"
within the meaning of the Code or ERISA.

     (g) In the six years preceding the date hereof, (i) no Benefit Plan that is
or was  subject  to Title IV of ERISA has been  terminated;  (ii) no  reportable
event within the meaning of section 4043 of ERISA has occurred;  (iii) no filing
of a notice of intent to terminate  such a Benefit Plan has been made;  (iv) the
PBGC has not initiated any  proceeding to terminate any such Benefit Plan and no
condition  exists that  presents a material  risk that such  proceeding  will be
initiated;  and (v) no prohibited transaction (within the meaning of Section 406
of ERISA or Section  4975 of the Code),  breach of fiduciary  duty  (pursuant to
Section  409 of ERISA) or civil  action  (pursuant  to Section 502 of ERISA) has
occurred  that  could  result in a  material  liability  to the  Company  or any
Subsidiary.

     (h) Except for the Executive  Employment  Agreement  between William Malloy
and the Company,  dated as of September 27, 1999, neither the Company nor any of
its  Subsidiaries  has  any  existing  arrangement  with  any of  its  Employees
providing  for an excise tax gross up in respect of any excise taxes  imposed by
section 4999 of the Code.

     (i)  Except  as set  forth  on  Schedule  3.10,  none of the  Company,  any
Subsidiary  or any ERISA  Affiliate has any  commitment or formal plan,  whether
legally binding or not, to create any additional employee benefit plan or modify
or change any  existing  Benefit  Plan that would  affect any  Employee,  former
Employee or director of the Company.

     (j) Except as set forth on Schedule 3.10, (i) no amounts  payable under the
Benefit  Plans will fail to be  deductible  for federal  income tax  purposes by
virtue  of  section  162(a)(1),  162(m)  or  280G  of  the  Code  and  (ii)  all
contributions   (including  all  employer   contributions  and  employee  salary
reduction  contributions)  required to be made to any Benefit Plan by applicable
law or regulation or by any plan document or other contractual undertaking,  and
all  premiums due or payable  with  respect to  insurance  policies  funding any
Benefit  Plan,  have  been  timely  made or paid in full or, to the  extent  not
required  to be made or paid on or  before  the date  hereof,  have  been  fully
reflected on the financial statements in accordance with GAAP. Each Benefit Plan
that is an employee  welfare benefit plan under Section 3(1) of ERISA either (i)
is funded through an insurance  company  contract and is not a "welfare  benefit
fund" with the meaning of Section 419 of the Code or (ii) has  benefits  paid as
needed solely from the general assets of the Company and its Subsidiaries.

     (k) No liability,  claim, action or litigation has been made, commenced or,
to the Company's  knowledge,  threatened with respect to any Benefit Plan (other
than routine claims for benefits payable in the ordinary course,  and appeals of
such desired claims).

     (l) Except as set forth on  Schedule  3.10,

          (i) there is no labor strike, dispute,  slowdown,  stoppage or lockout
     actually  pending,  or to  the  knowledge  of  the  Company  or  any of its
     Subsidiaries,  threatened  against or  affecting  the Company or any of its
     Subsidiaries  and during  the past five  years  there has not been any such
     action;

          (ii) to the  knowledge  of the  Company  and any of its  Subsidiaries,
     there are no union claims to represent  the employees of the Company or any
     of its Subsidiaries;

          (iii) neither the Company nor any of its Subsidiaries is a party to or
     bound by any  collective  bargaining  or similar  agreement  with any labor
     organization,  or  work  rules  or  practices  agreed  to  with  any  labor
     organization or employee association applicable to employees of the Company
     or any of its Subsidiaries;

          (iv) none of the  employees of the Company or any of its  Subsidiaries
     are represented by any labor organization and none of the Company or any of
     its  Subsidiaries  have  any  knowledge  of any  current  union  organizing
     activities  among the employees of the Company or any of its  Subsidiaries,
     nor does any  question  concerning  representation  exist  concerning  such
     employees;

          (v)  true,  correct  and  complete  copies  of all  written  personnel
     policies,  rules and  procedures  applicable to employees of the Company or
     any of its Subsidiaries have heretofore been delivered to the Purchaser;

          (vi) the Company and its Subsidiaries are, and have at all times been,
     in material  compliance with all applicable laws respecting  employment and
     employment practices,  terms and conditions of employment,  wages, hours of
     work and occupational  safety and health, and are not engaged in any unfair
     labor  practices as defined in the National  Labor  Relations  Act or other
     applicable law, ordinance or regulation;

          (vii) there is no unfair labor  practice  charge or complaint  against
     the Company or any  Subsidiary  pending or, to the knowledge of the Company
     and any of its Subsidiaries, threatened before the National Labor Relations
     Board or any similar state or foreign agency;

          (viii) there is no grievance or arbitration  proceeding arising out of
     any collective  bargaining  agreement or other grievance procedure relating
     to the Company or any of its Subsidiaries;

          (ix) to the knowledge of the Company and any of its  Subsidiaries,  no
     charges  with  respect  to or  relating  to  the  Company  or  any  of  its
     Subsidiaries are pending before the Equal Employment Opportunity Commission
     or any other agency  responsible for the prevention of unlawful  employment
     practices

          (x) to the  knowledge of the Company and any of its  Subsidiaries,  no
     federal,  state, local or foreign agency responsible for the enforcement of
     labor or employment laws intends to conduct an  investigation  with respect
     to or  relating  to the  Company  and any of its  Subsidiaries  and no such
     investigation is in progress; and

          (xi)  there  are  no  complaints,  controversies,  lawsuits  or  other
     proceedings  pending  or, to the  knowledge  of the  Company  or any of its
     Subsidiaries,  any  applicant  for  employment  or classes of the foregoing
     alleging breach of any express or implied  contract or employment,  any law
     or  regulation  governing  employment or the  termination  thereof or other
     discriminatory,  wrongful  or  tortuous  conduct  in  connection  with  the
     employment relationship. Except as set forth in Schedule 3.10, there are no
     employment  contracts or  severance  agreements  with any  employees of the
     Company or any of its Subsidiaries. The execution of this Agreement and the
     consummation of the transactions  contemplated hereby shall not result in a
     breach or other violation of any collective  bargaining  agreement to which
     the Company or any of its Subsidiaries is a party.

     (m) Since the enactment of the WARN Act, neither the Company nor any of its
Subsidiaries have effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment  or one or more  facilities or operating  units
within  any  site  of  employment  or  facility  of  the  Company  or any of its
Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of  employment or facility of the Company or any of its  Subsidiaries;  nor
has the Company or any of its  Subsidiaries  been affected by any transaction or
engaged in layoffs or  employment  terminations  sufficient in number to trigger
application  of any similar state or local law.  Except as set forth in Schedule
3.10,  none of the  employees  of the  Company  or any of its  Subsidiaries  has
suffered an "employment  loss" (as defined in the WARN Act) with regard to their
employment with the Company or any of its Subsidiaries since March 1, 1995.

     (n) Except as set forth on Schedule  3.10(n) neither the Company nor any of
its Subsidiaries have any employment or severance  agreements with any Employees
or former  employees  (to the extent the Company  continues to have  obligations
with respect to former employees).

     SECTION 3.11. Interests in Real Property.

     (a)  Schedule  3.11  sets  forth  a true  and  complete  list  of all  real
properties  owned and all material real property leased by the Company or any of
its  Subsidiaries.  Each  of the  Company  and its  Subsidiaries  has  good  and
marketable  title in fee  simple to all real  properties  owned by it,  free and
clear of all  Liens,  except  for  Permitted  Liens,  and valid and  enforceable
leasehold  interests in all real estate  leased by it,  except where the lack of
such title or the invalidity or  unenforceability  of such  leasehold  interests
could not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

     (b) None of the real properties owned by, or the leasehold  estates of, the
Company or any  Subsidiary  are subject to (i) any Liens or (ii) any  easements,
rights of way,  licenses,  grants,  building  or use  restrictions,  exceptions,
reservations, limitations or other impediments that, in either case (i) or (ii),
will materially  adversely affect the value thereof for their present use, taken
as a  whole,  or that  materially  interfere  with or  impair  the  present  and
continued use thereof,  taken as a whole, in the usual and normal conduct of the
business of any such person.

     (c) To the best  knowledge of the Company,  all  improvements  on such real
properties and the operations therein conducted conform in all material respects
to all applicable health, fire, environmental, safety, zoning and building laws,
ordinances  and  administrative   regulations  (whether  through  grandfathering
provisions,  permitted  use  exceptions,  variances  or  otherwise),  except for
possible  nonconforming  uses or  violations  that do not and will not interfere
with the present use, operation or maintenance  thereof as now used, operated or
maintained or access thereto, and that do not and will not materially affect the
value thereof for their present use.  Neither the Company nor any Subsidiary has
received  notice  of any  violation  of or  noncompliance  with any  such  laws,
ordinances or  administrative  regulations  from any applicable  governmental or
regulatory authority, except for notices of violations or failures so to comply,
if any, that could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

     SECTION 3.12. Leases.

     (a)(i)  Neither the Company nor any  Subsidiary  is in breach of or default
(and no event has occurred which,  with due notice or lapse of time or both, may
constitute  a breach or  default)  under any lease  required  to be set forth on
Schedule 3.11 (the "Leases") and (ii) no party to any Lease has given, or to the
best  knowledge of the Company  threatened  to give,  or advised that it will be
giving the  Company  or any  Subsidiary  written  notice of or made a claim with
respect to any breach or default,  the consequences of which, in either case (i)
or (ii) could, individually or in the aggregate,  reasonably be expected to have
a Material Adverse Effect.

     (b) Except as set forth on Schedule  3.12,  after  taking into  account the
exercise of any options (which are  exercisable  solely at the discretion of the
Company or any  Subsidiary),  none of the Leases  terminates by its terms before
January 1, 2002.

     (c) None of the Leases  require a consent to be obtained for the execution,
delivery and  performance of any of the Documents or the  consummation of any of
the transactions contemplated hereby or thereby.

     (d) Neither the Company nor any Subsidiary has any ownership,  financial or
other interest in the landlords under any of the Leases.

     SECTION 3.13.  Compliance  with Law. The  operations of the Company and its
Subsidiaries  have  been  conducted  in  accordance  with all  Applicable  Laws,
including,   without  limitation,  all  Applicable  Laws  relating  to  consumer
protection,  currency exchange, employment (including, without limitation, equal
opportunity  and wage and hour),  safety and health,  environmental  protection,
conservation,  wetlands, architectural barriers to the handicapped, fire, zoning
and building,  occupation safety, pension and securities,  except for violations
or  failures  so to  comply,  if any,  that could  not,  individually  or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Neither the
Company  nor  any  Subsidiary  has  received  notice  of  any  violation  of  or
noncompliance  with any Applicable Laws except as set forth on Schedule 3.13 and
except for notices of  violations  or failures so to comply,  if any, that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

     SECTION 3.14. Related Party  Transactions.  Except as set forth on Schedule
3.14 and except for the  consummation  of the  transactions  contemplated by the
Documents (including, without limitation, the Voting Agreements) (i) neither the
Company nor any of its  Subsidiaries  is a party to any agreement or arrangement
with or for the benefit of any person who, to the Company's knowledge,  based on
a review of Schedule  13Ds and Schedule  13Gs filed under the Exchange Act, is a
holder of 5% or more of the outstanding  equity securities of the Company or any
officer,  director,  partner or Affiliate of any such person ("Related  Party");
(ii) all transactions between the Company and its Subsidiaries, on the one hand,
and a Related Party, on the other hand, are on terms and conditions  which could
be obtained from an unaffiliated third party in an arm's length transaction; and
(iii) no Affiliate of the Company or Related Party is a supplier, lessor, lessee
or competitor of the Company or any of its Subsidiaries.

     SECTION 3.15. Tax Matters.

     (a) The Company and its Subsidiaries  have duly and properly filed, or will
duly and properly  file, on a timely basis,  all material Tax Returns which were
or will be required to be filed by them for all periods  ending on or before any
Closing Date. All such Tax Returns of the Company and its Subsidiaries  were (or
will be) true,  correct and complete in all material  respects  when filed.  The
Company and its  Subsidiaries  have paid all material Taxes and Tax  liabilities
required to be paid by them for periods ending on or before any Closing Date, or
with respect to any period that ends after any Closing Date, the portion of such
period up to and  including  any  Closing  Date,  other than those  Taxes  being
contested  in good faith or those Taxes  currently  payable  without  penalty or
interest,  in each case which have been  adequately  disclosed  and for which an
adequate reserve or accrual has been established in the Financial  Statements in
accordance with GAAP.

     (b) All material  Taxes that the Company and its  Subsidiaries  are or were
required by law to withhold or collect  through any Closing  Date have been duly
withheld or collected and, to the extent required,  have been paid to the proper
Governmental Authority. There are no Liens with respect to Taxes upon any of the
properties or assets, real or personal,  tangible or intangible,  of the Company
or  any  Subsidiary  except  for  statutory  liens  for  Taxes  not  yet  due or
delinquent.

     (c)  Neither  the  Company nor any of its  Subsidiaries  is  currently  the
beneficiary of any waivers or extensions with respect to any Tax Returns, no Tax
Returns  of  the  Company  or  any  Subsidiary  are  currently  under  audit  or
examination  by any  Governmental  Authority  and to the best  knowledge  of the
Company  and its  Subsidiaries,  no such  audit or  examination  is  threatened.
Neither  the Company  nor any  Subsidiary  has  received  any  notices  from any
Governmental  Authority  relating to any issue which could materially affect the
Tax liability of the Company or any Subsidiary. No issue was raised in any audit
or examination of Tax Returns by any Governmental Authority that, if raised with
respect to any period not so audited or examined, could be expected to result in
a proposed deficiency.

     (d) Neither the Company nor any of its  Subsidiaries  is party to, bound by
or has an obligation  under any Tax  allocation,  Tax indemnity,  or Tax sharing
agreement or similar  contract  arrangement.  Neither the Company nor any of its
Subsidiaries  (i) has been a member of an affiliated group filing a consolidated
Tax Return (other than a group the common  parent of which was the Company),  or
(ii) has been included in any "consolidated," "unitary" or "combined" Tax Return
provided for under the law of any foreign  jurisdiction or any state or locality
with  respect  to  Taxes  for any  taxable  period  for  which  the  statute  of
limitations  has not expired  (other than a group the common parent of which was
the Company), or (iii) has any liability for the Taxes of any person (other than
the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar  provision  of state,  local or foreign  law),  as a  transferee  or
successor, by contract, agreement to indemnify or otherwise. Neither the Company
nor  any  of  its  Subsidiaries  has  any  obligation  by  contract,  agreement,
arrangement  or otherwise  to permit any person,  other than the Company and its
Subsidiaries,  to use the benefit of a refund, credit or offset of Tax of any of
the Company and its Subsidiaries.

     (e)  Neither  the  Company  nor any of its  Subsidiaries  has been a United
States real property holding corporation within the meaning of section 897(c)(2)
of the Code during the period specified in section 897(c)(1)(A)(ii) of the Code.

     (f) Neither the Company nor any of its Subsidiaries has filed (or will file
prior to any Closing) a consent under section 341(f) of the Code.

     (g) The  Company  has not  applied  for,  been  granted,  or  agreed to any
accounting  method change for which it will be required to take into account any
adjustment under Section 481 of the Code or any similar provision of the Code or
the corresponding tax laws of any nation, state or locality.

     SECTION 3.16. Environmental Matters.

     (a) The Company and its  Subsidiaries  are in  compliance  in all  material
respects  with  all  applicable  federal,  state,  local  and  foreign  laws and
regulations  relating  to  pollution  or  protection  of  human  health  or  the
environment,  including, without limitation,  ambient air, surface water, ground
water,  land  surface or  subsurface  strata,  and natural  resources  (together
"Environmental  Laws" and including,  without  limitation,  laws and regulations
relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants,  contaminants,  wastes,  toxic or  hazardous  substances  or wastes,
petroleum and petroleum  products,  asbestos or  asbestos-containing  materials,
polychlorinated  biphenyls,  lead or lead-based  paints or  materials,  or radon
("Materials  of  Environmental   Concern")),   or  otherwise   relating  to  the
manufacture,  generation,  processing,  distribution,  use, treatment,  storage,
disposal,  transport or handling of Materials of Environmental  Concern,  or the
preservation  of the  environment or mitigation of adverse  effects  thereon and
each law and regulation with regard to record keeping, notification, disclosure,
and reporting  requirements  respecting Materials of Environmental  Concern. The
Company  and  its  Subsidiaries  possess  all  permits  and  other  governmental
authorizations  required  under all  applicable  Environmental  Laws, and are in
compliance in all material respects with the terms and conditions thereof.

     (b) The Company and its  Subsidiaries  have not received any  communication
(written  or oral),  whether  from a  Governmental  Authority,  citizens  group,
employee or otherwise,  that alleges that the Company or any of its Subsidiaries
are  not in full  compliance  with  any  Environmental  Laws  and,  to the  best
knowledge  of the  Company,  there  are no  circumstances  that may  prevent  or
interfere with such full compliance in the future.

     (c) There is no claim,  action,  written or oral  notice or cause of action
pending or, to the best knowledge of the Company, any investigation or notice of
violation threatened (together,  "Environmental  Claim") by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory  costs,  cleanup costs,  governmental  response costs, natural
resources damages,  property damages,  personal injuries,  or penalties) arising
out of,  based  on or  resulting  from (a) the  presence,  or  release  into the
environment,  of any Material of Environmental Concern at any location,  whether
or not owned,  leased or operated by the Company or any of its  Subsidiaries  or
(b) circumstances forming the basis of any violation,  or alleged violation,  of
any Environmental  Law, that in either case is pending or threatened against the
Company,  or any of its  Subsidiaries  or  against  any  person or entity  whose
liability for any Environmental Claim the Company or any of its Subsidiaries has
retained or assumed either contractually or by operation of law.

     (d) To the best  knowledge  of the  Company,  there are no past or  present
actions, activities, circumstances,  conditions, events or incidents, including,
without limitation,  the release, emission,  discharge,  presence or disposal of
any  Material  of  Environmental  Concern,  that  could  form  the  basis of any
Environmental  Claim against the Company or any of its  Subsidiaries  or, to the
Company's and any of its  Subsidiaries'  best  knowledge,  against any person or
entity whose  liability  for any  Environmental  Claim the Company or any of its
Subsidiaries  has retained or assumed  either  contractually  or by operation of
law.

     (e) Without in any way limiting the generality of the foregoing,  (i) there
are  no  on-site  or  off-site  locations  where  the  Company  or  any  of  its
Subsidiaries has (previously or currently) stored,  disposed or arranged for the
disposal of Materials of  Environmental  Concern,  (ii) there are no underground
storage tanks located on any property owned,  leased,  operated or controlled by
the Company or any of its Subsidiaries,  (iii) there is no asbestos contained in
or forming part of any building,  building component,  structure or office space
owned, leased, operated or controlled by the Company or any of its Subsidiaries,
and (iv)  there  are no PCBs or  PCB-containing  items are used or stored at any
property  owned,  leased,  operated or  controlled  by the Company or any of its
Subsidiaries.

     (f) The Company and its  Subsidiaries  have  provided to the  Purchaser all
assessments,  reports,  data,  results of  investigations  or audits,  and other
information that is in the possession of or reasonably  available to the Company
or any of its Subsidiaries  regarding  environmental  matters  pertaining to the
environmental   condition  of  the  business  of  the  Company  or  any  of  its
Subsidiaries,  or the compliance (or noncompliance) by the Company or any of its
Subsidiaries with any Environmental Laws.

     (g) Neither the Company nor any of its  Subsidiaries  is required by virtue
of the transactions set forth herein and contemplated  hereby, or as a condition
to the effectiveness of any transactions  contemplated  hereby, (i) to perform a
site  assessment  for  Materials  of  Environmental  Concern,  (ii) to remove or
remediate Materials of Environmental Concern, (iii) to give notice to or receive
approval from any  Governmental  Authority,  or (iv) to record or deliver to any
person  or  entity  any   disclosure   document  or  statement   pertaining   to
environmental matters.

     SECTION 3.17. Intellectual Property.

     (a) Schedule 3.17(a) sets forth, for the Intellectual Property owned by the
Company or any Subsidiary,  a complete and accurate list of all U.S. and foreign
(i) patents and patent  applications;  (ii) trademark  registrations  (including
Internet   domain   registrations),   trademark   applications,   and   material
unregistered trademarks; (iii) copyright and mask work registrations,  copyright
and mask work applications,  and material unregistered copyrights;  and (iv) all
Software  (other than  readily  available  "off-the-shelf"  commercial  software
programs  having an  acquisition  price of less than  $5,000)  which are  owned,
licensed,  or  leased,  by the  Company  or any  Subsidiary,  identifying  which
Intellectual  Property is owned,  licensed,  or leased,  as the case may be. The
Intellectual  Property  constitutes all the intellectual  property  necessary to
operate the business of the Company and its  Subsidiaries as of the Closing Date
in  substantially  the manner in which it is currently  operated.  To the extent
indicated  on  Schedule  3.17(a),  the  Intellectual   Property  has  been  duly
registered  in,  filed in or issued by the United  States  Patent and  Trademark
Office, United States Copyright Office, a duly authorized and appropriate domain
name  registrar,  the  appropriate  offices in the various  states of the United
States  and  the  appropriate  offices  of  other  jurisdictions   (foreign  and
domestic), and each such registration, filing and issuance remains in full force
and effect as of the Closing Date.

     (b)  Schedule  3.17(b)  sets  forth a  complete  and  accurate  list of all
material oral or written agreements (whether between the Company or a Subsidiary
and third parties or  inter-corporate) to which the Company or any Subsidiary is
a party or  otherwise  bound,  (i)  granting  or  obtaining  any right to use or
practice any rights under any  Intellectual  Property  (other than  licenses for
readily  available  "off-the-shelf"   commercial  software  programs  having  an
acquisition price of less than $5,000), or (ii) restricting the Company's or any
Subsidiary's  right  to  use  any  Intellectual  Property,   including,  without
limitation, license agreements, development agreements, distribution agreements,
settlement  agreements,  consent to use  agreements,  and  covenants  not to sue
(collectively,  the "License Agreements").  The License Agreements are valid and
binding obligations of the Company or a Subsidiary,  as applicable,  enforceable
in accordance with their terms, and to the Company's knowledge,  there exists no
event or condition  which will result in a violation or breach of, or constitute
(with or  without  due  notice of lapse of time or both) a default  by any party
under any such  License  Agreement.  Except as set  forth in  Schedule  3.17(b),
neither the Company nor any of its Subsidiaries have licensed or sublicensed its
rights in any material  Intellectual Property other than pursuant to the License
Agreements.  No royalties,  honoraria or other fees are currently payable by the
Company or any  Subsidiary  to any third  parties for the use of or right to use
any  Intellectual  Property  except  pursuant to the License  Agreements and set
forth on Schedule 3.17(b).

     (c) The Company or a Subsidiary  owns, or to the Company's  best  knowledge
has a valid right to use, free and clear of all Liens,  all of the  Intellectual
Property.  The  Company  or a  Subsidiary  is  listed  in  the  records  of  the
appropriate United States,  state, or foreign registry as the sole current owner
of record for each  application and  registration and has the exclusive right to
file,  prosecute and maintain all applications and registrations with respect to
the Intellectual Property that is listed on Schedule 3.17(a).

     (d) The  Intellectual  Property owned by the Company or any Subsidiary and,
to the Company's knowledge,  any material  Intellectual Property licensed to the
Company  or any  Subsidiary,  has  not  been  canceled,  expired,  abandoned  or
otherwise  terminated  and all renewal  fees in respect  thereof  have been duly
paid, and to the Company's knowledge is valid and enforceable.

     (e)  Neither  the  Company nor any of its  Subsidiaries  has  received  any
written notice or claim and there is no pending or, to the best of the Company's
knowledge,   threatened  claim,   suit,   arbitration,   interference  or  other
adversarial or contested proceeding before any court, agency, arbitral tribunal,
or registration  authority in any jurisdiction  (foreign or domestic)  involving
the Intellectual  Property owned by the Company or its Subsidiaries,  or, to the
best of the Company's knowledge,  the material Intellectual Property licensed to
the Company or any  Subsidiary,  alleging that the  activities or the conduct of
the Company's or any Subsidiary's  businesses infringe upon, dilute,  violate or
constitute the unauthorized use, misuse or  misappropriation of the intellectual
property  rights  of  any  third  party  or  challenging  the  Company's  or any
Subsidiary's ownership,  use, validity,  enforceability or registrability of any
Intellectual Property. There are no settlements, forebearances to sue, consents,
judgments,  or  orders  or  similar  obligations  to which  the  Company  or any
Subsidiary is a party other than the License  Agreements  which (i) restrict the
Company's  or any  Subsidiary's  right to use any  Intellectual  Property,  (ii)
restrict the Company's or any Subsidiary's  businesses in order to accommodate a
third party's intellectual  property rights or (iii) permit third parties to use
any  Intellectual  Property owned by the Company or any Subsidiary.  To the best
knowledge of the Company,  neither the Company nor any of its Subsidiaries  know
of any valid basis for any such claims.

     (f) The conduct of the Company's and any Subsidiary's business as currently
conducted or planned to be conducted does not infringe upon (either  directly or
indirectly such as through contributory  infringement or inducement to infringe)
any intellectual  property rights owned or controlled by any third party. To the
Company's knowledge, no third party is misappropriating, infringing, diluting or
violating any  Intellectual  Property owned by the Company or any Subsidiary and
no such claims, suits,  arbitrations or other adversarial  proceedings have been
brought or threatened against any third party by the Company or any Subsidiary.

     (g) The Company and each Subsidiary take reasonable measures to protect the
confidentiality  of its Trade Secrets,  including  requiring their employees and
other  parties   having  access  thereto  to  execute   written   non-disclosure
agreements.  To the best of the  Company's  knowledge,  no Trade  Secret  of the
Company or its  Subsidiaries has been disclosed or authorized to be disclosed to
any third party other than pursuant to a non-disclosure  agreement.  To the best
of the Company's knowledge, no party to any non-disclosure agreement relating to
its Trade  Secrets  is in breach or  default  thereof.  The  Purchaser  has been
provided with a copy of the Company's form of  non-disclosure  agreement and the
non-disclosure  agreements referred to in this clause (g) contain  substantially
the same terms and conditions as the form of non-disclosure agreement.

     (h) No current or former  partner,  director,  officer,  or employee of the
Company or any Subsidiary (or any of their respective  predecessors in interest)
will, after giving effect to the transactions  contemplated herein, directly own
or retain any rights to use any of the  Intellectual  Property  owned or used by
the Company or any Subsidiary.

     (i) With  respect to the Software  set forth in Schedule  3.17(a)  which is
owned by the Company, such Software was either developed (i) by employees of the
Company  or any  Subsidiary  within  the  scope of their  employment  or (ii) by
independent  contractors  who have  assigned  their rights to the Company or any
Subsidiary pursuant to signed, written agreements.

     (j) Except as set forth in Schedule  3.17(a),  for the twelve  month period
prior  to  the  Closing  Date,  the  Internet  domain  names  and  URL's  of the
Intellectual  Property (together with any content and other materials accessible
and/or  displayed  thereon,  the "Sites")  direct and resolve to the appropriate
Internet  protocol  addresses and are and have been maintained and accessible to
Internet users on those certain  computers used by the Company to make the Sites
so accessible (the "Server") approximately twenty-four (24) hours per day, seven
(7) days per week  ("24/7") and are and have been  operational  for  downloading
content  from the Server on a 24/7  basis.  The  Company  has fully  operational
back-up  copies of the Sites  (and all  related  software,  databases  and other
information),  made from the  current  versions  of the Sites as  accessible  to
Internet users on the Server (and copied directly  therefrom)  which copies will
have been made at least every two weeks from the date  hereof  until the Closing
Date. Such back-up copies are kept in a safe and secure environment, fit for the
back-up of media,  and are not located at the same  location of the Server.  The
Company  has no reason to believe  that the Sites will not operate on the Server
or will not continue to be  accessible  to Internet  users on a 24/7 basis prior
to, at the time of, and after the Closing Date.

     (k) The Trademarks listed on Schedule 3.17(a), for which the Company or any
Subsidiary  has obtained or applied for a  registration  have been  continuously
used in the form  appearing  in, and in  connection  with the goods and services
listed  in,  their  respective  registration  certificates,   and  are  all  the
Trademarks  that  are  material  to the  Company  and its  Subsidiaries.  To the
knowledge of the Company,  there has been no prior use of such Trademarks by any
third  party which would  confer upon said third party  superior  rights in such
Trademarks. The Company and its Subsidiaries have undertaken reasonable policing
of such Trademarks against third party infringement.

     (l) All  material  Software  and  systems  used  by the  Company  and  each
Subsidiary are Year 2000  Compliant.  As used herein,  "Year 2000 Compliant" and
"Year 2000 Compliance"  shall mean for all dates and times,  including,  without
limitation  dates and times after  December  31,  1999 and in the  multi-century
scenario,  when  used on a  stand-alone  system  or in  combination  with  other
software  or  systems:  (i)  the  application  system  functions  and  receives,
processes,  manipulates  and  calculates  dates,  times  and  date-related  data
correctly without abnormal results;  (ii) there is no century  ambiguity;  (iii)
all reports and displays are sorted correctly; and (iv) leap years are accounted
for and  correctly  identified  (including,  without  limitation,  that  2000 is
recognized  as a leap  year).  The  Company and each  Subsidiary  have  obtained
written  representations  or  assurances  from  each  entity  that (x)  provides
material data of any type that includes date  information  or which is otherwise
derived from,  dependent on or related to date information  ("Date Data") to the
Company or any Subsidiary, (y) processes in any way Date Data for the Company or
any Subsidiary or (z) otherwise  provides any material product or service to the
Company or any Subsidiary that is dependent on Year 2000 Compliance, that all of
such entity's Date Data and related material  software and systems that are used
for, or on behalf of, the  Company or any  Subsidiary  are Year 2000  Compliant.
Neither the Company nor any Subsidiary has experienced any material  disruptions
to the business of the Company and its  Subsidiaries as a result of a failure by
the Company,  a Subsidiary,  or any third party to be Year 2000  Compliant.  The
Company and its  Subsidiaries  have  established and put in place,  commercially
reasonable  contingency  plans to address,  correct and otherwise  attend to any
material  problems  that may occur with its  material  Software and systems as a
result of a failure of such Software or systems to be Year 2000 Compliant.

     SECTION 3.18.  Registration  Rights.  Except as set forth on Schedule 3.18,
neither the  Company  nor any of its  Subsidiaries  is under any  obligation  to
register any of its outstanding securities pursuant to the Securities Act.

     SECTION 3.19. Insurance.  The Company and its Subsidiaries  maintain,  with
reputable   insurers,   insurance   in  such   amounts,   including   deductible
arrangements,  and of such a character as is customary for companies  engaged in
the same or similar business. All policies of title, fire, liability,  casualty,
business  interruption,  workers'  compensation  and  other  forms of  insurance
including,  but not limited to,  directors and officers  insurance,  held by the
Company and its Subsidiaries as of the date hereof, are in full force and effect
in accordance with their terms.  Neither the Company nor any of its Subsidiaries
is in default  under any  provisions of any such policy of insurance and neither
the Company nor any of its  Subsidiaries  has received notice of cancellation of
any such insurance.

     SECTION 3.20. Contracts.

     (a) Schedule  3.20 sets forth a true and complete list of all contracts and
other  instruments  to which the Company or any of its  Subsidiaries  is a party
that  are  material  to  the  business,  operations,  properties,  prospects  or
financial condition of any of them (collectively, the "Commitments"),  including
without limitation:

          (i) any material  agreement,  contract or  commitment  relating to the
     employment of any person by the Company or any of its Subsidiaries,  or any
     bonus,  deferred  compensation,  pension,  profit  sharing,  stock  option,
     employee stock purchase, retirement or other employee benefit plan;

          (ii) any  material  agreement,  indenture  or other  instrument  which
     contains  restrictions  with  respect to payment of  dividends or any other
     distribution in respect of its capital stock;

          (iii) any  agreement,  contract  or  commitment  relating  to  capital
     expenditures in excess of $100,000 in any fiscal year;

          (iv) any  agreement  to acquire,  directly or  indirectly,  any equity
     interest  in or  assets  of any  other  person  (other  than  purchases  of
     supplies,  inventory,  or  equipment  in the  ordinary  course of business)
     whether or not the transactions contemplated thereby have been consummated,
     and under which the Company or any of its  Subsidiaries  continues  to have
     any outstanding obligations;

          (v) any loan  (other  than  accounts  receivable  from  trade  debtors
     arising in the  ordinary  course of  business)  or  advance to (other  than
     travel or  entertainment  advances to employees made in the ordinary course
     of business),  or investment in, any person or any  agreement,  contract or
     commitment relating to the making of any such loan, advance or investment;

          (vi) any agreement relating to indebtedness in excess of $500,000;

          (vii) any  guarantee or other  contingent  liability in respect of any
     indebtedness  or obligation of any other person (other than the endorsement
     of  negotiable  instruments  for  collection  in  the  ordinary  course  of
     business) in excess of $500,000;

          (viii) any material management service, consulting, financial advisory
     or any other  similar type  contract  including,  without  limitation,  any
     contract with any investment or commercial bank;

          (ix) any  material  agreement,  contract or  commitment  limiting  the
     ability of the Company or any of its  Subsidiaries to engage in any line of
     business or to compete with any person;

          (x) any agreement,  contract or commitment which involves  payments in
     excess of  $100,000  in any  calendar  year and is not  cancelable  without
     penalty within 30 days;

          (xi) any  agreement,  contract  or  commitment  for the  disposal of a
     material  amount of  assets  or  properties  of the  Company  or any of its
     Subsidiaries  (other  than sales to  customers  in the  ordinary  course of
     business);

          (xii) any agreement,  contract or commitment  which is material to the
     Company or any of its  Subsidiaries  and  contain a "change in  control" or
     similar provision;

          (xiii) any agreement,  contract or commitment relating to any material
     joint venture, partnership, strategic alliance or similar arrangement;

          (xiv) any  collective  bargaining  agreement,  labor contract or other
     written arrangement with any labor union or any employee organization;

          (xv)  any  material   agreement,   contract  or  commitment  with  any
     Affiliate; and

          (xvi) any other material agreement, contract or commitment.

     (b) Each Commitment is in full force and effect on the date hereof. Neither
the  Company  nor  any of its  Subsidiaries  is in  default  in  respect  of any
Commitment, and no event has occurred which, with due notice or lapse of time or
both, would  constitute such a default,  except for any such defaults that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  To the best knowledge of the Company,  no other party to any of
the  Commitments  is in default in respect  thereof,  and no event has  occurred
which,  with  due  notice  or lapse of time or  both,  would  constitute  such a
default.

     SECTION  3.21.  Questionable  Payments.  None  of the  Company,  any of its
Subsidiaries  nor,  to  the  Company's   knowledge,   any  employee,   agent  or
representative of the Company or any of its Subsidiaries  acting on their behalf
has,  directly or indirectly,  made any bribes,  kickbacks,  illegal payments or
illegal  political  contributions  using  corporate  funds of the Company or any
Subsidiary  or made any  illegal  payments  to obtain or retain  business  using
corporate  funds of the  Company  or any  Subsidiary  in  violation  of the U.S.
Foreign Corrupt Practices Act of 1977.

     SECTION  3.22.  Accuracy  of  Information.  None  of  the  representations,
warranties or statements  of the Company  contained in this  Agreement or in the
exhibits hereto contains any untrue  statement of a material fact or, taken as a
whole  together  with  the SEC  Documents,  omits  to state  any  material  fact
necessary in order to make any of such representations, warranties or statements
not  misleading.  All information  relating to the Company and its  Subsidiaries
that  may be  material  to a  purchaser  for  value of the  Securities  has been
disclosed to the Purchaser and any such information arising on or after the date
hereof will  forthwith be disclosed to the Purchaser.  Nothing  contained in the
schedules hereto could, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

     SECTION  3.23.  Private  Offering.   None  of  the  Company,   any  of  its
Subsidiaries,  nor anyone  acting on their  behalf,  has offered or sold or will
offer or sell any securities,  or has taken or will take any other action, which
could  reasonably  be  expected  to subject  the offer,  issuance or sale of the
Securities,  as  contemplated  hereby,  to the  registration  provisions  of the
Securities Act.

     SECTION 3.24. Split Pea.

     (a) On the  liquidation  of Split Pea Software,  Inc.  ("Split  Pea"),  the
Company received good, valid and marketable title to all the assets,  properties
and rights of Split Pea, free and clear of any Liens.  The  liquidation of Split
Pea was  effected  in  accordance  with the  liquidation  plan  approved  by the
Company,  and the  shareholders of Split Pea other the Company  received nothing
other than the  forgiveness of the  promissory  note dated December 31, 1998, in
favor of the Company as part of the  liquidation.  This liquidation of Split Pea
was effected in accordance with Applicable Law.

     (b) The Company owns,  licenses,  leases or has any right to use or license
the SuRF  Software (as defined in that certain  Bill of Sale and  Assignment  of
Assets dated as of December 31, 1998 between the Company and Split Pea Software,
Inc.) and any  modifications,  enhancements  or new versions  thereof.  The SuRF
Software  is  not  material  to  the  business  of  the  Company  or  any of its
Subsidiaries  and  neither the  Company  nor any of its  Subsidiaries  utilizes,
relies on, or licenses  the SuRF  Software  in its  business  or  operations  as
currently  conducted or proposed to be conducted  (other than in connection with
the Software License Agreement dated December 12, 1997,  between Coles Myer Ltd.
and the Company).

     SECTION 3.25.  Brokers.  The Company and its  Subsidiaries and their agents
and  representatives  have incurred no  obligation  or liability,  contingent or
otherwise,  for  brokerage or finders'  fees,  agents'  commissions,  investment
banking fees, or other similar payment in connection with this Agreement  except
fees payable in cash to Wasserstein Perella & Co., Inc.  ("Wasserstein") that do
not exceed  $6,000,000,  pursuant to a letter agreement dated August 3, 1999, as
amended by a letter  agreement dated April 13, 2000, and Houlihan Lokey Howard &
Zukin Financial  Advisors,  Inc. ("Houlihan Lokey") that do not exceed $400,000,
pursuant to a letter  agreement  dated February 14, 2000, as supplemented by the
addendum  dated  April 4, 2000,  correct and  complete  copies of which has been
delivered to the Purchaser.

     SECTION 3.26.  Voting and Proxy  Agreements.  Each of the Voting Agreements
are in full force and effect and  constitute a valid and binding  obligation  of
each of the Key  Stockholders,  enforceable  against each in accordance with its
terms.

     SECTION  3.27.  Rights  Agreement.  The  Company,  with the approval of the
Board, has duly amended the Rights Agreement so as (a) to grant to the Purchaser
a number of rights under such agreement ("Rights") equivalent to the number that
would be  associated  with the  number of shares of Common  Stock into which the
shares of Series B Preferred  Stock  purchased by the  Purchaser  hereunder  are
convertible,  as such number may be adjusted  from time to time  pursuant to the
provisions in the Rights  Agreement and the Certificate of  Designation,  (b) to
grant, upon each issuance of shares of Series B Preferred Stock as a dividend on
the  outstanding  shares of Series B Preferred  Stock,  to the recipient of such
dividend,  a number of Rights  equivalent to the number that would be associated
with the number of shares of Common  Stock  into  which such  shares of Series B
Preferred  Stock so issued as dividends are  convertible,  as such number may be
adjusted  from time to time pursuant to the  provisions in the Rights  Agreement
and the  Certificate  of  Designation,  and (c) to exclude the Purchaser and its
Affiliates,   Associates  and  Permitted  Transferees  from  the  definition  of
"Acquiring  Person" in the Rights Agreement.  A copy of the Rights Agreement has
been furnished to the Purchaser. During such time as the Purchaser or any of its
Affiliates  is an owner of any  shares of Series B  Preferred  Stock,  shares of
Common  Stock into which such shares of Series B  Preferred  Stock may have been
converted,  or warrants to purchase shares of Common Stock, and while the Rights
are  outstanding,  (i) the  Company  shall not amend or  supplement  the  Rights
Agreement  in any  manner  that  would  result  in it or any of its  Affiliates,
Associates or Permitted  Transferees becoming an Acquiring Person (as defined in
the Rights  Agreement)  or being the cause or  occasion  of a Trigger  Event (as
defined in the Rights  Agreement)  occurring,  and shall amend or supplement the
Rights  Agreement as necessary to ensure that the Purchaser and its  Affiliates,
Associates or Permitted Transferees does not so become an Acquiring Person or be
the cause or occasion  of a Trigger  Event  occurring,  and (ii) the Company may
amend the Rights  Agreement or may adopt a new rights  agreement  similar to the
Rights  Agreement only if (A) such  amendment or new agreement  provides for the
issuance to the holders of the shares of Series B Preferred  Stock (I) of rights
identical  per share of Common  Stock to those to be issued to  holders of other
shares of Common  Stock,  and (II) of a number of rights  with  respect  to each
share of Series B Preferred  Stock equal to the number of shares of Common Stock
into  which  such  shares of  Series B  Preferred  Stock  are then  convertible,
multiplied  by the number of rights to be issued with respect to each such share
of  Common  Stock,  and (B)  the  Company's  amendment,  adoption  of  such  new
agreement,  or of any amendment or supplement to either  thereto,  complies with
clause (i) (in the case of an adoption of such new agreement, such new agreement
being deemed an amendment to the Rights Agreement under clause (i)).

     SECTION 3.28. Determination of Amount of Capital. The Board of Directors of
the Company has, by resolution,  duly resolved in accordance with Section 154 of
the DGCL that $7,300 (constituting the aggregate par value of the 730,000 shares
of Series B Preferred Stock to be issued by the Company to the Purchaser)  shall
constitute  "capital"  and the  remainder of the  consideration  received by the
Company for such shares shall constitute  "surplus" (in each case, as such terms
are used in Section 154 of the DGCL).

     SECTION  3.29.  Fairness  Opinion.  The  Company's  Board of Directors  has
received  oral  opinions  of each of  Wasserstein  and  Houlihan  Lokey that the
proposed  consideration to be received by the Company pursuant to this Agreement
is fair to the  Company  and from a  financial  point of view.  A  complete  and
correct signed copy of a written opinion confirming each such oral opinion shall
be delivered to the Company on April 17, 2000.  Promptly  upon receipt  thereof,
the Company shall deliver such written opinions to the Purchaser.

     SECTION 3.30 State Takeover  Statutes.  The Company has taken all necessary
actions to render  inapplicable  Section 203 of the DGCL to the  Purchaser,  its
Affiliates,  Associates  and their  transferees.  No other  takeover  statute or
similar statute or regulation of any state is applicable to this Agreement,  the
Previously  Issued Warrants or the Warrants  (including all of the  transactions
contemplated hereby and thereby).

     SECTION 3.31.  Malloy Stock,  Options and Note.  The Company and William M.
Malloy have executed a Separation Agreement (the "Malloy Agreement") in the form
previously delivered to the Purchaser.

     SECTION  3.32 Other  Interests.  Except for the  Company's  interest in its
Subsidiaries,  or as set forth in  Schedule  3.32,  neither  the Company nor its
Subsidiaries  owns  directly or indirectly  any interest or investment  (whether
equity or debt) in, nor is the Company or any of its Subsidiaries subject to any
obligation or  requirement to provide for or to make any investment (in the form
of a loan, capital contribution or otherwise) to or in, any person.

     SECTION 3.33 Books and Records.  The respective minute books of the Company
and its  Subsidiaries,  to the extent previously made available to the Purchaser
and its  representatives,  contain,  and the respective  minutes of books of the
Company and its  Subsidiaries  made  available to the  Purchaser  after the date
hereof will contain,  accurate records of all meetings of, and corporate actions
taken by (including action taken by written consent) the respective shareholders
and Board of Directors of the Company and its Subsidiaries,  it being understood
that certain of such  minutes are in draft form and are marked as such.  None of
the  Company  or any of  its  Subsidiaries  has  any  of its  records,  systems,
controls,  data  or  information  recorded,  stored,  maintained,   operated  or
otherwise  wholly or partly  dependent upon or held by any means  (including any
electronic,  mechanical or photographic  process,  whether  computerized or not)
which  (including  all means of access  thereto and therefrom) are not under the
exclusive ownership and direct control the Company or its Subsidiaries.

     SECTION 3.34 Personal Property.  Except for properties and assets reflected
in the Financial  Statements,  or acquired since  December 31, 1999,  which have
been sold or otherwise  disposed of in the ordinary course of business,  each of
the Company and its Subsidiaries has good, valid and marketable title to (a) all
of  its  owned  personal   properties  and  assets  (tangible  and  intangible),
including,  without  limitation,  all  of the  personal  properties  and  assets
reflected in the Audited Financial Statements, except as may be indicated in the
notes thereto,  and (b) all of the personal  properties and assets  (tangible or
intangible)  purchased by the Company and its  Subsidiaries  since  December 31,
1999, in each case free and clear of all Liens,  except for Permitted Liens. All
of the  tangible  personal  property  owned  by  each  of the  Company  and  its
Subsidiaries is in good operating  condition and repair,  ordinary wear and tear
excepted,  and is adequate  and  suitable  for the  purposes  for which they are
presently being used.

     SECTION 3.35 Accounts  Receivable.  The amount of all accounts  receivable,
unbilled invoices and other debts due or recorded in the respective  records and
books of account of the Company and its Subsidiaries as being due to the Company
and its  Subsidiaries as of the date hereof (less the amount of any provision or
reserve  therefor made in  accordance  with GAAP in the  respective  records and
books of account of the Company and its  Subsidiaries)  are good and collectible
in full in the ordinary course of business; and none of such accounts receivable
or other debts is subject to any counterclaim or set-off except to the extent of
any such provision or reserve.  The reserve for doubtful  accounts  reflected in
the Audited  Financial  Statements has been  established in accordance with GAAP
and no  receivable  which should have been  written down or reserved  against in
accordance  with GAAP has not been written down or reserved  against.  There has
been no  material  adverse  change  since  December  31,  1999 in the  amount of
accounts  receivable or other debts due to the Company and its  Subsidiaries  or
the allowances with respect thereto,  or accounts payable of the Company and its
Subsidiaries, from that reflected in the Audited Financial Statements.

     SECTION 3.36 Inventory.  The inventory of the Company and its  Subsidiaries
consists of items that are in all material  respects good and  merchantable  and
are of a  quality  and  quantity  presently  usable  in the  ordinary  course of
business.  The  inventory  is valued (on an average  cost basis) at the lower of
cost or market value. All items of the inventory have been properly  recorded on
the books and records of the Company (including appropriate provisions for items
which are obsolete,  below standard  quality or unusable given the current state
of operations of the Company),  all in accordance with GAAP.  Since December 31,
1999, none of the Company nor any of its  Subsidiaries has changed the method of
valuing its respective inventory.

     SECTION 3.37 Product  Liability.  There are no recalls in progress,  or the
best knowledge of the Company, threatened or pending under the Consumer Products
Safety Act, as amended, or any similar act or statute  (collectively,  "Consumer
Protection Legislation") with respect to any products sold by the Company or its
Subsidiaries,  and no  report  has been  filed  under  any  Consumer  Protection
Legislation  or is required to be filed with  respect to any product sold by the
Company or its Subsidiaries.

     SECTION  3.38  Copies of  Documents.  The Company  has made  available  for
inspection and copying by the Purchaser and their advisers,  true,  complete and
correct  copies of (i) all  documents  referred to in this Article III or in any
schedule  hereto,  and (ii)  execution  versions  of all  documents  prepared in
connection with the proposed  transaction  involving Apollo  Investment Fund IV,
L.P., Apollo Overseas  Partners IV, L.P., Ares Leveraged  Investment Fund, L.P.,
Ares Leveraged  Investment Fund II, L.P., Parande,  S.A.S., GRP II, L.P., GRP II
Partners,  L.P.,  Pequot  Private  Equity Fund II,  L.P.  and  Internet  Grocery
Partners, L.P.

                                   ARTICLE IV

                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser hereby represents and warrants to the Company as follows:

     SECTION 4.1. Authorization; Enforceability; No Violations.

     (a) The Purchaser is duly  organized and validly  existing in good standing
as a corporation  under the laws of its jurisdiction of organization and has all
requisite  corporate power and authority to own its properties and assets and to
carry on its  business  as it is now  being  conducted.  The  Purchaser  has the
corporate power to execute,  deliver and perform the terms and provisions of the
Documents  and has  taken  all  necessary  corporate  action  to  authorize  the
execution,  delivery and  performance  by it of such Documents and to consummate
the transactions contemplated hereby and thereby. No other corporate proceedings
on the part of the Purchaser is necessary therefor.

     (b) The Purchaser has duly executed and delivered  this  Agreement and will
duly  execute  and  deliver  the other  Documents  to which it is a party.  This
Agreement  constitutes,  and the other  Documents  to which the  Purchaser  is a
party,  when  executed and  delivered by the  Purchaser,  and,  assuming the due
execution by the other parties  hereto and thereto,  will  constitute the legal,
valid  and  binding  obligations  of  the  Purchaser,  enforceable  against  the
Purchaser  in  accordance  with their  terms,  except as  enforceability  may be
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
similar laws  affecting the  enforcement of creditors'  rights  generally and by
general principles of equity  (regardless of whether  enforcement is sought in a
proceeding in equity or at law).

     SECTION 4.2. Consents. No consent,  authorization or order of, or filing or
registration with, any Governmental  Authority or other person is required to be
obtained or made by the Purchaser for the execution, delivery and performance by
the  Purchaser  of  this  Agreement  or  any  of  the  other  Documents  or  the
consummation  of any of the  transactions  contemplated  hereby or thereby other
than those  required  for a Closing  that will have been made or  obtained on or
prior to such Closing.

     SECTION 4.3. Private Placement.

     (a) The  Purchaser  understands  that  (i)  the  offering  and  sale of the
Securities  by the  Company  to the  Purchaser  is  intended  to be exempt  from
registration under the Securities Act pursuant to section 4(2) thereof, and (ii)
there is no existing public or other market for the Securities.

     (b)  The  Securities  to be  acquired  by the  Purchaser  pursuant  to this
Agreement are being  acquired for its own account and without a view to making a
distribution  thereof in violation of the  Securities  Act,  without  prejudice,
however,  to its right to sell or  otherwise  dispose of all or any part of such
Securities  in  compliance  with  the  provisions  of  the  Securities  Act  and
applicable state securities or "blue sky" laws.

     (c) The Purchaser has sufficient  knowledge and experience in financial and
business  matters so as to be capable of evaluating  the merits and risks of its
investment  in the  Securities  and the  Purchaser  is capable  of  bearing  the
economic risks of such  investment,  including a complete loss of its investment
in the Securities.

     (d) The Purchaser is an  "accredited  investor," as such term is defined in
Regulation D under the Securities Act.

     (e) The  Purchaser  acknowledges  that the Company and, for purposes of the
opinions to be delivered to the  Purchaser  pursuant to Section  7.2(n)  hereof,
Sidley & Austin will rely on the  accuracy and truth of its  representations  in
this Section 4.3, and the Purchaser hereby consents to such reliance.

     (f) The Purchaser has had the  opportunity to ask questions of, and receive
answers  from,  representatives  of the Company  concerning  the Company and the
terms and conditions of this  transaction,  as well as to obtain any information
requested by the Purchaser. Any questions raised by the Purchaser concerning the
transaction  have  been  answered  to the  satisfaction  of the  Purchaser.  The
Purchaser's decision to enter into the transactions contemplated hereby is based
in part on the answers to such questions as the Purchaser has raised  concerning
the transaction and on the Purchaser's own evaluation of the risks and merits of
the purchase and the Company's proposed business activities.

                                    ARTICLE V

                            COVENANTS OF THE COMPANY

     SECTION 5.1. Operation of Business.

     (a)  Except as  contemplated  hereby or as  consented  to in writing by the
Purchaser,  between the date hereof and the Final Closing Date,  and  thereafter
for so long as the  Purchaser,  together with its  Affiliates,  or any Permitted
Transferee, beneficially owns Threshold Securities, the Company shall, and shall
cause each of the Subsidiaries  to: (i) in all material  respects carry on their
respective businesses in, and not enter into any material transaction other than
in accordance with, the regular and ordinary course (including  related Internet
ventures),  (ii) use their  commercially  reasonable  efforts to preserve intact
their  business  organizations,  (iii)  keep  available  the  services  of their
officers and employees,  and (iv) preserve their  relationships  with customers,
suppliers  and others  having  material  business  dealings  with them,  and (v)
maintain, in all material respects, its assets and properties and keep its books
in  accordance  with present  practices in a condition  suitable for its current
use.

     (b) Between the date hereof and the Final Closing Date,  and thereafter for
so long  as the  Purchaser,  together  with  its  Affiliates,  or any  Permitted
Transferee,  beneficially  owns  Threshold  Securities,  except as provided  for
herein,  or contemplated  hereby,  and except as consented to or approved by the
Purchaser,  the Company shall not, and shall not permit any of the  Subsidiaries
to,  take any  action  that would  reasonably  be  expected  to cause any of the
representations  and  warranties  made by the Company in this  Agreement  not to
remain true and correct as if made at and as of each Closing Date.

     (c) Notwithstanding  Section 5.2, the Company and Purchaser shall cooperate
and take all actions reasonably  necessary to appoint,  within ten Business Days
from the date  hereof,  as Chief  Executive  Officer the person  selected by the
Purchaser and reasonably  satisfactory  to the Company,  on terms and conditions
mutually  satisfactory to the Company and the Purchaser.  The Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly, without
the approval of the Purchaser, terminate the employment of, amend the employment
terms or reduce the responsibility or authority of the Chief Executive Officer.

     (d) The  Company  shall  use its  reasonable  best  efforts  to enter  into
employment agreements (with incentive compensation plans) with the key employees
who are of vice president level or above identified on the employment term sheet
provided by the Purchaser to Thomas L.  Parkinson and Andrew B.  Parkinson on or
about the date hereof, on the terms and conditions set forth in such term sheet.

     SECTION 5.2. Negative Covenants. Without limiting the generality of Section
5.1, and, except as otherwise  expressly permitted or required by this Agreement
or set forth in Schedule  5.2,  between  the date  hereof and the Final  Closing
Date, and thereafter for so long as the Purchaser, together with its Affiliates,
or any Permitted Transferee, beneficially owns Threshold Securities, the Company
shall not, and shall not permit any of its  Subsidiaries  to,  without the prior
written  consent  of  the  Purchaser,  except  to  the  extent  that  any of the
restrictions  set forth  below are also  restrictions  contained  in the  Credit
Agreement in effect as of the date hereof,  the Company shall only be restricted
herein to the extent the  Company is  restricted  from taking such action in the
Credit Agreement.

     (a) (i) declare, set aside or pay any dividends on (whether in cash, shares
of capital stock of the Company,  or other property),  or make any other actual,
constructive or deemed distributions in respect of, any of its capital stock, or
otherwise make any payments to  shareholders of the Company in their capacity as
such,  except  Series B  Preferred  Stock and  dividends  payable to the Company
declared by any of the Company's Subsidiaries, (ii) split, combine or reclassify
any of its  capital  stock or issue  or  authorize  the  issuance  of any  other
securities  in  respect  of,  in lieu of or in  substitution  for  shares of its
capital stock or (iii) other than in connection  with the  liquidation  of Split
Pea,  purchase,  redeem or otherwise  acquire any shares of capital stock of the
Company  or any of its  Subsidiaries  or any  other  securities  thereof  or any
rights,  warrants or options to acquire any such shares or other  securities  or
set apart money or other  property for any mandatory  purchase or analogous fund
for the  redemption,  purchase or  acquisition of any shares of capital stock of
the Company  (other than  shares of Series B Preferred  Stock that are  redeemed
according to their terms);

     (b)  authorize,  issue,  deliver,  sell,  pledge,  dispose of or  otherwise
encumber any shares of its capital  stock or other voting  securities  or equity
equivalent or any securities  convertible  into or  exchangeable  or exercisable
for,  or any rights,  warrants or options to acquire,  any such shares or voting
securities or convertible  securities or equity  equivalent or any phantom stock
or stock  appreciation  rights or enter  into any  agreement  or  contract  with
respect to the sale or  issuance of any of such  securities;  other than (i) any
issuance of Common Stock upon exercise of any options or warrants outstanding on
the date hereof,  (ii) the issuance of stock options  pursuant to employee stock
option  plans  providing  for the  issuance  of  shares  of  Common  Stock in an
aggregate amount not to exceed 2,600,000 shares and the issuance of Common Stock
upon exercise thereof (iii) the issuance of 500,000 warrants to the McLane Group
and the issuance of Common Stock upon exercise  thereof and (iv) the issuance of
shares of Common Stock to employees under the Company's  employee stock purchase
plan in effect as of the date hereof.

     (c) amend its Charter or Bylaws,  the  Certificate  of  Designation  or the
Rights Agreement or equivalent governing documents;

     (d)  acquire  or agree to  acquire  by merging  with,  or by  purchasing  a
material amount of assets of or equity in, or by any other manner,  any business
or any corporation,  partnership,  association or other business organization or
division thereof or otherwise  acquire or agree to acquire any assets other than
(i)  inventory  in the ordinary  course of business or assets  having a purchase
price not in excess of $100,000 individually or $500,000 in the aggregate;

     (e)  sell,  lease or  otherwise  dispose  of or  agree  to  sell,  lease or
otherwise  dispose of, any of its assets,  other than sales of  inventory in the
ordinary course of business,  or which involve assets having a current value not
in excess of $100,000  individually  or $500,000 in the  aggregate  or allow any
properties or assets (including,  without limitation,  Intellectual Property) to
become subject to any Lien other than a Permitted Lien;

     (f) incur any  indebtedness for borrowed money in excess of $100,000 in any
calendar  year or  guarantee  any  such  indebtedness  or issue or sell any debt
securities  or  guarantee  any debt  securities  of  others,  or make any loans,
advances or capital contributions to, or investments,  in each case in excess of
$100,000 in the aggregate in any calendar year in, any other person other than a
wholly  owned  subsidiary,  enter into any  "keep-well"  or other  agreement  to
maintain any financial  state and condition of another  person or enter into any
arrangement having the economic effect of any of the foregoing;

     (g) grant any severance or  termination  pay not  currently  required to be
paid under existing  severance plans or enter into or adopt, or materially amend
any  existing,  severance  plan,  agreement  or  arrangement,  or enter  into or
materially amend any employee benefit plan except as required by Applicable Law,
or enter into,  materially  amend or  terminate  any  employment  or  consulting
agreement, except, in each case as required by Applicable Law;

     (h)  enter  into  any  contract  or  commitment  with  respect  to  capital
expenditures  other than  expenditures  within a capital budget  approved by the
Purchaser for a calendar year or capital  expenditures not in excess of $100,000
in the aggregate in any calendar year;

     (i) except to the extent  required  under  existing  employee  and director
benefit  plans,  agreements  or  arrangements  as in  effect on the date of this
Agreement or as required  under  Applicable  Law,  make a material  amendment or
modification  of  the  compensation,  bonus  or  fringe  benefits  of any of its
directors, officers or employees of the Company or any of its Subsidiaries;

     (j) agree to the settlement of any material claim or litigation;

     (k) make or rescind any material tax election or settle or  compromise  any
material tax liability;

     (l) except as required by  Applicable  Law or GAAP,  make any change in its
method of accounting or accounting policies;

     (m) except as set forth on the Schedules  hereto,  accelerate  the payment,
right to payment or vesting of any bonus, severance, profit sharing, retirement,
deferred  compensation,   stock  option,  insurance  or  other  compensation  or
benefits;

     (n)  pay,  discharge  or  satisfy  any  material  claims,   liabilities  or
obligations   (absolute,   accrued,   asserted  or  unasserted,   contingent  or
otherwise),  other  than the  payment,  discharge  or  satisfaction  of any such
claims,  liabilities  or  obligations  in the  ordinary  course of business  and
consistent with past practice;

     (o)  enter  into  any   agreement,   understanding   or   commitment   that
significantly  restrains,  limits  or  impedes  the  Company's  or  any  of  its
Subsidiaries'  ability  to  compete  with or  conduct  any  business  or line of
business, including, but not limited to, geographic limitations on the Company's
or any of its Subsidiaries' activities;

     (p)  materially  modify,  amend or terminate any Commitment or waive any of
its  rights  or  claims  thereunder  or  enter  into  any  contract,  agreement,
commitment or arrangement  that, if in existence on the date hereof,  would be a
Commitment;

     (q)  establish,  adopt,  enter  into,  amend or  terminate  any  collective
bargaining,   bonus,  profit  sharing,  thrift,   compensation,   stock  option,
restricted  stock,  pension,  retirement,  deferred  compensation,   employment,
termination,  severance  or  other  plan,  agreement,  trust,  fund,  policy  or
arrangement for the benefit of any directors,  officers or employees, except, in
the case of  collective  bargaining,  pension  or  retirement  arrangements,  or
trusts, as required by Applicable Law;

     (r) execute any new lease or sublease for real property  requiring payments
in excess of $100,000 in any  calendar  year,  or cancel,  modify,  terminate or
amend any lease or sublease for real property;

     (s) close any distribution center,  office or other premises of the Company
or any of its Subsidiaries;

     (t)  adopt  or  enter  into a plan  of  complete  or  partial  liquidation,
dissolution, winding up, merger, consolidation, restructuring,  recapitalization
or other  reorganization of the Company or any of its  Subsidiaries,  other than
liquidations,    dissolutions,    mergers,    consolidations,    restructurings,
recapitalizations,   or  other   reorganizations   involving  only  wholly-owned
Subsidiaries of the Company and no other person;

     (u) plan,  announce,  implement or effect any reduction in force,  lay-off,
early  retirement  program,   severance  program  or  other  program  or  effort
concerning  the  termination  of  employment  of employees of the Company or its
Subsidiaries;

     (v) fail to maintain its Intellectual Property as currently maintained,  or
allow any  material  Intellectual  Property  to  expire or to become  abandoned,
canceled or otherwise terminated;

     (w)  commence or  terminate  the  employment  of, or  materially  amend the
employment terms of, or change the  responsibilities or duties of, the Chairman,
Chief Executive Officer,  President,  Chief Operating  Officer,  Chief Financial
Officer  or Chief  Technology  Officer  or any other  executive  officer  of the
Company;

     (x)  transfer,  license,  sell  or  otherwise  dispose  of  any  materially
Intellectual Property or Software;

     (y) enter into any agreement,  arrangement  or transaction  with or for the
benefit of any person who is an Affiliate of the Company;

     (z) in any way change the preferences, rights or powers with respect to the
Series  B  Preferred  Stock,  so as to  affect  the  Series  B  Preferred  Stock
adversely;

     (aa) create any Subsidiary;

     (bb) cause or permit the number of  directors  of the Company to be greater
than 11;

     (cc) take any action  including,  without  limitation,  the adoption of any
shareholder rights plan or amendments to its Charter,  Bylaws or other governing
documents,  which would, directly or indirectly,  restrict or impair the ability
of the  Purchaser  to vote,  or otherwise to exercise the rights and receive the
benefits of a stockholder with respect to, securities of the Company that may be
acquired or controlled by the Purchaser; or

     (dd) agree to any  restriction  on the  Company's  ability  to satisfy  its
obligations  under  the  Certificate  of  Designation  to  holders  of  Series B
Preferred Stock or the Company's  ability to honor the exercise of any rights of
the holders of the Series B Preferred Stock;

     (ee) increase the number of authorized  shares of Series B Preferred  Stock
or authorize the issuance of or issue any shares of the Series B Preferred Stock
(other than the issuance of additional  shares of Series B Preferred Stock to be
paid as dividends on the Series B Preferred  Stock  pursuant to the terms of the
Certificate of Designation); and

     (ff) agree, in writing or otherwise, to take any of the foregoing actions.

     SECTION  5.3.  Access to Books and Records.  Upon  reasonable  notice,  the
Company shall afford, and shall cause each of the Subsidiaries to afford, to the
Purchaser and the  Purchaser's  accountants,  counsel and  representatives  full
access to all the Company's and the Subsidiaries' properties,  books, contracts,
commitments,  records (including,  but not limited to, tax returns),  employees,
customers,  suppliers  and  accountants  and,  shall  furnish  promptly  to  the
Purchaser  (a) a copy of each  report,  schedule  and  other  document  filed or
received by the Company or any of the Subsidiaries  pursuant to the requirements
of federal or state  securities laws, and (b) all other  information  concerning
the Company's and the  Subsidiaries'  business,  properties and personnel as the
Purchaser may reasonably  request,  provided that no investigation or receipt of
information  pursuant to this  Section 5.3 shall  affect any  representation  or
warranty of the Company or the conditions to the obligations of the Purchaser.

     SECTION 5.4. Agreement to Take Necessary and Desirable Actions. The Company
shall execute and deliver the Documents and such other documents,  certificates,
agreements  and other  writings and take such other actions as may be necessary,
desirable or  reasonably  requested by the  Purchaser in order to  consummate or
implement as expeditiously as practicable the transactions contemplated hereby.

     SECTION 5.5. Compliance with Conditions;  Commercially  Reasonably Efforts.
The Company shall use its  commercially  reasonable  efforts to cause all of the
obligations  imposed upon it in this  Agreement to be duly  complied with and to
cause  all  conditions  precedent  to the  obligations  of the  Company  and the
Purchaser to be satisfied.  Upon the terms and subject to the conditions of this
Agreement, the Company shall use its commercially reasonable efforts to take, or
cause to be  taken,  all  action,  and to do,  or cause to be done,  all  things
necessary,  proper or advisable consistent with Applicable Law to consummate and
make  effective in the most  expeditious  manner  practicable  the  transactions
contemplated hereby.

     SECTION  5.6.  Consents  and  Approvals.  The  Company  shall  (a)  use its
commercially  reasonable  efforts to obtain  all  necessary  consents,  waivers,
authorizations  and approvals of all  Governmental  Authorities and of all other
persons,  firms or  corporations  required  in  connection  with the  execution,
delivery and performance by them of this Agreement, any other Document or any of
the transactions  contemplated hereby or thereby,  and (b) diligently assist and
cooperate  with the Purchaser in preparing and filing all documents  required to
be submitted by the Purchaser to any  Governmental  Authority in connection with
such  transactions  and  in  obtaining  any  governmental   consents,   waivers,
authorizations  or  approvals  which  may  be  required  to be  obtained  by the
Purchaser in connection with such transactions (which assistance and cooperation
shall  include,  without  limitation,  timely  furnishing  to the  Purchaser all
information  concerning  the Company and its  Subsidiaries  that  counsel to the
Purchaser  determines  is required to be included in such  documents or would be
helpful  in  obtaining  any such  required  consent,  waiver,  authorization  or
approval).

     SECTION  5.7.  Stockholder  Approval  The  Company  shall  (a) as  soon  as
practicable,  but not later than 30 days after the date hereof, prepare and file
a  proxy  statement  with  the  Commission  with  respect  to the  holding  of a
stockholders'  meeting (the "Stockholder  Meeting") for the purpose of obtaining
stockholder approval ("Stockholder  Approval") of, amongst other things, (i) the
issuance of the Series B Preferred  Stock and Warrants to the extent required by
Applicable  Law  and  NASD  rules  and  regulations,   (ii)  the  amendment  and
restatement of the Company's Certificate of Incorporation in a manner reasonably
satisfactory to the Purchaser and to reflect the corporate  governance  provided
for  herein,  and (iii) more  generally,  if  requested  by the  Purchaser,  the
approval  of  this  Agreement,   the  other   Documents  and  the   transactions
contemplated  hereby and  thereby,  (b)  promptly  call and give  notice of such
meeting following the Commission's  clearance of such proxy statement and (c) on
or before the fortieth (40th) day following the  Commission's  clearance of such
proxy  statement,  convene  and hold such  meeting.  The  Company  shall use its
commercially  reasonable  best  efforts  to obtain  such  Stockholder  Approval,
including,  but not limited to, responding promptly to the Commission's comments
in order to obtain clearance of such proxy statement. The Company shall, through
its Board of Directors,  recommend to its stockholders that Stockholder Approval
be given, and the Company shall use its best efforts to cause each member of the
Company's Board of Directors and all other Key Stockholders to vote their shares
of Common  Stock to approve  the items set forth in clause  (a) of this  Section
5.7. The Company  shall  otherwise  use its best efforts to obtain the requisite
vote of its stockholders to obtain the Stockholder  Approval.  The Company shall
afford the Purchaser and its counsel an  opportunity  to review and comment upon
any  description of the Purchaser or its Affiliates,  this Agreement,  the other
Documents or the transactions  contemplated hereby and thereby set forth in such
proxy  statement  (including  all drafts or amendments  thereto).  The Purchaser
shall provide the Company with all necessary  information  reasonably  requested
with respect to itself and its Affiliates solely for inclusion by the Company in
such proxy  statement.  The Company shall notify the  Purchaser  promptly of the
receipt of any comments  from the  Commission or its staff and of any request by
the  Commission  or its  staff  for  amendments  or  supplements  to such  proxy
statement  or for  additional  information  and will supply the  Purchaser  with
copies of all correspondence  between the Company or any of its representatives,
on the one hand,  and the  Commission  or its  staff,  on the other  hand,  with
respect  to such  proxy  statement.  If at any time  prior to such  stockholders
meeting  there shall occur any event that would be required,  under the Exchange
Act and the rules and regulations thereunder, to be set forth in an amendment or
supplement to such proxy  statement,  the Company will promptly prepare and mail
to its stockholders such an amendment or supplement.

     SECTION 5.8. Tax Treatment of Preferred  Stock.  The Company  covenants and
agrees not to take any action  inconsistent  with the Series B  Preferred  Stock
being considered common stock for U.S. Federal income tax purposes.

     SECTION 5.9.  Other  Activities  of  Purchaser.  Nothing  contained in this
Agreement or any other  agreement of the Company shall be deemed to prohibit the
Purchaser or any of its  Affiliates  from forming or investing in other entities
engaged in activities similar to, or competitive with, those of the Company,  or
from competing with the Company or any of its Subsidiaries;  provided,  however,
in no event shall this  provision  override  any  restriction  contained  in the
Services Agreement.

     SECTION 5.10. HSR Act Filings.

     (a) As  promptly as  practicable  after the date hereof but in any event no
later than 10 Business Days  thereafter,  the Company shall file all reports and
documents  as may be  necessary  to comply with the HSR Act.  The Company  shall
cooperate  with  and  assist  the  Purchaser  and  take  such  action  as may be
reasonably  required and as permitted  under law in connection with such filings
(including  cooperating with additional requests for information,  documents and
interviews  of officers  and  personnel by either of the  antitrust  enforcement
agencies).

     (b) The Company shall use commercially  reasonable  efforts to resolve such
objections,  if any, as may be asserted  under any antitrust law with respect to
the transactions contemplated by this Agreement. If any administrative, judicial
or  legislative  action  or  proceeding  is  instituted  (or  threatened  to  be
instituted)  challenging  any  transaction  contemplated  by this  Agreement  as
violative of any antitrust law, the Company shall, (i) cooperate with and assist
the Purchaser to contest and resist any such action or  proceeding,  and to have
vacated,  lifted,  reversed or overturned  any decree,  judgment,  injunction or
other order (whether temporary,  preliminary or permanent) that is in effect and
that  restricts,  prevents or  prohibits  consummation  of the  transactions  as
contemplated by this Agreement,  including,  without limitation, by pursuing all
reasonable avenues of administrative and judicial appeal.

     SECTION 5.11. No Solicitation.

     (a) From the date hereof until the Closing  Date, or the Final Closing Date
if the Purchaser elects to have more than one Closing, the Company shall not and
shall cause its Affiliates  and each of their  respective  officers,  directors,
employees, auditors, agents, representatives,  consultants, advisors, investment
bankers,    attorneys,    accountants    and   other    agents    (collectively,
"Representatives")  not to,  directly or  indirectly,  (i) initiate,  solicit or
entertain  offers from,  negotiate  with or in any manner  knowingly  encourage,
discuss,  accept,  or consider any proposal of any other person  relating to (w)
the  acquisition  of capital  stock of the  Company or any of its  Subsidiaries,
securities  convertible  into or exchangeable for shares of capital stock of the
Company or any of its Subsidiaries,  (x) the acquisition of the Company's or any
of its Subsidiaries'  assets or business,  in whole or in part, whether directly
or indirectly,  through purchase, merger,  consolidation,  business combination,
recapitalization,  liquidation,  dissolution or otherwise, (y) the incurrence of
indebtedness  for borrowed money by the Company or any of its  Subsidiaries,  or
(z) any other transaction the consummation of which could reasonably be expected
to  impede,  interfere  with,  prevent,  delay or  dilute  the  benefits  to the
Purchaser  of  the  transactions   contemplated   hereby,   including,   without
limitation,  by taking any action that would make Section 203 of the DGCL or the
Rights  Agreement  inapplicable  to an Alternative  Transaction  (other than the
transactions contemplated by this Agreement,  sales of inventory in the ordinary
course and shares  issued upon the exercise of existing  stock  options) (any of
the foregoing being an "Alternative  Transaction"),  (ii) initiate,  participate
engage  in, or agree to  initiate,  participate  or engage  in  negotiations  or
discussions  concerning,  or provide to any person or entity any  information or
data relating to the Company or any Subsidiary,  or otherwise  cooperate with or
assist or participate  in,  facilitating  or  encouraging,  any inquiries or the
making of any proposal that  constitutes,  or may reasonably be expected to lead
to  an  Alternative  Transaction,  (iii)  in  connection  with  any  Alternative
Transaction,  require  it to  abandon,  terminate  or  fail  to  consummate  the
transactions  contemplated by this Agreement or the other Documents,  (iv) grant
any waiver or release under or amend any standstill,  confidentiality or similar
agreement   entered   into  by  the  Company  or  any  of  its   Affiliates   or
representatives; (v) agree to, approve or recommend any Alternative Transaction,
or (vi) take any other action  inconsistent with the obligations and commitments
assumed by the Company pursuant to this Section 5.11;  provided,  however,  that
nothing  contained  herein shall limit the ability of the Company to comply with
Rule 14d-9 and Rule 14e-2  promulgated  under the  Exchange  Act;  and  provided
further  that if, in respect of an offer,  proposal  or  inquiry  relating  to a
possible  Alternative  Transaction  from a third  party or entity made after the
date hereof which has not been  solicited or  encouraged  in violation of clause
(i) or (ii) above,  the Board of  Directors  of the Company  determines  in good
faith,  after  consultation with counsel,  that its fiduciary duties so require,
the Company and its  Representatives may participate or engage in discussions or
negotiations  with  such  third  party or  entity  concerning  such  Alternative
Transaction,  or provide such third party with  information  or data relating to
the Company or any  Subsidiary,  in each case for purposes of complying with its
disclosure  obligations to its stockholders in connection with the Stockholders'
Meeting.  The Company shall  immediately  cease and cause to be  terminated  any
existing activities,  discussions or negotiations by the Company, its Affiliates
or their respective  Representatives  with any person conducted  heretofore with
respect to any of the foregoing.  Without  limiting the foregoing,  it is agreed
that any  violation  of the  restrictions  set forth in this Section 5.11 by any
Representative  of the  Company  or any of its  Affiliates  whether  or not such
person is purporting  to act on behalf of the Company or any of its  Affiliates,
shall constitute a breach of this Section 5.11 by the Company.

     (b) From the date hereof until the Closing  Date, or the Final Closing Date
if the  Purchaser  elects to have more than one  Closing,  neither  the Board of
Directors of the Company nor any committee  thereof shall (i) withdraw or modify
the approval or  recommendation  by such Board of Directors or such committee of
this  Agreement,  the other  Documents or any of the  transactions  contemplated
hereby or thereby,  (ii) approve or recommend  any  Alternative  Transaction  or
(iii) cause or permit the Company or any  Affiliate  to enter into any letter of
intent, agreement in principle or other arrangement or agreement with respect to
an Alternative Transaction.

     (c) In addition to the  obligations  of the Company set forth in paragraphs
(a) and (b) of this Section 5.11,  the Company shall  promptly (but in any event
within 24 hours of  receipt or  occurrence  thereof),  (i) advise the  Purchaser
orally and in writing of any request  for  information  with  respect to, or any
inquiry or proposal regarding any Alternative Transaction, or of any information
received from Tribune or Nevis in respect of a request for information  directed
to such stockholder with respect to, or of any inquiry or proposal regarding any
Alternative  Transaction,  (ii) advise the Purchaser of the terms and conditions
of such request or inquiry,  and (iii)  provide to the  Purchaser  copies of any
written  documentation  material to  understanding  or evaluating  such request,
Alternative Transaction or inquiry (the "Alternative Transaction Documentation")
which is received by the Company from the person (or from any Representatives of
such person) making such  Alternative  Transaction,  inquiry or proposal and the
identity of the person making any such request,  Alternative Transaction or such
inquiry or proposal.  The Company shall (x) keep the Purchaser fully informed of
the status and material details (including amendments or proposed amendments) of
any such  request  or  Alternative  Transaction,  (y) keep the  Purchaser  fully
informed  as to the  material  details  of any  information  requested,  and (z)
provide to the  Purchaser  within one day of receipt  thereof  all copies of any
additional  Alternative  Transaction  Documentation received by the Company from
the person (or from any  Representatives of such person) making such Alternative
Transaction,  inquiry or proposal.  The Company  shall  promptly  provide to the
Purchaser any information concerning the Company provided to any other person in
connection with any Alternative Transaction which was not previously provided to
the Purchaser.

     (d) The Company shall immediately  request each person which has heretofore
executed a  confidentiality  agreement in connection with its  consideration  of
acquiring  the  Company  or  any  portion  thereof  to  return  or  destroy  all
confidential  information heretofore furnished to such person by or on behalf of
the Company and the Company  shall use its  commercially  reasonable  efforts to
have such information returned.

     SECTION 5.12. Use of Proceeds.  The Company shall use the proceeds from the
sale of Securities  hereunder first to repay any indebtedness  owing pursuant to
the Credit  and  Security  Agreements  and  thereafter  for the  development  of
distribution   facilities,   advertising  and  marketing  expenses  and  general
corporate purposes.

     SECTION  5.13.  Reduction  of  Capital.  In the event  that at any time the
Company has insufficient  "surplus" and "net profits" required under Section 170
of the DGCL to declare  dividends  on the shares of Series B Preferred  Stock in
accordance with the terms of the  Certificate of Designation,  the Company shall
reduce its  capital by  transferring  a portion of the capital to surplus to the
maximum extent permitted under Section 244 of the DGCL.

     SECTION 5.14. Amendment of Bylaws. Prior to first Closing Date, or if there
is only one Closing,  the Final Closing Date, the Company shall amend its bylaws
in a  manner  reasonably  satisfactory  to  the  Purchaser  and to  reflect  the
corporate governance provided for herein.

     SECTION 5.15.  Transfer  Agent;  CUSIP Prior to the  effective  date of any
registration statement covering the Securities,  the Company shall (i) appoint a
transfer agent and registrar for the Securities, (ii) provide the transfer agent
with printed certificates for the Securities in a form eligible for deposit with
The  Depository  Trust  Company,  and  (iii)  provide  a  CUSIP  number  for the
Securities.

     SECTION 5.16.  Notification of Certain Matters.  The Company shall promptly
notify the Purchaser of the  occurrence or  non-occurrence  of any fact or event
which has caused or could  reasonably  likely  cause (x) any  representation  or
warranty  made by it in this  Agreement  or the other  Documents to be untrue or
inaccurate in any material respect at any time or (y) any covenant, condition or
agreement under this Agreement or the other Documents not to be complied with or
satisfied  by it in any  material  respect;  provided,  however,  that  no  such
notification shall modify the  representations or warranties of any party or the
conditions to the obligations of any party hereunder. The Company shall promptly
notify the Purchaser of any notice or other  communication  from any third party
alleging  that  the  consent  of  such  third  party  is or may be  required  in
connection  with the  transactions  contemplated  by this Agreement or the other
Documents.

     SECTION 5.17.  Malloy  Shares.  If the Company  purchases less than 311,891
shares of Common  Stock from William M.  Malloy,  the Company and the  Purchaser
agree to equitably adjust (i) the conversion  price of the Shares,  such that on
conversion of all the Shares only, the Purchaser shall  beneficially  own 51% of
the  aggregate  issued  and  outstanding  shares of Common  Stock,  and (ii) the
exercise price of the Warrants,  such that on exercise of all the Warrants only,
the Purchaser shall beneficially own 25% of the aggregate issued and outstanding
shares of Common Stock.

                                   ARTICLE VI

                           COVENANTS OF THE PURCHASER

     SECTION  6.1.  Agreement  to Take  Necessary  and  Desirable  Actions.  The
Purchaser  agrees to execute and deliver  each of the  Documents  and such other
documents,  certificates,  agreements  and other writings and to take such other
actions as may be necessary, desirable or reasonably requested by the Company in
order  to  consummate  or  implement  as   expeditiously   as  practicable   the
transactions contemplated hereby.

     SECTION 6.2. Compliance with Conditions;  Commercially  Reasonable Efforts.
The Purchaser will use its commercially  reasonable  efforts to cause all of the
obligations  imposed upon it in this  Agreement to be duly complied with, and to
cause  all  conditions  precedent  to the  obligations  of the  Company  and the
Purchaser to be satisfied.  Upon the terms and subject to the conditions of this
Agreement,  the Purchaser shall use its commercially reasonable efforts to take,
or cause to be taken,  all  action,  and to do, or cause to be done,  all things
necessary,  proper or advisable consistent with Applicable Law to consummate and
make  effective in the most  expeditious  manner  practicable  the  transactions
contemplated hereby.

     SECTION 6.3. HSR Act Filings.

     (a) As  promptly as  practicable  after the date hereof but in any event no
later than 10 Business Days thereafter, the Purchaser shall file all reports and
documents as may be necessary  to comply with the HSR Act. The  Purchaser  shall
cooperate  with and assist the Company and take such action as may be reasonably
required and as permitted under law in connection  with such filings  (including
cooperating with additional  requests for information,  documents and interviews
of officers and personnel by either of the antitrust enforcement agencies).

     (b) The Purchaser shall use commercially reasonable efforts to resolve such
objections,  if any, as may be asserted  under any antitrust law with respect to
the transactions contemplated by this Agreement. If any administrative, judicial
or  legislative  action  or  proceeding  is  instituted  (or  threatened  to  be
instituted)  challenging  any  transaction  contemplated  by this  Agreement  as
violative of any antitrust  law, the Purchaser  shall  cooperate with and assist
the  Company to contest and resist any such  action or  proceeding,  and to have
vacated,  lifted,  reversed or overturned  any decree,  judgment,  injunction or
other order (whether temporary,  preliminary or permanent) that is in effect and
that  restricts,  prevents or  prohibits  consummation  of the  transactions  as
contemplated by this Agreement,  including,  without limitation, by pursuing all
reasonable avenues of administrative and judicial appeal.

     SECTION 6.4. Confidential Information.  The Purchaser acknowledges that the
information  being  provided  under  Section  5.3  may  be  material  non-public
information  and hereby  covenants and agrees to keep,  and cause its Affiliates
and  representatives  to keep,  confidential  any information  identified by the
Company as confidential, in a writing delivered to the Purchaser unless (a) such
information becomes generally available to the public (other than as a result of
a breach of this provision by the Purchaser), (b) such information was available
to the  Purchaser  on a  non-confidential  basis from a source  (other  than the
Company or its representatives) that, to the Purchaser's  knowledge,  is not and
was not  prohibited  from  disclosing  such  information  to the  Purchaser by a
contractual,  legal or fiduciary  obligation or (c) the Purchaser is required by
law to disclose such information; provided, that in an event specified in clause
(c), the Purchaser shall provide the Company with prompt prior written notice of
such required disclosure,  the Purchaser shall disclose only that portion of the
confidential  information  that the  Purchaser  is advised by counsel is legally
required.  The  Purchaser  agrees  that it  will  comply,  and  will  cause  its
representatives  to comply,  with all U.S.  securities  laws  applicable  to the
receipt  of  material  non-public  information  and  restrictions  on trading in
securities when in possession of such  information.  The Purchaser agrees not to
use any confidential information in violation of any law.

     SECTION 6.5 Notification of Certain  Matters.  From the date hereof through
the Final Closing Date, the Purchaser  shall promptly  notify the Company of the
occurrence or  non-occurrence of any fact or event of which the Company is aware
which has caused or could  reasonably  likely  cause (x) any  representation  or
warranty  made by it in this  Agreement  or the other  Documents to be untrue or
inaccurate in any material respect at any time or (y) any covenant, condition or
agreement under this Agreement or the other Documents not to be complied with or
satisfied  by it in any  material  respect;  provided,  however,  that  no  such
notification shall modify the  representations or warranties of any party or the
conditions  to the  obligations  of any party  hereunder.  The  Purchaser  shall
promptly notify the Company of any notice or other  communication from any third
party  alleging  that the  consent of such third  party is or may be required in
connection  with the  transactions  contemplated  by this Agreement or the other
Documents.

     SECTION 6.6  Restrictions on Mergers.  During the one-year period beginning
on the  date  hereof,  the  Purchaser,  and its  Affiliates,  and its  Permitted
Transferees  shall not propose,  or vote any  securities  in favor of, a merger,
reorganization,  recapitalization  or other  similar  transaction  involving the
Company that would result in the elimination of the outstanding shares of Common
Stock other than the shares held  beneficially by the Purchaser,  its Affiliates
and its Permitted  Transferees,  unless any such  transaction  is approved by an
independent committee of the Board of Directors of the Company.

                                   ARTICLE VII

                         CONDITIONS PRECEDENT TO CLOSING

     SECTION 7.1.  Conditions to the Company's  Obligations.  The obligations of
the Company hereunder required to be performed on each Closing Date with respect
to the Purchaser  shall be subject,  at its  election,  to the  satisfaction  or
waiver  (which  waiver,  if so  requested  by the  Purchaser,  shall  be made in
writing),  at or prior to the Closing  occurring  on such Closing  Date,  of the
following conditions:

     (a) The  representations  and warranties of the Purchaser contained in this
Agreement  shall be true and correct in all material  respects on and as of such
Closing Date.

     (b) The  Purchaser  shall  have  performed  in all  material  respects  all
obligations  and  agreements,  and  complied in all material  respects  with all
covenants, contained in this Agreement, to be performed and complied with by the
Purchaser at or prior to such Closing Date.

     (c) All material  governmental and regulatory  approvals and clearances and
all third-party  consents  necessary for the  consummation  of the  transactions
contemplated  by the  Documents  to occur on such  Closing  Date shall have been
obtained  and  shall be in full  force  and  effect,  the  consummation  of such
transactions  does not and will not contravene any Applicable Law, except to the
extent any  contravention or  contraventions,  individually or in the aggregate,
could not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

     (d) The  Purchaser  shall  have  delivered  to the  Company a  certificate,
executed by the Purchaser or on its behalf by a duly authorized  representative,
dated as of such Closing Date,  certifying that each of the conditions specified
in this Section 7.1 has been satisfied with respect to the Purchaser.

     (e) All documents, instruments, agreements and arrangements relating to the
transactions  contemplated by the Documents shall be reasonably  satisfactory to
the Company,  shall have been executed and delivered by the parties  thereto and
no party to any of the  foregoing  (other than the Company)  shall have breached
any of its material obligations thereunder.

     SECTION 7.2. Conditions to The Purchaser's Obligations.  The obligations of
the  Purchaser  hereunder  required to be  performed  at each  Closing  shall be
subject,  at its election,  to the  satisfaction or waiver (which waiver,  if so
requested by the Company, shall be made in writing), at or prior to the Closing,
of the following conditions:

     (a) The  representations  and  warranties of the Company  contained in this
Agreement  shall be true and correct in all material  respects  when made and on
and as of such Closing Date.

     (b)  The  Company  shall  have  performed  in  all  material  respects  all
obligations  and  agreements,  and  complied in all material  respects  with all
covenants,  contained in this Agreement and the other Documents, to be performed
and complied with by it at or prior to such Closing Date,  and there shall exist
no Event of Default  (as defined in the Credit  Agreement)  under the Credit and
Security Agreements.

     (c) The Company shall have entered into or caused to become  effective such
agreements  and  governing  documents  as  the  Purchaser  may  deem  reasonably
appropriate to effect the provisions of the Voting  Agreement,  and each of such
agreements and documents shall be in full force and effect.

     (d) The  Company's  Board of  Directors  shall  consist of not more than 11
directors.  If immediately  following the subject  Closing,  the Purchaser would
beneficially  own  securities of the Company that  constitute,  or if exercised,
exchanged or converted into Common Stock would  constitute,  at least 33-1/3% of
the aggregate issued and outstanding  Common Stock,  provided that the Purchaser
has given notice to the Company at least two  Business  Day's prior to a Closing
(without  duplication)  of  its  Purchaser  Nominees,  the  Company  shall  have
appointed a total of six of such  Purchaser  Nominees (or such lessor  number as
provided  by the  Purchaser)  to  serve as  members  of the  Company's  Board of
Directors.

     (e)  All  Documents  and  all   documents,   instruments,   agreements  and
arrangements relating to the transactions contemplated by the Documents shall be
reasonably satisfactory to the Purchaser, shall have been executed and delivered
by the parties  thereto,  be in full force and effect and no party to any of the
foregoing  (other than the  Purchaser)  shall have  breached any of its material
obligations thereunder.

     (f) (i) Since December 31, 1999, no change, occurrence or development shall
have  occurred,  been  threatened  or become known to the  Purchaser  that could
reasonably  be expected to have a Material  Adverse  Effect,  (ii) the Purchaser
shall not have become aware of any  information or other matter  relating to the
Company (x) of which the Company  (but not the  Purchaser)  had  knowledge on or
prior to the date of this  Agreement,  (y) that, in the  Purchaser's  reasonable
judgment,  is inconsistent  with any information or other matter relating to the
Company disclosed to the Purchaser by the Company or any of its  representatives
prior to the date of this  Agreement,  and (z)  would  have  been  viewed by the
Purchaser,  in its  reasonable  judgment,  as having  materially  and  adversely
altered the total mix of information  made  available to the Purchaser  prior to
the date of this  Agreement.  For purposes of this Section  7.2(f),  the Company
shall be deemed to have  "knowledge" of a particular fact or other matter if (I)
any  individual  who is serving,  or who has at any time served,  as a director,
officer or  management-level  employee of the Company is actually  aware of such
fact or other  matter;  or (II) a  prudent  individual  serving  as a  director,
officer  or  management-level  employee  of the  Company  could be  expected  to
discover or otherwise  become aware of such fact or other matter in the diligent
exercise  of his or her  duties  in such  capacity.  There  shall  have  been no
material  adverse  development in any pending  litigation that in the reasonable
good  faith  judgment  of  the  board  of  directors  of  the  Purchaser,  after
consultation  with  legal  counsel,  could  reasonably  be likely to result in a
material adverse judgment against the Company resulting in damages (after taking
into account any recoveries under available insurance) in an amount in excess of
$3,000,000.

     (g) Since  December 31, 1999,  the business of the Company  shall have been
operated in compliance with all Applicable Laws,  except where the failure to do
so could not reasonably be expected to have a Material Adverse Effect.

     (h) There shall be no  litigation,  proceeding  or other action  seeking an
injunction  or  other  restraining  order,   damages  or  other  relief  from  a
Governmental  Authority pending or threatened which, in the reasonable  judgment
of the Purchaser,  would  materially  adversely  affect the  consummation of the
transactions  contemplated by the Documents on the terms contemplated hereby and
thereby and there shall be no litigation, proceeding or other action (including,
without  limitation,  relating to  environmental  matters or the Benefit  Plans)
pending or  threatened  against the  Company or its  Subsidiaries  which  could,
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse Effect.

     (i) During the  seven-calendar-day  period ending on such Closing Date, (A)
trading in securities  generally on the New York Stock  Exchange or the American
Stock Exchange or the over-the-counter  market shall not have been suspended and
minimum  prices shall not have been  established  on either of such exchanges or
such market by such  exchange or by the  Commission,  and (B) a general  banking
moratorium  shall not have been  declared  by Federal or New York or  California
authorities.

     (j) All  registration  rights  agreements  with the Company shall have been
amended to provide that no other  person will  exercise any demand or piggy back
registration rights without the prior written consent of the Purchaser.

     (k) All  governmental  and  regulatory  approvals  and  clearances  and all
third-party  consents  necessary for the consummation of all of the transactions
contemplated  by the  Documents  to occur on such  Closing  Date shall have been
obtained  and shall be in full  force and  effect,  and the  Purchaser  shall be
reasonably  satisfied that the  consummation of such  transactions  does not and
will not contravene any Applicable Law,  except to the extent any  contravention
or contraventions,  individually or in the aggregate, could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

     (l) The  Company  shall have  delivered  to the  Purchaser  a  certificate,
executed by it or on its behalf by a duly authorized representative, dated as of
such  Closing  Date,  certifying  that each of the  conditions  (other  than any
condition the fulfillment of which is subject to the reasonable  satisfaction of
the Purchaser) specified in this Section 7.2 has been satisfied.

     (m) Sidley & Austin,  counsel to the Company,  shall have  delivered to the
Purchaser an opinion,  dated such  Closing  Date,  addressed  to the  Purchaser,
substantially in the form attached as Exhibit J hereto.

     (n) The  Purchaser  shall have received  delivery of the  Securities as set
forth hereunder.

     (o) The Company shall have delivered to the Purchaser  certificates  of the
appropriate  public  officials to the effect that each of the  Purchaser and its
Subsidiaries  is  a  validly  existing  corporation  in  good  standing  in  its
jurisdiction  of  organization  dated not more than 5 days prior to the  Closing
Date.

     (p) The Company shall have  delivered to the Purchaser a certificate of the
Secretary  of the Company  (i)  certifying  that a true and correct  copy of the
Charter,  Bylaws and all  resolutions of the Board of Directors  authorizing the
execution and delivery of this  Agreement and each Document to which the Company
is a party and authorizing  the  performance by the Company of the  transactions
contemplated  hereby and thereby is attached  thereto  and (ii)  containing  the
incumbency and specimen signature of each of the officers of the Company.

     (q) The Company shall have taken all necessary  action so that at least two
thirds of the Company's then current Board of Directors  shall have approved the
election of the Purchaser Nominees.

     (r) William M. Malloy  shall not have  revoked  the Malloy  Agreement  with
respect to the waiver of discrimination claims contained in such agreement or if
such agreement has been revoked, a substitute agreement containing substantially
similar terms shall have been entered into by William M. Malloy and the Company.

     (s) The Purchaser shall have received a complete and correct signed copy of
the written  opinions  confirming the oral opinions of Wasserstein  and Houlihan
Lokey referred to in Section 3.29.

     (t) The Purchaser shall have received such other certificates,  instruments
and documents in furtherance of the transactions  contemplated by this Agreement
or the other Documents as it may reasonably request.

                                  ARTICLE VIII

                  INFORMATION; DIRECTORS; RESERVATION OF STOCK

     SECTION 8.1. Access to Information. As long as the Purchaser, together with
its  Affiliates,   or  Permitted   Transferees,   beneficially   owns  Threshold
Securities,  upon the request of the  Purchaser,  the Company  shall  afford the
Purchaser and its accountants,  counsel and other representatives full access to
all of the properties,  books, contracts,  commitments,  and records (including,
but  not  limited  to,  tax  returns),  employees,   customers,   suppliers  and
accountants of the Company and its  Subsidiaries.  The Purchaser  will, and will
cause its agents to,  conduct  any such  investigations  on  reasonable  advance
notice,  during normal business hours, with reasonable numbers of persons and in
such a manner as not to interfere unreasonably with the normal operations of the
Company and its Subsidiaries.

     SECTION 8.2.  Information  Rights of Purchaser.  As long as the  Purchaser,
together  with its  Affiliates,  or  Permitted  Transferees,  beneficially  owns
Threshold Securities, the Company shall furnish to the Purchaser, the following:

     (a) Monthly Reports. As soon as available, but not later than 30 days after
the end of each fiscal month (or 45 days in the case of the report for the month
of April  2000),  beginning  with the  report  for the  month of April  2000,  a
consolidated  balance sheet of the Company and its Subsidiaries as of the end of
such  period  and  consolidated  statements  of  income of the  Company  and its
Subsidiaries  for such  period and for the period  commencing  at the end of the
previous  fiscal year and ending with the end of such period,  setting forth, in
each case, in comparative form the  corresponding  figures for the corresponding
period of the preceding fiscal year, and including  comparisons to the budget or
business  plan and an analysis  of the  variances  from the budget or plan,  all
prepared in  accordance  with GAAP  (except for the  absence of  footnotes,  and
quarter-end and year-end adjustments).

     (b) Quarterly  Reports.  As soon as  available,  but not later than 45 days
after the end of each quarterly  accounting period,  (i) a consolidated  balance
sheet of the  Company  and its  Subsidiaries  as of the end of such  period  and
consolidated  statements  of  income,  cash flows and  changes in  stockholders'
equity for such quarterly accounting period and for the period commencing at the
end of the previous fiscal year and ending with the end of such period,  setting
forth  in each  case in  comparative  form  the  corresponding  figures  for the
corresponding period of the preceding fiscal year, and including  comparisons to
the budget or business plan and an analysis of the variances  from the budget or
plan,  all  prepared  in  accordance  with  GAAP,  subject  to  normal  year-end
adjustments  and the  absence  of  footnote  disclosure,  and (ii) a  report  by
management  of the Company of the  operating  and  financial  highlights  of the
Company  and its  Subsidiaries  for  such  period,  which  shall  include  (x) a
comparison  between  operating  and  financial  results  and  budget  and (y) an
analysis of the operations of the Company and its Subsidiaries for such period.

     (c) Annual Audit.  As soon as  available,  but not later than 90 days after
the end of each  fiscal  year of the  Company,  audited  consolidated  financial
statements of the Company and its Subsidiaries,  which shall include  statements
of income,  cash flows and changes in stockholders'  equity for such fiscal year
and a balance sheet as of the last day thereof, each prepared in accordance with
GAAP, and  accompanied by the report of a "Big 5" firm of independent  certified
public accountants selected by the Company's Board of Directors. The Company and
its Subsidiaries shall maintain a system of accounting  sufficient to enable its
accountants to render the report referred to in this Section 8.2(c).

     (d) Notice of Litigation, Disputes and Adverse Changes. Prompt notice of:

          (i)  each  material   legal  action,   suit,   arbitration   or  other
     administrative  or  governmental   investigation  or  proceeding   (whether
     federal,   state,  local  or  foreign)  instituted  or,  to  the  Company's
     knowledge, threatened against the Company or any of its Subsidiaries (or of
     any  occurrence  or dispute which  involves a reasonable  likelihood of any
     such  action,   suit,   arbitration,   investigation  or  proceeding  being
     instituted), and

          (ii) any other  occurrence or change of  circumstance  relating to the
     Company  which,  in either  such case,  could  reasonably  be  expected  to
     materially  and  adversely  affect the  Company's  condition  (financial or
     otherwise), properties, assets, liabilities, business or operations (except
     for any changes that are the effect or result of economic factors generally
     affecting the economy as a whole).

     (e) Miscellaneous. Promptly upon becoming available, each of the following:

          (i)  copies of all  financial  statements,  reports,  press  releases,
     notices,  proxy  statements and other  documents sent by the Company or its
     Subsidiaries  to its  stockholders  generally or released to the public and
     copies of all regular and periodic reports, if any, filed by the Company or
     its Subsidiaries with the Commission, any securities exchange or NASDAQ;

          (ii)  notification  in writing of the existence of any default,  which
     continues  uncured for a period of more than 10 days thereafter,  under any
     material  agreement  or  instrument  to  which  the  Company  or any of its
     Subsidiaries is a party or by which any of their assets are bound;

          (iii) upon request, copies of all reports prepared for or delivered to
     the management of the Company or its Subsidiaries by its accountants; and

          (iv) upon request, any other information reasonably requested.

     SECTION 8.3.  Information  Rights.  Without  duplication of any document or
information  provided  pursuant  to  Section  8.2,  as  long  as  the  Purchaser
beneficially  owns any shares of Common Stock,  the Company shall provide to the
Purchaser the following:

          (a) as soon as available,  but not later than 45 days after the end of
     each quarterly  accounting  period,  a Quarterly Report on Form 10-Q or, if
     the Company does not then file quarterly  reports with the Commission,  the
     documents referred to in Section 8.2(b);

          (b) as soon as available,  but not later than 90 days after the end of
     each fiscal year, an Annual Report on Form 10-K or, if the Company does not
     then file annual  reports  with the  Commission,  the audited  consolidated
     financial statements referred to in Section 8.2(c); and

          (c)  simultaneously  with  any  distribution  of any  document  to the
     stockholders of the Company generally, any such document so distributed.

     SECTION 8.4. Directors.

     (a) At all times,  the Company  shall use its  reasonable  best  efforts to
ensure that the Company's  Board of Directors  shall consist of not more than 11
directors.

     (b) (i) As of the date  hereof,  the  Company  shall have  appointed  three
Purchaser Nominees to be directors of the Company. (ii) As long as the Purchaser
beneficially  owns  securities of the Company that  constitute,  or if converted
into Common Stock would  constitute,  at least 70% of the  aggregate  issued and
outstanding  Common Stock,  the Company shall use its reasonable best efforts to
ensure that a total of seven  Purchaser  Nominees  are members of the  Company's
Board of Directors.  For the purposes of this clause (ii), the Previously Issued
Warrants  and the  Warrants  shall not be  included  in the  calculation  of the
Purchaser's  beneficial ownership.  (iii) As long as the Purchaser  beneficially
owns securities of the Company that  constitute,  or if exercised,  exchanged or
converted  into Common Stock would  constitute,  at least 33- 1/3% but less than
70% of the aggregate issued and outstanding  Common Stock, the Company shall use
its reasonable best efforts to ensure that a total of six Purchaser Nominees are
members  of the  Company's  Board of  Directors.  (iv) As long as the  Purchaser
beneficially  owns securities of the Company that  constitute,  or if exercised,
exchanged or converted into Common Stock would constitute, at least 10% but less
than 33- 1/3% of the aggregate issued and outstanding  Common Stock, the Company
shall use its reasonable  best efforts to ensure that a total of three Purchaser
Nominees are members of the Company's  Board of  Directors.  For the purposes of
clauses (iii) and (iv) of this Section  8.4(b),  the Previously  Issued Warrants
and the  Warrants  shall  be  included  in the  calculation  of the  Purchaser's
beneficial  ownership.  Notwithstanding  the  foregoing,  as long as any loan or
commitment is outstanding under the Credit Agreement,  the Company shall use its
reasonable  best efforts to ensure that no less than a total of three  Purchaser
Nominees are members of the Company's  Board of  Directors.  The Company and the
Board of  Directors  may not take any action,  without due cause,  to remove the
Purchaser Nominees serving as directors of the Company.

     (c) The Company shall ensure that the Board of Directors (and the Company's
nominating  committee,  if any) shall  recommend  the inclusion of the Purchaser
Nominees such persons in the slate of nominees  recommended to stockholders  for
election as directors at each annual meeting of stockholders of the Company.

     (d) The Board of Directors  shall  appoint  Purchaser  Nominees to serve on
each committee of the Board of Directors in at least the same  proportions  that
the number of Purchaser  Nominees serving on the Board of Directors bears to the
total number of directors  then  comprising  the Board of  Directors,  provided,
however,  that the Company and the Purchaser  shall cooperate in order to comply
with any NASD rules or regulations (or the rules and regulations of any national
exchange on which the  Company's  Common  Stock is traded)  relating to director
independence on committees.

     (e) If at any time,  a vacancy  is  created  on the Board of  Directors  by
reason  of the  incapacity,  death,  removal  or  resignation  of any  Purchaser
Nominees,  then the Board of Directors shall appoint an individual designated by
the Purchaser to fill such vacancy until the next meeting of stockholders.

     (f) The Company shall provide the Purchaser  Nominees  serving as directors
notice of each  meeting  of the Board of  Directors  at the same time and in the
same manner as other members of the Board of Directors.

     (g) The  Purchaser  Nominees  serving as  directors  shall be  entitled  to
compensation and indemnification rights consistent with those of other directors
of the Company,  including,  without  limitation,  any rights to  participate in
stock option or similar  plans.  At all times on and after the date hereof,  the
Company shall be a party to and comply with indemnification  agreements (in such
form as is  currently  available to the  Company's  directors or such other form
mutually  satisfactory  to the  Purchaser  and  the  Company)  with  each of the
nominees of the Purchaser  serving as directors.  The Company shall at all times
maintain a directors'  and  officers'  insurance  policy  covering the Company's
directors and officers that provides, in the aggregate,  at least $10,000,000 of
liability  coverage and, in any event,  substantially  no less coverage than the
policy  covering  the  current  directors  of the Company as of the date of this
Agreement.

     (h) The provisions of this Section 8.4 shall be further  effected  pursuant
to an amendment to the Company's  Bylaws in a form  acceptable to the Purchaser,
which shall not be further  amended by the Board of  Directors in a manner that,
individually or in the aggregate, adversely affects the Purchaser.

     (i) If at any time the Board of  Directors  shall  consist  of more than 11
Directors  or the  number of  Purchaser  Nominees  serving as  directors  of the
Company  (or  members  of  committees)  shall be less than the  number  required
pursuant to this Section 8.4 and the  requirement  that the Company appoint such
number of  Purchaser  Nominees  as  directors  of the  Company  does not violate
Applicable Laws or NASD rules or regulations (or the rules or regulations of any
national  exchange on which the Company's Common Stock is traded),  then for all
purposes of the Documents,  the Company shall be deemed to have failed to comply
in a material respect with its agreements contained in this Agreement; provided,
however,  if the number of Purchaser  Nominees is less than the number  required
pursuant  to this  Section  8.4  solely  because  of the  resignation,  death or
incapacity  of a Purchaser  Nominee,  then the Company  shall not have failed to
comply with its agreements contained in this Agreement.

     (i) The  Purchaser and its  Affiliates  shall vote the  Securities  and any
shares  of Common  Stock it owns in favor of the  appointment  of the  Purchaser
Nominees to the Board of Directors.

     SECTION 8.5.  Reservation  of Common Stock.  Prior to any Closing Date, the
Company shall  reserve and keep  available  out of its  authorized  but unissued
Common Stock,  the number of shares required for issuance upon the conversion of
the Series B Preferred Stock and the exercise of the Warrants being purchased at
such Closing  (including any  additional  shares which may become so issuable by
reason of the  operation  of  anti-dilution  provisions  of the  Certificate  of
Designation and the Warrants).

                                   ARTICLE IX

                                  MISCELLANEOUS

     SECTION 9.1. Survival; Indemnification.

     (a) All  representations,  warranties,  covenants  and  agreements  (except
covenants and  agreements  which are expressly  required to be performed and are
performed in full on or before a Closing Date) contained in this Agreement shall
be deemed made at each  Closing as if made at such time and shall  survive  such
Closing for two years,  except that (i) with respect to claims asserted pursuant
to this Section 9.1 before the  expiration of the applicable  representation  or
warranty,  such claims shall survive until the date they are finally  liquidated
or otherwise resolved, (ii) Sections 3.10, 3.15 and 3.16 shall survive until the
end of the applicable statute of limitations (as waived, tolled or amended), and
(iii)  Section  3.2  and  this  Section  9.1  shall  survive  indefinitely.  All
statements as to factual matters contained in any certificate, document or other
instrument executed and delivered by the parties pursuant hereto shall be deemed
to be  representations,  warranties  and covenants by such party  hereunder.  No
claim  may  be  commenced  under  this  Section  9.1  (or  otherwise)  following
expiration of the applicable  period of survival,  and upon such  expiration the
Indemnifying  Party shall be released from all liability  with respect to claims
under each such section not theretofore  made by the Indemnified  Party. A claim
shall be made or commenced  hereunder by the Indemnified Party delivering to the
Indemnifying  Party a written notice  specifying in reasonable detail the nature
of the claim,  the amount  claimed (if known or reasonably  estimable),  and the
factual basis for the claim.

     (b) (i) The Company  agrees to indemnify and hold  harmless the  Purchaser,
its Affiliates,  and their respective  officers,  directors,  employees and duly
authorized agents and each of their affiliates and each other person controlling
the Purchaser or any of their Affiliates within the meaning of either section 15
of the  Securities  Act or section 20 of the Exchange Act and any partner of any
of them from and against all losses,  claims,  damages or liabilities  resulting
from any  claim,  lawsuit or other  proceeding  by any person to which any party
indemnified  under this clause may become  subject which is related to or arises
out of (A) the  transactions  contemplated  by  this  Agreement  and  the  other
Documents,  whether or not consummated, (B) any breach of, or failure to perform
any of the representations,  warranties,  covenants or agreements made in any of
the Documents by the Company or (C) any action or omission of the Company or any
of its Subsidiaries in connection with the transactions  contemplated  hereby or
by the other  Documents,  and will  reimburse  the Purchaser and any other party
indemnified  under  this  clause  for  all  reasonable   out-of-pocket  expenses
(including,  without  limitation,  reasonable  counsel  fees and  disbursements)
incurred by the Purchaser or any such other party  indemnified under this clause
and  further  agrees that the  indemnification  and  reimbursements  commitments
herein  shall  apply  whether  or not the  Purchaser  or any  such  other  party
indemnified under this clause is a formal party to any such lawsuits,  claims or
other  proceedings.  The foregoing  provisions are expressly  intended to cover,
without  limitation,  reimbursement  of legal and other  expenses  incurred in a
deposition or other discovery proceeding.

     (ii)  Notwithstanding  the  foregoing  clause (i), the Company shall not be
liable to any party otherwise entitled to indemnification  pursuant thereto: (A)
in respect of any loss,  claim,  damage,  liability or expense to the extent the
same is determined,  in final judgment by a court having  jurisdiction,  to have
resulted from the gross  negligence  or willful  misconduct of such party or (B)
for any  settlement  effected by such party  without the written  consent of the
Company, which consent shall not be unreasonably withheld.

     (c) If a person entitled to indemnity  hereunder (an  "Indemnified  Party")
asserts that any party hereto (the "Indemnifying Party") has become obligated to
the  Indemnified  Party  pursuant  to Section  9.1(b),  or if any suit,  action,
investigation,  claim or proceeding is begun,  made or instituted as a result of
which the  Indemnifying  Party may become  obligated  to the  Indemnified  Party
hereunder,  the  Indemnified  Party  agrees to  notify  the  Indemnifying  Party
promptly and to  cooperate  with the  Indemnifying  Party,  at the  Indemnifying
Party's expense,  to the extent reasonably  necessary for the resolution of such
claim or in the defense of such suit,  action or  proceeding,  including  making
available  any  information,  documents  and  things  in the  possession  of the
Indemnified Party which are reasonably necessary therefor.

     Notwithstanding   the   foregoing   notice   requirement,   the   right  to
indemnification hereunder shall not be affected by any failure to give, or delay
in giving,  notice unless,  and only to the extent that, the rights and remedies
of the Indemnifying Party shall have been prejudiced as a result of such failure
or delay.

     (d) In fulfilling its  obligations  under this Section 9.1, after providing
each Indemnified Party with a written acknowledgment of any liability under this
Section 9.1 as between such Indemnified  Party and the  Indemnifying  Party, the
Indemnifying  Party  shall  have the  right to  investigate,  defend,  settle or
otherwise handle,  with the aforesaid  cooperation,  any claim,  suit, action or
proceeding brought by a third party in such manner as the Indemnifying Party may
in its sole discretion deem  appropriate;  provided,  however,  that (i) counsel
retained by the Indemnifying Party is reasonably satisfactory to the Indemnified
Party and (ii) the Indemnifying  Party shall not, except with the consent of the
Indemnified  Party,  enter  into any  settlement  that  does not  include  as an
unconditional  term thereof the giving by the person or persons  asserting  such
claim to all Indemnified Parties of an unconditional  release from all liability
with respect to such claim or consent to entry of any judgment.  Notwithstanding
anything to the contrary contained herein, the Indemnifying Party may retain one
firm of counsel to represent all  Indemnified  Parties in such claim,  action or
proceeding;  provided,  however,  that in the event that the  defendants  in, or
targets  of,  any  such  claim,  action  or  proceeding  include  more  than one
Indemnified  Party, and any Indemnified  Party shall have reasonably  concluded,
based on the  opinion  of its own  counsel,  that there may be one or more legal
defenses available to it which are in conflict with those available to any other
Indemnified  Party,  then such Indemnified  Party may employ separate counsel to
represent  or defend it or any other  person  entitled  to  indemnification  and
reimbursement  hereunder with respect to any such claim, action or proceeding in
which it or such other person may become  involved or is named as defendant  and
the  Indemnifying  Party shall pay the reasonable fees and  disbursement of such
counsel. Notwithstanding the Indemnifying Party's election to assume the defense
or  investigation  of such claim,  action or proceeding,  the Indemnified  Party
shall  have  the  right  to  employ  separate  counsel  at  the  expense  of the
Indemnifying  Party and to direct the  defense or  investigation  of such claim,
action or proceeding if (A) in the written opinion of counsel to the Indemnified
Party,  use of counsel of the  Indemnifying  Party's choice could  reasonably be
expected to give rise to a conflict of interest,  or (B) the Indemnifying  Party
shall not have employed counsel reasonably satisfactory to the Indemnified Party
to represent the Indemnified  Party within a reasonable time after notice of the
assertion of any such claim or institution of any such action or proceeding.  In
all other situations,  the Indemnified Party shall have the right to participate
in the defense or  investigation  of such  claim,  action or  proceeding  if the
Indemnifying  Party shall  authorize the  Indemnified  Party to employ  separate
counsel  at the  Indemnifying  Party's  expense or if the fees and  expenses  of
counsel for the Indemnified  Party shall be borne by the  Indemnified  Party. If
the  Indemnifying  Party does not notify the  Indemnified  Party  within 30 days
after the  receipt of the  Indemnified  Party's  notice of a claim of  indemnity
hereunder that it elects to undertake the defense thereof, the Indemnified Party
shall have the right to contest,  settle or  compromise  the claim but shall not
thereby waive any right to indemnity therefor pursuant to this Agreement.

     (e) If  for  any  reason  (other  than  the  gross  negligence  or  willful
misconduct referred to in subclause (b)(ii) above) the foregoing indemnification
by the Company is unavailable to any  Indemnified  Party or is  insufficient  to
hold it harmless as and to the extent  contemplated  by subclauses  (b), (c) and
(d) above,  then the Company  shall  contribute to the amount paid or payable by
such Indemnified Party as a result of such loss,  claim,  damage or liability in
such proportion as is appropriate to reflect the relative  benefits  received by
the Company and its Affiliates, on the one hand, and the Purchaser and any other
applicable  Indemnified Party, as the case may be, on the other hand, as well as
any other relevant equitable considerations.

     SECTION 9.2. Notices. All notices, demands, requests,  consents,  approvals
or other  communications  (collectively,  "Notices") required or permitted to be
given  hereunder or which are given with respect to this  Agreement  shall be in
writing and shall be  personally  served,  delivered by a reputable  air courier
service with tracking  capability,  with charges prepaid, or transmitted by hand
delivery or facsimile, addressed as set forth below, or to such other address as
such party shall have specified most recently by written notice. Notice shall be
deemed  given on the date of service or  transmission  if  personally  served or
transmitted  by facsimile.  Notice  otherwise  sent as provided  herein shall be
deemed  given on the next  Business Day  following  delivery of such notice to a
reputable air courier service.

       If to the Company, to it at:

                Peapod, Inc.
                9933 Woods Drive
                Skokie, IL  60077
                Attention:  Andrew Parkinson, Chairman
                Facsimile:  (847) 583-9495

       with a copy (which shall not constitute notice) to:

                Sidley & Austin
                Bank One Plaza
                10 South Dearborn Street
                Chicago, IL  60603
                Attn:  Christine A. Leahy, Esq.
                Facsimile:  (312) 853-7036

       if to the Purchaser:

                Koninklijke Ahold N.V.
                c/o The Stop and Shop Supermarket Company
                1385 Hancock Street
                Quincy, MA 02169
                Attn:  David Kramer, Esq.
                Facsimile:  (617) 770-6013

       and:

                Koninklijke Ahold NV
                Albert Heijnweg 1
                1507 EH Zaandam, The Netherlands
                Attention:  Ton van Tielraden, Esq.
                Facsimile: (31-75) 659-8366

       and a copy (which shall not constitute notice) to:

                White & Case
                1155 Avenue of the Americas
                New York, New York 10036
                Attention:  Maureen S. Brundage, Esq./John M. Reiss, Esq.
                Facsimile: (212) 354-8113

     SECTION 9.3.  Governing Law. This Agreement and the rights and  obligations
of the parties hereunder shall be governed by, and construed in accordance with,
the laws of the  State  of New  York,  and  each  party  hereto  submits  to the
non-exclusive  jurisdiction of the state and federal courts within the County of
New York in the State of New York.  Any legal action or proceeding  with respect
to this  Agreement  may be  brought in the courts of the State of New York or of
the United  States of America  for the  Southern  District  of New York and,  by
execution and delivery of this Agreement,  the Company hereby accepts for itself
and in respect of its property, generally and unconditionally,  the jurisdiction
of the aforesaid courts. The Company further irrevocably consents to the service
of process out of any of the  aforementioned  courts in any action or proceeding
by the  mailing of copies  thereof by  registered  or  certified  mail,  postage
prepaid, to the Company at its address set forth in Section 9.2, such service to
become effective seven days after such mailing.  Nothing herein shall affect the
right of the Purchaser to serve  process in any of the matters  permitted by law
or to commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction. The Company hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings  arising out of or in connection  with this Agreement  brought in
the courts  referred to above and hereby further  irrevocably  waives and agrees
not to  plead or claim in any such  court  that any such  action  or  proceeding
brought in any such court has been brought in an inconvenient forum.

     SECTION 9.4. Termination; Fees.

     (a)  This  Agreement  may be  terminated  in  accordance  with the next two
sentences.  This  Agreement may be terminated by (i) by mutual  agreement of the
parties at any time,  (ii) by either  party if the  Stockholder  Approval is not
obtained on or prior to the seventh  month  anniversary  of the date hereof,  or
(iii) by either party, if the Company's stockholders vote against this Agreement
and  the  transactions   contemplated  hereby  at  the  Stockholders'   Meeting.
Termination   pursuant   to  the   foregoing   clauses   (i),   (ii)  or   (iii)
notwithstanding, Sections 3, 4, (for the purposes of Section 9.1), 5, 6.4, 8 and
9 hereof shall remain in effect.  No termination of this Agreement  shall affect
any party's liability for willful breach of this Agreement.

     (b) If this  Agreement is terminated  by the  Purchaser in accordance  with
clauses (ii) or (iii) of Section  9.4(a),  and the Purchaser shall have voted in
favor  of  this  Agreement  and  the  transactions  contemplated  hereby  at the
Stockholders' Meeting, all securities of the Company held by it (and eligible to
vote,  it being  understood  that the  Purchaser  shall  have no  obligation  to
exercise any Warrants) as of the record date for such Stockholders'  Meeting, on
the day next  succeeding  the date of such  termination,  the Company  shall (x)
reimburse the Purchaser in  immediately  available  funds for the  out-of-pocket
expenses of the Purchaser (including, without limitation,  printing fees, filing
fees and fees and expenses of its legal and financial  advisors and all fees and
expenses  payable to any  financing  sources)  related to this  Agreement or the
other  Documents,  the  transactions  contemplated  hereby and  thereby  and any
related financing and (y) pay to the Purchaser in immediately available funds an
amount equal to $1,000,000.

     SECTION 9.5.  Entire  Agreement.  This Agreement  (including all agreements
entered into pursuant  hereto and all  certificates  and  instruments  delivered
pursuant  hereto and thereto)  constitutes  the entire  agreement of the parties
with  respect  to the  subject  matter  hereof  and  supersedes  all  prior  and
contemporaneous agreements,  representations,  understandings,  negotiations and
discussions  between the parties or their  Affiliates,  whether oral or written,
with respect to the subject matter hereof,  including,  without limitation,  the
letter dated April 4, 2000 from the Purchaser to the Company,  together with the
letter in response  dated April 4, 2000 from the Company to the  Purchaser,  and
the letter  agreement,  dated March 28,  2000,  entered into by the Company with
Ahold USA, Inc.

     SECTION 9.6.  Modifications and Amendments.  No amendment,  modification or
termination  of this  Agreement  shall be binding  upon any other  party  unless
executed in writing by the parties hereto intending to be bound thereby.

     SECTION 9.7. Waivers and Extensions.  Any party to this Agreement may waive
any right,  breach or default which such party has the right to waive,  provided
that such waiver will not be effective against the waiving party unless it is in
writing,  is signed by such party,  and  specifically  refers to this Agreement.
Waivers  may be made in  advance  or after the right  waived  has  arisen or the
breach or default waived has occurred. Any waiver may be conditional.  No waiver
of any breach of any agreement or provision  herein  contained shall be deemed a
waiver of any preceding or succeeding  breach thereof nor of any other agreement
or provision herein contained. No waiver or extension of time for performance of
any  obligations  or acts shall be deemed a waiver or  extension of the time for
performance of any other obligations or acts.

     SECTION 9.8.  Titles and Headings;  Interpretation.  Titles and headings of
sections of this  Agreement  are for  convenience  only and shall not affect the
construction of any provision of this  Agreement.  Where any  representation  or
warranty contained in this Agreement is expressly  qualified by reference to the
best  knowledge of the Company,  the Company  confirms  that it has made due and
diligent inquiry as to the matters that are the subject of such  representations
and warranties.

     SECTION 9.9.  Exhibits  and  Schedules.  Each of the annexes,  exhibits and
schedules  referred to herein and  attached  hereto is an integral  part of this
Agreement and is incorporated herein by reference.

     SECTION 9.10. Expenses; Brokers. The Company shall pay or cause to be paid,
whether or not any Closing occurs hereunder,  all reasonable  out-of-pocket fees
and  expenses  incurred  by the  Purchaser  and its  respective  Affiliates,  in
connection  with the  transactions  contemplated  by this  Agreement,  the other
Documents and all matters related thereto (including,  without  limitation,  HSR
Act  filing  fees,  and  reasonable  fees  and   disbursements  of  counsel  and
consultants).  Each of the parties  represents to the others that neither it nor
any of its  Affiliates  has used a broker or other  intermediary,  in connection
with the transactions  contemplated by this Agreement for whose fees or expenses
any other party will be liable and respectively agrees to indemnify and hold the
others harmless from and against any and all claims,  liabilities or obligations
with respect to any such fees or expenses asserted by any person on the basis of
any act or  statement  alleged  to have  been  made by such  party or any of its
Affiliates.

     SECTION 9.11. Press Releases and Public  Announcements.  All press releases
and similar public  announcements  relating to the transactions  contemplated by
the Documents  shall be made only if mutually agreed upon by the Company and the
Purchaser,  except to the  extent  that such  disclosure  is, in the  opinion of
counsel, required by law or by stock exchange regulation; provided that any such
required  disclosure  shall only be made by one party, to the extent  consistent
with law, after consultation with the other party.

     SECTION 9.12. Assignment; No Third Party Beneficiaries.  This Agreement and
the rights, duties and obligations hereunder may not be assigned or delegated by
either the Company or the  Purchaser  without the prior  written  consent of the
other; provided that the Purchaser may assign or delegate its rights, duties and
obligations  hereunder  to a Permitted  Transferee,  provided,  however,  to the
extent rights in this  Agreement  are subject to the Purchaser  owning a minimum
amount of capital  stock of the Company,  the Permitted  Transferee  will not be
entitled to exercise such rights  unless it owns such minimum  amount of capital
stock.  Except  as  provided  in  the  preceding  sentence,  any  assignment  or
delegation of rights,  duties or  obligations  hereunder  made without the prior
written  consent of the other party hereto shall be void and of no effect.  This
Agreement and the provisions hereof shall be binding upon and shall inure to the
benefit of each of the parties and their  respective  successors  and  permitted
assigns.  This Agreement is not intended to confer any rights or benefits on any
persons that are not party  hereto other than as expressly  set forth in Section
9.1.

     SECTION 9.13.  Severability.  This Agreement shall be deemed severable, and
the  invalidity or  unenforceability  of any term or provision  hereof shall not
affect the validity or  enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision,  the parties  hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or  unenforceable
provision as may be possible and be valid and enforceable.

     SECTION 9.14.  Counterparts;  Facsimile.  This Agreement may be executed in
multiple  counterparts,  each of which shall be deemed an  original,  and all of
which taken together shall constitute one and the same instrument. All documents
and closing  deliveries for the transactions  contemplated by this Agreement and
the other  Documents  may be delivered by a party at the Closing via  facsimile;
provided,  that, the originally  executed signature pages and original documents
are delivered to the appropriate  parties within two (2) Business Days following
the Closing.

     SECTION 9.15. Further  Assurances.  Each party hereto,  upon the request of
any other party hereto, shall do all such further acts and execute,  acknowledge
and deliver all such further  instruments  and  documents as may be necessary or
desirable  to  carry  out  the  transactions  contemplated  by  this  Agreement,
including,  in the case of the Company, such acts,  instruments and documents as
may be necessary or desirable to convey and transfer to the Purchaser the Shares
to be purchased by it hereunder.

     SECTION 9.16.  Remedies  Cumulative.  The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any other
rights or the seeking of any remedies against the other party hereto.

                                      * * *

<PAGE>

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the date first above written.

                                         PEAPOD, INC.
                                         a Delaware corporation

                                         By:      ______________________________
                                         Name:    ______________________________
                                         Title:   ______________________________

<PAGE>
                                         KONINKLIJKE AHOLD N.V.
                                         a Netherlands corporation

                                         By:      ______________________________
                                         Name:    ______________________________
                                         Title:   ______________________________EX-10.4

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

                                CREDIT AGREEMENT

                                      among

                                  PEAPOD, INC.

                                       and

                              KONINKLIJKE AHOLD NV

                      ____________________________________

                           Dated as of April 14, 2000

                      ____________________________________

                                   $20,000,000

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<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

SECTION 1.  Amount and Terms of Credit.........................................1

         1.01     Commitment...................................................1
         1.02     Notice of Borrowing..........................................1
         1.03     Conversions..................................................2
         1.04     Interest.....................................................2
         1.05     Interest Periods.............................................3

SECTION 2.  Commitment.........................................................4

         2.01  [Reserved]......................................................4
         2.02  Voluntary Termination or Reduction of Unutilized Total
                Commitment.....................................................4
         2.03     Mandatory Prepayments and Commitment Reductions..............4

SECTION 3.  Payments...........................................................5

         3.01  Voluntary Prepayments...........................................5
         3.02  Method and Place of Payment.....................................5
         3.03  Net Payments....................................................5

SECTION 4A.  Conditions Precedent to Initial Loans.............................7

         4A.01  Execution of Agreement.........................................7
         4A.02  Fees. .........................................................7
         4A.03  Officer's Certificate..........................................7
         4A.04  Opinions of Counsel............................................7
         4A.05  Adverse Change, etc............................................7
         4A.06  Litigation.....................................................7
         4A.07  Approvals......................................................7
         4A.08  Transaction Documents..........................................8
         4A.09  Previous Bridge Loan; Security Documents.......................8
         4A.10  Security Documents.............................................8
         4A.11  Warrants.......................................................9
         4A.12  Split Pea Software Liquidation.................................9

SECTION 4B.  Conditions Precedent to All Loans.................................9

         4B.01  No Default; Representations and Warranties.....................9
         4B.02  Notice of Borrowing............................................9
         4B.03  Restrictions on Loans..........................................9
         4B.04 Security Documents.............................................10
         4B.05 Second Opinion of Counsel......................................10

SECTION 5.  Representations, Warranties and Agreements........................10

         5.01  Borrower Status................................................10
         5.02  Power and Authority............................................10
         5.03  No Violation...................................................11
         5.04  Litigation.....................................................11
         5.05  Use of Proceeds; Margin Regulations............................11
         5.06  Approvals......................................................11
         5.07  Investment Company Act.........................................11
         5.08  Public Utility Holding Company Act.............................12
         5.09  True and Complete Disclosure...................................12
         5.10  Financial Condition; Financial Statements; Projections, etc....12
         5.11  Security Interests.............................................13
         5.12  Compliance with Statutes, etc..................................13
         5.13  Tax Returns and Payments.......................................13
         5.14  Subsidiaries...................................................13
         5.15  Representations and Warranties in Transaction Documents........14
         5.16  Patents, etc...................................................14

SECTION 6.  Affirmative Covenants.............................................14

         6.01  Information Covenants..........................................14
         6.02  Books, Records and Inspections.................................16
         6.03  Payment of Taxes...............................................16
         6.04  Existence; Franchises..........................................16
         6.05  Compliance with Statutes, etc..................................16
         6.06  Good Repair....................................................17
         6.07  End of Fiscal Years; Fiscal Quarters...........................17
         6.08  Use of Proceeds................................................17
         6.09  Corporate Formalities..........................................17
         6.10  Compliance with Environmental Laws.............................17
         6.11  Performance of Obligations.....................................18

SECTION 7.  Negative Covenants................................................18

         7.01  Business.......................................................18
         7.02  Consolidation, Merger, Sale or Purchase of Assets, etc.........18
         7.03  Liens..........................................................18
         7.04  Indebtedness...................................................20
         7.05  Capital Expenditures...........................................20
         7.06  Advances, Investments and Loans................................20
         7.07  Dividends, etc.................................................20
         7.08  Transactions with Affiliates...................................21
         7.09  Prohibition on Creation of Subsidiaries........................21

SECTION 8.  Events of Default.................................................21

         8.01  Payments.......................................................21
         8.02  Representations, etc...........................................21
         8.03  Covenants......................................................21
         8.04  Default Under Other Agreements.................................21
         8.05  Bankruptcy, etc................................................22
         8.06  Security Documents.............................................22
         8.07  Judgments......................................................22
         8.08  Change of Control..............................................22
         8.09  Transaction Documents..........................................22

SECTION 9.  Definitions.......................................................23

SECTION 10.  Miscellaneous....................................................30

         10.01  Payment of Expenses, etc......................................30
         10.02  Right of Setoff...............................................32
         10.03  Notices.......................................................32
         10.04  Assignments...................................................32
         10.05  No Waiver; Remedies Cumulative................................32
         10.06  Calculations; Computations....................................32
         10.07  GOVERNING LAW; SUBMISSION TO JURISDICTION;
                 VENUE; WAIVER OF JURY TRIAL; WAIVER OF CERTAIN CLAIMS........33
         10.08  Counterparts..................................................34
         10.09  Effectiveness.................................................34
         10.10  Headings Descriptive..........................................34
         10.11  Amendment or Waiver...........................................34
         10.12  Survival......................................................34
<PAGE>

SCHEDULE I         Existing Liens
SCHEDULE 5.04      Litigation
SCHEDULE 5.10(b)   Material Adverse Changes since December 31, 1999

EXHIBIT A          Form of Opinion of Sidley & Austin
EXHIBIT B          Form of Amended and Restated Collateral Assignment of
                    Intellectual Property
EXHIBIT C          Form of Amended and Restated Security Agreement

<PAGE>

     CREDIT  AGREEMENT,  dated as of April  14,  2000,  among  PEAPOD,  INC.,  a
Delaware  corporation (the "Borrower") and Koninklijke  Ahold NV (the "Lender").
Unless otherwise  defined herein,  all capitalized terms used herein and defined
in Section 9 are used herein as so defined.

                              W I T N E S S E T H :

     WHEREAS, subject to and upon the terms and conditions set forth herein, the
Lender is willing  to make  available  to the  Borrower  the  credit  facilities
provided for herein;

     NOW, THEREFORE, IT IS AGREED:

     SECTION 1. Amount and Terms of Credit.

     1.01 Commitment. (a) Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make a revolving loan or revolving loans (each such
term loan a "Loan" and together with any revolving loans made pursuant to clause
(i) of this Section 1.01 collectively, the "Loans") to the Borrower, which Loans
(i) shall be incurred by the Borrower  pursuant to one or more drawings,  at any
time and from time to time during the period commencing on the Initial Borrowing
Date and ending on the Maturity Date, (ii) shall, unless the Lender is unable to
determine the  Eurodollar  Rate, at the option of the Borrower,  be incurred and
maintained as and/or converted into Base Rate Loans or Eurodollar  Loans,  (iii)
may be repaid and reborrowed in accordance  with the provisions  hereof and (iv)
shall not exceed the  Commitment in aggregate  principal  amount at any one time
outstanding.

     (b) The Borrower may not (i) incur Loans in excess of $3,000,000 (exclusive
of Loans made to repay the Term Note or other obligations owing to the Lender or
its  Affiliates)  in  principal  amount in any  calendar  month (or such greater
amount as the Lender and the Borrower  shall agree),  (ii) incur Loans more than
four times in any  calendar  month and (iii) incur Loans in excess of the amount
of the budgeted cash flow  requirements  of the Borrower for its  operations for
the two week period  following the Borrowing  thereof,  as set forth in a budget
provided by the Borrower to the Lender and reasonably  acceptable to the Lender;
provided,  however,  it being understood that the Lender shall not object to the
amount of the Borrowing  request on the Second Borrowing Date to the extent such
request is for an amount not to exceed $1,500,000.

     1.02 Notice of Borrowing. (a) Whenever the Borrower desires to incur Loans,
the  Borrower  shall give the Lender at its Notice  Office,  prior to 12:00 Noon
(New York time),  at least three  Business Days' (one Business Day's in the case
of a Borrowing of Base Rate Loans) prior written  notice (or  telephonic  notice
promptly  confirmed in writing) of each Borrowing of Loans to be made hereunder.
Each such notice shall specify (i) the aggregate  principal  amount of the Loans
to be made pursuant to such  Borrowing,  (ii) the date of such Borrowing  (which
shall be a Business Day),  (iii) whether the respective  Borrowing shall consist
of Base  Rate  Loans or (to the  extent  permitted)  Eurodollar  Loans  and,  if
Eurodollar  Loans,  the Interest Period to be initially  applicable  thereto and
(iv) the  proposed  use of the  proceeds of such Loans.  The Notice of Borrowing
will certify that the use of the proceeds of the Loan, and the timing of the use
thereof, are in accordance with the cash flow budget for the following two weeks
provided by the Borrower to the Lender.

     (b) The proceeds of the initial Loans  hereunder shall be applied first (i)
to  repay  all  principal,  accrued  interest  and the  amounts  owing  under or
evidenced by the Term Note or (ii) for the acquisition by the Lender of the Term
Note  (and in the case of such  acquisition,  the  Term  Note  shall  be  deemed
amended,  restated  and  superseded  hereby and the amount paid by the Lender to
acquire the Term Note shall  constitute a Loan  hereunder).  The proceeds of the
Loans  referred  to in this  Section  1.02(b)  shall be  remitted  by the Lender
directly to the holder of the Term Note and the  Borrower  hereby  directs  such
disposition of such proceeds.

     (c) Subject to the terms and  conditions  of this  Agreement  and except as
otherwise  provided in Section  1.02(b) and elsewhere  herein,  the Lender shall
make the proceeds of each requested Loan (other than Loans to repay  obligations
owing to the Lender or its  Affiliates,  which may be applied  directly  to such
obligations)  available  to the  Borrower  by 2:00 p.m.  (New York  time) on the
requested  date  of  such  borrowing  in  immediately  available  funds  to  the
Borrower's account at the Northern Trust Company,  Chicago, Illinois pursuant to
the following wire transfer instructions:  ABA #071000152;  For Credit to 65781;
FBO: Peapod, Inc..

     1.03 Conversions.  The Borrower shall have the option, unless the Lender is
unable to  determine  the  Eurodollar  Rate,  to  convert  on any  Business  Day
occurring on or after the Initial  Borrowing  Date (but in no event may there be
more than one  conversion  in any one  month) all of the  outstanding  principal
amount of Loans made  pursuant to one or more  Borrowings  into a  Borrowing  or
Borrowings  of another  Type of Loan.  In no event may less than all of the Base
Rate Loans be converted to Eurodollar Loans.

     1.04 Interest. (a) The unpaid principal amount of each Base Rate Loan shall
bear interest  from the date of the  Borrowing  thereof until the earlier of (i)
the maturity  (whether by  acceleration or otherwise) of such Base Rate Loan and
(ii) the  conversion  of such Base Rate Loan to a  Eurodollar  Loan  pursuant to
Section  1.03,  at a rate per annum which  shall at all times be the  Applicable
Base Rate Margin plus the Base Rate in effect from time to time.

     (b) The unpaid principal amount of each Eurodollar Loan shall bear interest
for each  interest  period  thereof  from the date of the  Borrowing  until  the
earlier  of  (i)  maturity  (whether  by  acceleration  or  otherwise)  of  such
Eurodollar  Loan and (ii) the conversion of such  Eurodollar Loan to a Base Rate
Loan at a rate per annum which shall at all times be the  Applicable  Eurodollar
Margin plus the relevant Eurodollar Rate.

     (c) All overdue  principal  and, to the extent  permitted  by law,  overdue
interest in respect of each Loan and any other overdue amount payable  hereunder
shall, in each case, bear interest at a rate per annum equal to the Base Rate in
effect  from  time to time plus the sum of (i) 2% and (ii) the  Applicable  Base
Rate Margin,  provided that no Loan shall bear interest after maturity  (whether
by  acceleration or otherwise) at a rate per annum less than 2% plus the rate of
interest  applicable  thereto at maturity.  Interest  which  accrues  under this
Section 1.04(c) shall be payable on demand.

     (d) Interest  shall accrue from and including the date of any Borrowing to,
but excluding the date of, any repayment thereof and shall be payable monthly in
arrears on the last Business Day of each month and on any repayment,  prepayment
or  conversion  (on the amount  repaid,  prepaid or  converted)  and at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.

     (e) All computations of interest hereunder shall be made in accordance with
Section 10.06(b).

     (f) The Lender's  determination of any interest rate shall, absent manifest
error, be final and conclusive and binding on both parties.

     1.05  Interest  Periods.  (a) At the time the  Borrower  gives a notice  of
borrowing or notice of conversion (which must be given three Business Days prior
to the requested  conversion) in respect of the making of, or conversion into, a
Borrowing of  Eurodollar  Loans the Borrower  shall have the right to elect,  by
giving  the  Lender  written  notice  thereof  (or  telephonic  notice  promptly
confirmed in writing),  the Interest Period applicable to such Borrowing,  which
Interest  Period shall,  at the option of the Borrower,  be a one or three month
period. Notwithstanding anything to the contrary contained above:

          (i) the initial  Interest Period for any Borrowing of Eurodollar Loans
     shall  commence on the date of such  Borrowing  (including  the date of any
     conversion  from a Borrowing of Base Rate Loans) and each  Interest  Period
     occurring thereafter in respect of such Borrowing shall commence on the day
     on which the next preceding Interest Period expires;

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

          (iii) if any Interest Period would otherwise  expire on a day which is
     not a  Business  Day,  such  Interest  Period  shall  expire  on  the  next
     succeeding  Business  Day,  provided  that  if any  Interest  Period  would
     otherwise  expire on a day which is not a Business  Day but is a day of the
     month  after  which no  further  Business  Day occurs in such  month,  such
     Interest Period shall expire on the next preceding Business Day; and

          (iv) no Interest Period shall extend beyond the Maturity Date.

     (b) If,  prior to the third  Business  Day prior to the  expiration  of any
Interest  Period,  the Borrower has failed to elect a new Interest  Period to be
applicable to the respective  Borrowing of Eurodollar  Loans as provided  above,
the Borrower  shall be deemed to have elected to convert such  Borrowing  into a
Borrowing of Base Rate Loans effective as of the expiration date of such current
Interest Period.

     SECTION 2. Commitment.

     2.01 [Reserved]

     2.02  Voluntary  Termination or Reduction of Unutilized  Total  Commitment.
Upon at least two  Business  Days' prior  written  notice (or  telephone  notice
promptly  confirmed in writing) to the Lender at its Notice Office, the Borrower
shall  have the  right,  at any time or from time to time,  without  premium  or
penalty, to terminate or partially reduce the unutilized  Commitment in whole or
in part.

     2.03 Mandatory Prepayments and Commitment Reductions.

     (A) Commitment Reductions:

          (a) On the date of receipt  thereof by the  Borrower of Cash  Proceeds
     from any Asset Sale (other than Asset Sales not  exceeding  $250,000 in the
     aggregate  during  the term of this  Agreement),  the  Commitment  shall be
     permanently  reduced  by an amount  equal to 100% of the Net Cash  Proceeds
     from such Asset Sale.

          (b) On the date of the receipt thereof by the Borrower, the Commitment
     shall be  permanently  reduced by an amount  equal to 100% of the  proceeds
     (net of  underwriting  discounts,  commissions and other  reasonable  costs
     associated  therewith)  of  the  incurrence  of  any  Indebtedness  by  the
     Borrower, other than Indebtedness permitted by Section 7.04 as in effect on
     the date hereof.

          (c) On the date of the receipt thereof by the Borrower, the Commitment
     shall  be  permanently  reduced  by an  amount  equal  to 100% of the  cash
     proceeds (net of underwriting  discounts,  commissions and other reasonable
     costs  associated  therewith)  of any sale or issuance of its equity (other
     than the  Preferred  Stock and proceeds from the exercise of options not to
     exceed  $250,000  during  any  fiscal  year) and 100% of any amount of cash
     received  by the  Borrower  in  connection  with  any  contribution  to its
     capital.

          (d) On the date of receipt  thereof by the  Borrower of cash  proceeds
     from any Recovery Event, the Commitment shall be permanently  reduced by an
     amount  equal  to  100%  of the  proceeds  of such  Recovery  Event  (after
     deducting reasonable expenses in realizing such proceeds), provided that if
     the Borrower intends to use such insurance  proceeds or condemnation  award
     to replace or repair  the  affected  property,  the  Borrower  may use such
     proceeds or awards (not exceeding  $500,000 in aggregate  amount during the
     term of this Agreement) to purchase such replacement  property or make such
     repairs  within 30 days after such Recovery  Event and shall deliver to the
     Lender  written  evidence  of the use of such  proceeds  or award  for such
     purpose.

          (e) The  Commitment  shall be  terminated  in full on the  earliest to
     occur of: (i) the Maturity Date,  (ii) if the  shareholders of the Borrower
     disapprove  of the  sale of  shares  pursuant  to the  Securities  Purchase
     Agreement,  45 days  after  such  disapproval,  (iii)  the  fourth  monthly
     anniversary  of the  Effective  Date, if the  shareholders  of the Borrower
     fail, within four months after the Effective Date, to approve or disapprove
     the sale of securities pursuant to the Securities  Purchase  Agreement,  or
     (iv) the fourth monthly  anniversary of the Effective Date, if the purchase
     of all securities  pursuant to the Securities  Purchase  Agreement does not
     occur on or before such fourth monthly anniversary (other than by reason of
     breach by the Purchaser (as defined in the Securities  Purchase  Agreement)
     of its obligation under the Securities Purchase Agreement).

     (B) Repayments and Prepayments:

          (a) If on any date the aggregate outstanding principal amount of Loans
     exceeds the Commitment as then in effect,  the Borrower shall repay on such
     date the principal of Loans in an aggregate amount equal to such excess.

          (b)  Notwithstanding  anything to the contrary contained  elsewhere in
     this  Agreement all then  outstanding  Loans shall be repaid in full on the
     Maturity Date.

          (c) The  outstanding  Loans  shall be  prepaid  with the net  proceeds
     received by the Borrower from the issuance of the Preferred Stock, but such
     prepayment shall not reduce the amount of the Commitment.

     SECTION 3. Payments.

     3.01  Voluntary  Prepayments.  The Borrower  shall have the right to prepay
Loans in whole or in part, without premium or penalty,  from time to time on the
following  terms and  conditions:  the  Borrower  shall give the Lender prior to
12:00  noon (New York  time) at the Notice  Office at least one  Business  Day's
prior written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay the Loans and the amount of such prepayment.

     3.02 Method and Place of Payment. Except as otherwise specifically provided
herein,  all payments under this Agreement shall be made to the Lender not later
than  12:00  P.M.  (New  York  time) on the date  when due and  shall be made in
immediately  available funds and in lawful money of the United States of America
at the Payment  Office.  Any payments under this Agreement  which are made later
than  12:00 P.M.  (New York time)  shall be deemed to have been made on the next
succeeding  Business  Day.  Whenever any payment to be made  hereunder  shall be
stated  to be due on a day which is not a  Business  Day,  the due date  thereof
shall be extended  to the next  succeeding  Business  Day and,  with  respect to
payments of principal,  interest  shall be payable  during such extension at the
applicable rate in effect immediately prior to such extension.

     3.03 Net  Payments.  (a) All  payments  made by the  Borrower  will be made
without setoff,  counterclaim  or other defense.  All such payments will be made
free and clear of, and without  deduction  or  withholding  for,  any present or
future taxes, levies,  imposts,  duties,  fees,  assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding,  except as provided in the second succeeding  sentence,  any tax
imposed on or measured  by the net income or net profits of the Lender  pursuant
to the laws of the  jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of the Lender is located
or any  subdivision  thereof or therein) and all interest,  penalties or similar
liabilities with respect to such non-excluded taxes,  levies,  imposts,  duties,
fees,  assessments  or other  charges  (all  such  non-excluded  taxes,  levies,
imposts,   duties,  fees,   assessments  or  other  charges  being  referred  to
collectively  as "Taxes").  If any Taxes are so levied or imposed,  the Borrower
agrees to pay the full amount of such Taxes, and such additional  amounts as may
be  necessary  so that every  payment of all amounts  due under this  Agreement,
after  withholding or deduction for or on account of any Taxes, will not be less
than the amount  provided  for herein.  If any amounts are payable in respect of
Taxes pursuant to the preceding  sentence,  the Borrower agrees to reimburse the
Lender, upon the written request of the Lender, for taxes imposed on or measured
by the  net  income  or  profits  of the  Lender  pursuant  to the  laws  of the
jurisdiction  in which the Lender is organized or in which the principal  office
or applicable  lending  office of the Lender is located or under the laws of any
political  subdivision or taxing authority of any such jurisdiction in which the
Lender is  organized  or in which the  principal  office or  applicable  lending
office of the Lender is located and for any  withholding  of taxes as the Lender
shall  determine in good faith are payable by, or withheld from, the Lender,  in
respect of such  amounts so paid to or on behalf of the Lender  pursuant  to the
preceding  sentence  and in respect of any  amounts  paid to or on behalf of the
Lender pursuant to this sentence. The Borrower will furnish to the Lender within
45 days after the date the payment of any Taxes is due  pursuant  to  applicable
law certified copies of tax receipts evidencing such payment by the Borrower or,
if the  relevant  taxing  authority  does not issue  such  receipts,  such other
documents  of payment  as may be  reasonably  satisfactory  to the  Lender.  The
Borrower agrees to indemnify, defend and hold harmless the Lender, and reimburse
the Lender  upon its written  request,  for the amount of any Taxes so levied or
imposed and paid by the Lender and all costs and expenses incurred in connection
with same  including,  without  limitation,  attorney's  fees and  interest  and
penalties on the Taxes.

     (b) Notwithstanding Section 3.03(a), the Borrower shall not be required  to
make any payments to the Lender  pursuant to Section  3.03(a)  unless the Lender
complies with the following certification requirements:

          (i) the  Lender  shall,  no later  than the  Initial  Borrowing  Date,
     deliver to the  Borrower two  accurate  and  complete  signed  originals of
     Internal   Revenue   Service   Form   W-8ECI  or  any   successor   thereto
     (collectively,   "Form  W-8ECI"),  or  two  accurate  and  complete  signed
     originals of Internal Revenue Service Form W-8BEN or any successor  thereto
     (collectively, "Form W-8BEN"), as appropriate, in each case indicating that
     the Lender is on the date of  delivery  thereof  entitled  to  receive  all
     payments  under  this  Agreement  free from  withholding  of United  States
     federal income tax;

          (ii) the Lender shall deliver to the Borrower two further Form W-8ECIs
     or Form W-8BENs, as appropriate,  on or before the date that any such forms
     expire or become obsolete and after the occurrence of any event requiring a
     change in the most recent form  previously  delivered by it to the Borrower
     (other than a change in law that renders such forms  inapplicable  or which
     would prevent the Lender from duly completing and delivering any such form)
     unless the Lender is precluded from delivering such forms; and

          (iii) the Lender shall, to the extent it is legally  entitled to do so
     and  the  same  would  not be  disadvantageous  to it,  promptly  upon  the
     Borrower's  reasonable  request to that effect,  and at the Borrower's cost
     and  expense,   deliver  to  the  Borrower  such  other  forms  or  similar
     documentation  as may be required from time to time by any applicable  law,
     treaty,  rule or regulation  in order to establish  the Lender's  exemption
     from withholding on payments under this Agreement.

     SECTION 4A.  Conditions  Precedent to Initial Loans.  The obligation of the
Lender to make Loans hereunder on the Initial Borrowing Date is subject,  at the
time of the making of such Loans,  to the  satisfaction of each of the following
conditions:

     4A.01  Execution of Agreement.  On or prior to the Initial  Borrowing Date,
this Agreement shall have become effective as provided in Section 10.09.

     4A.02 Fees. On the Initial  Borrowing Date, the Borrower shall have paid to
the Lender all Fees and expenses (including, without limitation, reasonable fees
and  expenses of counsel)  agreed upon by such parties to be paid on or prior to
such date.

     4A.03  Officer's  Certificate.  On the Initial  Borrowing  Date, the Lender
shall have received a certificate dated such date signed by the President or any
Vice President of the Borrower stating that all of the applicable conditions set
forth in Sections 4A.05, 4A.06, 4A.07, and 4A.08 exist or have been satisfied as
of such date.

     4A.04 Opinions of Counsel.  On the Initial Borrowing Date, the Lender shall
have  received  an  opinion,  addressed  to the  Lender  and dated  the  Initial
Borrowing Date, from Sidley & Austin, special counsel to the Borrower,  covering
the matters contained in Exhibit A, which opinion shall be in form and substance
satisfactory to the Lender.

     4A.05 Adverse Change,  etc. On the Initial  Borrowing  Date,  nothing shall
have  occurred  (and the  Lender  shall  have not  become  aware of any facts or
conditions not previously known) which the Lender shall determine (a) has, or is
reasonably  likely to have, a material  adverse effect on the rights or remedies
of the Lender, or on the ability of the Lender to perform its obligations to the
Borrower,  or (b) has,  or is  reasonably  likely to have,  a  Material  Adverse
Effect.

     4A.06 Litigation. On the Initial Borrowing Date, there shall be no actions,
suits or proceedings pending or threatened (a) with respect to this Agreement or
any other  Document or the  transactions  contemplated  hereby or thereby or (b)
which the Lender  shall  determine  could  reasonably  be expected to (i) have a
Material  Adverse Effect or (ii) have a material adverse effect on the rights or
remedies of the Lender hereunder or under any other Credit Document.

     4A.07  Approvals.  On or prior to the Initial  Borrowing Date, all material
and necessary  governmental and third party approvals intended to be obtained on
or prior to the  Initial  Borrowing  Date in  connection  with the  transactions
contemplated by this Agreement and the other Documents and otherwise referred to
herein or  therein  shall  have been  obtained  and  remain in  effect,  and all
applicable  waiting periods shall have expired without any action being taken by
any  competent  authority  which  restrains  or prevents  such  transactions  or
imposes, in the reasonable judgment of the Lender, materially adverse conditions
upon the consummation of such transactions.  Additionally, there shall not exist
any judgment,  order, injunction or other restraint issued or filed or a hearing
seeking injunctive relief or other restraint pending or notified  prohibiting or
imposing materially adverse conditions upon, or materially  delaying,  or making
economically  unfeasible,  the consummation of the transactions  contemplated by
this  Agreement  and the other  Documents  or  otherwise  referred  to herein or
therein.

     4A.08 Transaction Documents. On or prior to the Initial Borrowing Date, the
Borrower  and an Affiliate  of the Lender  shall have  executed  the  Securities
Purchase Agreement,  and all of the Transaction  Documents required by the terms
of the Securities  Purchase Agreement to then be executed and the Borrower shall
be in compliance with all of its obligations thereunder.

     4A.09 Previous Bridge Loan; Security Documents.  On or prior to the Initial
Borrowing  Date,  all  outstanding  amounts owing under the Term Note shall,  as
provided  in Section  1.02(b),  either be (x) repaid in full,  and all  security
interests and liens relating thereto terminated or assigned to the Lender or (y)
purchased or otherwise obtained by the Lender from such Affiliate (in which case
the Term Note shall be deemed  amended and  restated by this  Agreement,  and be
superseded  hereby).  On the Initial  Borrowing Date, the Borrower shall have no
Indebtedness or preferred stock  outstanding  other than as permitted by Section
7.04.

     4A.10 Security  Documents.  (a) On the Initial Borrowing Date, the Borrower
shall have duly  authorized,  executed  and  delivered  an Amended and  Restated
Security  Agreement  in  the  form  of  Exhibit  C (as  modified,  supplemented,
extended,  renewed, replaced or amended from time to time in accordance with the
terms  hereof  and  thereof,  the  "Security  Agreement")  covering  all  of the
Borrower's collateral described therein, in each case together with:

          (i)  executed   copies  of  financing   statements   (Form  UCC-1)  in
     appropriate  form for filing under the UCC of each  jurisdiction  as may be
     necessary to perfect the security interests  purported to be created by the
     Security Agreement;

          (ii)  certified  copies of Requests  for  Information  or Copies (Form
     UCC-11), or equivalent  reports,  each of recent date listing all effective
     financing statements that name the Borrower as debtor and that are filed in
     the jurisdictions  referred to in clause (i) above, together with copies of
     such other  financing  statements that name the Borrower as debtor (none of
     which shall cover the collateral described in the Security Agreement);

          (iii) evidence of the  completion of all other  recordings and filings
     of, or with respect to, the Security  Agreement as may be necessary  or, in
     the opinion of the Lender,  desirable  to perfect  the  security  interests
     intended  to be  created  by the  Security  Agreement  (including,  without
     limitation,  filings and registrations with respect to copyrights,  patents
     and trademarks); and

          (iv) evidence  that all other actions  necessary or, in the opinion of
     the  Lender,  desirable  to perfect  and  protect  the  security  interests
     purported to be created by the Security Agreement have been taken;

     (b) On the Initial Borrowing Date, the Borrower shall have duly authorized,
executed and delivered a Collateral  Assignment of Intellectual  Property in the
form of Exhibit B (as modified,  supplemented,  extended,  renewed,  replaced or
amended from time to time in accordance  with the terms hereof and thereof,  the
"Intellectual Property Assignment") covering all of the Borrower's  intellectual
property collateral described therein, in each case together with:

          (i) evidence of the  completion of all  recordings  and filings of, or
     with respect to, the Intellectual  Property  Assignment as may be necessary
     or, in the  opinion  of the  Lender,  desirable  to  perfect  the  security
     interests  intended to be created by the Intellectual  Property  Assignment
     (including,  without limitation,  filings and registrations with respect to
     copyrights, patents and trademarks); and

          (ii) evidence  that all other actions  necessary or, in the opinion of
     the  Lender,  desirable  to perfect  and  protect  the  security  interests
     purported to be created by the Intellectual  Property  Assignment have been
     taken.

     4A.11 Warrants. On or prior to the Initial Borrowing Date, the Lender shall
have received warrants exerciseable into 3,566,667 shares of common stock (at an
exercise  price of $3.00 per share and otherwise in the form of Exhibit I to the
Securities Purchase Agreement).

     4A.12 Split Pea  Software  Liquidation.  On or before the second  Borrowing
Date,  Split  Pea  Software,  Inc.  shall  have  been  liquidated  on terms  and
conditions acceptable to the Lender.

     SECTION 4B. Conditions Precedent to All Loans. The obligation of the Lender
to make Loans (including Loans on the Initial Borrowing Date) is subject, at the
time of the  making of each such  Loan,  to the  satisfaction  of the  following
conditions:

     4B.01 No Default;  Representations and Warranties. At the time of each such
Loan and also after giving effect to the  incurrence of Loans on such date,  (i)
there shall exist no Default or Event of Default,  and (ii) all  representations
and warranties  contained  herein and in the other Credit Documents in effect at
such time  shall be true and  correct  in all  material  respects  with the same
effect as though such  representations  and warranties had been made on the date
of such Loan (it being understood and agreed that any representation or warranty
which by its terms is made of a specified  date shall be true and correct in all
material respects as of such specified date).

     4B.02  Notice of  Borrowing.  Prior to the making of each Loan,  the Lender
shall have received a notice of borrowing  meeting the  requirements  of Section
1.02.

     4B.03  Restrictions on Loans.  The Borrower shall be in compliance with the
restrictions on the making of Loans described in Section 1.01(b).

     4B.04 Security Documents. The Security Documents shall be in full force and
effect.

     4B.05 Second Opinion of Counsel.  On the Second  Borrowing Date, the Lender
shall have  received  an opinion,  addressed  to the Lender and dated the Second
Borrowing Date, from Sidley & Austin, special counsel to the Borrower,  covering
the  creation  and  perfection  of the  security  interests  under the  Security
Documents,  which  opinion shall be in form and  substance  satisfactory  to the
Lender.

     The  acceptance of the proceeds of each Loan by the Borrower  (occurring on
the Initial Borrowing Date and thereafter) shall constitute a representation and
warranty  by the  Borrower to the Lender that all the  conditions  specified  in
Section 4A (with respect to the Loans on the Initial Borrowing Date) and in this
Section 4B (with respect to Loans on and after the Initial  Borrowing  Date) and
applicable to such Loans exist as of that time. All of the  certificates,  legal
opinions and other  documents and papers  referred to in Sections 4A and in this
Section 4B, unless otherwise specified,  shall be delivered to the Lender at its
Notice Office and shall be in form and substance reasonably  satisfactory to the
Lender.

     SECTION 5. Representations,  Warranties and Agreements.  In order to induce
the  Lender to enter  into this  Agreement  and to make the Loans  provided  for
herein, the Borrower makes the following  representations and warranties to, and
agreements  with,  the Lender,  all of which shall  survive  the  execution  and
delivery of this  Agreement and the making of the Loans (with the  occurrence of
the Effective Date and the incurrence by the Borrower of the Loans  hereunder on
the Initial  Borrowing  Date being  deemed to  constitute a  representation  and
warranty  that the matters  specified  in this Section 5 are true and correct in
all  material  respects  on and as of each such date of such  Loan  unless  such
representation and warranty expressly  indicates that it is being made as of any
specific date, in which case such  representation and warranty shall be true and
correct in all material respects as of such specific date):

     5.01  Borrower  Status.  The Borrower (i) is a duly  organized  and validly
existing  corporation in good standing under the laws of the jurisdiction of its
organization  or formation  and has the power and  authority to own its property
and assets and to transact the business in which it is engaged and (ii) has duly
qualified  and is  authorized  to do  business  and is in good  standing  in all
jurisdictions  where it is required to be so qualified  and where the failure to
be so qualified  which,  individually or in the aggregate,  could  reasonably be
expected to have a Material Adverse Effect.

     5.02 Power and  Authority.  The  Borrower  has the power and  authority  to
execute,  deliver  and carry out and  perform  the terms and  provisions  of the
Documents to which it is a party and has taken all necessary action to authorize
the execution, delivery and performance of the Documents to which it is a party.
The Borrower  has duly  executed and  delivered  each  Document to which it is a
party and each such Document constitutes the legal, valid and binding obligation
of the Borrower  enforceable in accordance with its terms,  except to the extent
that  the  enforceability  thereof  may be  limited  by  applicable  bankruptcy,
insolvency,  reorganization,  moratorium  or similar  laws  generally  affecting
creditors' rights and by equitable principles (regardless of whether enforcement
is sought in equity or at law).

     5.03 No Violation.  Neither the execution,  delivery and performance by the
Borrower of the  Documents to which it is a party nor  compliance by it with the
terms  and  provisions  thereof,   nor  the  consummation  of  the  transactions
contemplated  therein,  (i) will contravene any applicable provision of any law,
statute,  rule,  regulation,  order, writ,  injunction or decree of any court or
governmental  instrumentality,  (ii) will conflict or be  inconsistent  with, or
result in any breach of, any of the terms,  covenants,  conditions or provisions
of, or  constitute  a default  under,  or (other than  pursuant to the  Security
Documents)  result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of the Borrower  pursuant
to the  terms of any  indenture,  mortgage,  deed of trust,  agreement  or other
instrument  to  which  the  Borrower  is a party  or by  which  it or any of its
material  property  or assets  are bound or to which it may be  subject or (iii)
will violate any provision of the  certificate of  incorporation  or by-laws (or
equivalent organizational documents) of the Borrower.

     5.04 Litigation. Except as set forth in Schedule 5.04 hereto, in regards to
which there have been no material  adverse  developments  since April 14,  2000,
there  are no  actions,  suits or  proceedings  pending  or,  to the  Borrower's
knowledge, threatened with respect to any Credit Document or with respect to the
Borrower that are  reasonably  likely to have a Material  Adverse Effect or that
could  reasonably be expected to have a Material Adverse Effect on the rights or
remedies  of the  Lender  or on the  ability  of the  Borrower  to  perform  its
obligations to them hereunder,  under the other Credit Documents to which it is,
or will be, a party.  None of the  litigation  set forth in Schedule  5.04 could
reasonably be expected to have a Material Adverse Effect.

     5.05 Use of  Proceeds;  Margin  Regulations.  (a) The proceeds of all Loans
shall be utilized (i) on the Initial Borrowing Date to effect the refinancing of
the bridge loan described in Section 4A.09 and (ii) after the Initial  Borrowing
Date, for general corporate purposes.

     (b) Neither the making of any Loan  hereunder,  nor the use of the proceeds
thereof,  will be used to purchase or carry any Margin Stock or to extend credit
for the purpose of purchasing  or carrying any Margin Stock.  Neither the making
of any Loan nor the use of the proceeds  thereof will violate or be inconsistent
with the  provisions of  Regulations  T, U or X of the Board of Governors of the
Federal Reserve System.

     5.06 Approvals.  No order,  consent,  approval,  license,  authorization or
validation  of, or filing,  recording or  registration  with (except for filings
that have been  obtained or made on or prior to the Initial  Borrowing  Date and
which  remain  in full  force and  effect on the  Initial  Borrowing  Date),  or
exemption by, any  governmental or public body or authority,  or any subdivision
thereof,  is required to authorize,  or is required in connection  with, (i) the
execution, delivery and performance of any Credit Document or (ii) the legality,
validity, binding effect or enforceability of any such Credit Document.

     5.07 Investment Company Act. The Borrower is not an "investment company" or
a company  "controlled"  by an "investment  company,"  within the meaning of the
Investment Company Act of 1940, as amended.

     5.08 Public  Utility  Holding  Company  Act. The Borrower is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary  company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

     5.09 True and  Complete  Disclosure.  All factual  information  (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Borrower
in writing to the Lender for purposes of or in connection with this Agreement or
any  transaction  contemplated  by the  Documents  is true and  accurate  in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information  (taken  as a whole)  not  misleading  at such  time in light of the
circumstances under which such information was provided.  There is no fact known
to the Borrower or which would be reasonably  likely to have a Material  Adverse
Effect  which  has  not  been  disclosed  herein  or in  such  other  documents,
certificates  and statements  furnished to the Lender for use in connection with
the transactions contemplated hereby.

     5.10 Financial Condition;  Financial Statements;  Projections,  etc. (a) On
and as of the Initial  Borrowing  Date, on a pro forma basis after giving effect
to the incurrence of Loans and to all Indebtedness incurred, and to be incurred,
and Liens created,  and to be created, by the Borrower in connection  therewith,
(x) the sum of the assets, at a fair valuation, of the Borrower taken as a whole
will exceed its debts,  (y) the Borrower  will not have incurred or intended to,
or believe that they will, incur debts beyond their ability to pay such debts as
such debts mature and (z) the Borrower will not have unreasonably  small capital
with which to conduct its business. For purposes of this Section 5.10(a), "debt"
means any liability on a claim,  and "claim" means (i) right to payment  whether
or not such a right is reduced to  judgment,  liquidated,  unliquidated,  fixed,
contingent,  matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured;  or (ii) right to an equitable remedy for breach of performance if
such breach  gives rise to a payment,  whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,  matured, unmatured, disputed,
undisputed,  secured or unsecured.  The amount of contingent  liabilities at any
time shall be  computed  as the amount  that,  in the light of all the facts and
circumstances  existing at such time,  represents the amount that can reasonably
be expected to become an actual or matured liability.

     (b) Except as set forth in  Schedule  5.10(b),  since  December  31,  1999,
nothing  has  occurred  that has had or could  reasonably  be expected to have a
Material Adverse Effect.

     (c) On and as of the Initial  Borrowing Date, the budgets,  projections and
pro forma  financial  information  delivered  to the Lender prior to the Initial
Borrowing  Date  have  been  prepared  in good  faith  and  based on  reasonable
assumptions,  and there are no  statements  or  conclusions  in the  budgets and
projections which are based upon or include information known to the Borrower to
be  misleading  in any  material  respect  or which  fail to take  into  account
material  information  known to the  Borrower  regarding  the  matters  reported
therein.  On  the  Initial  Borrowing  Date,  the  Borrower  believes  that  the
Projections  and pro  forma  financial  information  are  reasonable,  it  being
recognized by the Lender,  however, that projections as to future events are not
to be viewed as facts and that the actual  results  during the period or periods
covered by the  Projections  may differ from the projected  results and that the
differences may be material.

     (d) The budgets and  projections  delivered to the Lender after the Initial
Borrowing  Date  (including  each  budget  submitted  pursuant  to  Section 1 in
connection  with a  Borrowing)  will be  prepared  in good  faith  and  based on
reasonable  assumptions,  and there will be no statements or conclusions therein
which are based upon or include  information  then known to the  Borrower  to be
misleading in any material  respect or which fail to take into account  material
information then known to the Borrower regarding the matters reported therein.

     (e) As of the  Initial  Borrowing  Date (i) there  were no  liabilities  or
obligations with respect to the Borrower of a nature (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
aggregate,  could reasonably be expected to be material to the Borrower taken as
a whole,  and (ii) the  Borrower  does not know of any basis  for the  assertion
against it of any liability or obligation of any nature whatsoever which, either
individually or in the aggregate, could reasonably be expected to be material to
the Borrower.

     5.11 Security  Interests.  On and after the Initial Borrowing Date, each of
the Security Documents creates, as security for the Obligations  purported to be
secured thereby, a valid and enforceable perfected security interest in and Lien
on all of the Collateral subject thereto, superior to and prior to the rights of
all third  Persons  and  subject  to no other  Liens  (except  (x) to the extent
expressly set forth in the Security Documents and (y) that the Collateral may be
subject to the security interests evidenced by Permitted Liens).

     5.12 Compliance with Statutes,  etc. The Borrower is in compliance with all
applicable statutes,  regulations and orders of, and all applicable restrictions
imposed by, all  governmental  bodies,  domestic  or foreign,  in respect of the
conduct  of its  business  and  the  ownership  of  its  property,  except  such
noncompliances as could not, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

     5.13 Tax Returns and Payments. The Borrower has filed all federal and state
income tax returns and all other  material  tax  returns,  domestic and foreign,
required to be filed by it and has paid all federal and state  income  taxes and
all other  material taxes and  assessments  payable by it which have become due,
except for those  contested  in good faith and  adequately  disclosed  and fully
provided for on the  financial  statements  of the Borrower in  accordance  with
GAAP. The Borrower has at all times paid, or has provided  adequate reserves (in
the good faith  judgment of the  management of the Borrower) for the payment of,
all federal,  state and material local and foreign  income taxes  applicable for
all prior  fiscal  years and for the current  fiscal  year to date.  There is no
material action, suit, proceeding, investigation, audit or claim now pending or,
to the knowledge of the Borrower threatened by any authority regarding any taxes
relating to the Borrower. As of the Initial Borrowing Date, the Borrower has not
entered into an agreement or waiver or been requested to enter into an agreement
or waiver  extending  any  statute of  limitations  relating  to the  payment or
collection of taxes of the Borrower, or is aware of any circumstances that would
cause the  taxable  years or other  taxable  periods of the  Borrower  not to be
subject to the normally applicable statute of limitations.

     5.14 Subsidiaries. Borrower has no Subsidiaries.

     5.15 Representations and Warranties in Transaction  Documents.  Each of the
representations  and warranties  contained in the Transaction  Documents is true
and correct (unless such  representation  and warranty shall be true and correct
as of a specific date, in which case such  representation  and warranty shall be
true and correct in all material respects as of such date).

     5.16 Patents, etc. The Borrower possesses all material patents, trademarks,
service  marks,  trade names,  copyrights  and  licenses,  free from  burdensome
restrictions,  that are used for the  operation  of its  business  as  presently
conducted.

     SECTION 6. Affirmative Covenants.  The Borrower hereby covenants and agrees
that as of the Effective Date and thereafter for so long as this Agreement is in
effect and until the  Commitment  has  terminated  and the Loans,  together with
interest,  Fees and all other monetary Obligations incurred hereunder,  are paid
in full:

     6.01 Information Covenants. The Borrower will furnish to the Lender:

          (a)  Annual  Financial  Statements.  Within 90 days after the close of
     each fiscal year of the  Borrower,  the  consolidated  balance sheet of the
     Borrower,  as at the end of such fiscal  year and the related  consolidated
     statements  of income  and  retained  earnings  and of cash  flows for such
     fiscal year, in each case setting forth  comparative  consolidated  figures
     for  the  preceding  fiscal  year,  and in  the  case  of the  consolidated
     financial  statements,  examined  by one  (1) of  the  "Big-5"  independent
     certified public accountants of recognized  national standing whose opinion
     shall  not  be  qualified  as to  the  scope  of  audit,  together  with  a
     certificate  of such  accounting  firm  stating  that in the  course of its
     regular audit of the business of the Borrower, which audit was conducted in
     accordance with generally accepted auditing standards, such accounting firm
     has  obtained no  knowledge  of any  Default or Event of Default  which has
     occurred and is continuing  or, if in the opinion of such  accounting  firm
     such a Default  or Event of  Default  has  occurred  and is  continuing,  a
     statement as to the nature thereof.

          (b) Quarterly  Financial  Statements.  As soon as available and in any
     event  within 45 days after the close of each of the first three  quarterly
     accounting  periods in each fiscal year of the Borrower,  the  consolidated
     balance sheet of the Borrower,  as at the end of such quarterly  accounting
     period and the  related  consolidated  statements  of income  and  retained
     earnings and of cash flows for such quarterly accounting period and for the
     elapsed  portion  of the  fiscal  year  ended  with  the  last  day of such
     quarterly   accounting   period,   and  where  applicable,   setting  forth
     comparative  consolidated  figures  for the  related  periods  in the prior
     fiscal year, all of which shall be certified by the chief financial officer
     or controller of the Borrower,  subject to changes resulting from audit and
     normal year-end audit adjustments.

          (c) Monthly Reports.  As soon as practicable,  and in any event within
     30 days after the end of each monthly accounting period of each fiscal year
     of the  Borrower  (other than the last  monthly  accounting  period in such
     fiscal year),  monthly  reports in a form  reasonably  satisfactory  to the
     Lender,  in conformity with the  requirements of the Section 8.2 (a) of the
     Securities Purchase Agreement.

          (d) Budgets. No later than the end of each fiscal year of the Borrower
     commencing  after  the date  hereof,  a cash  flow  budget  by month of the
     Borrower for the following fiscal year in reasonable detail satisfactory to
     the Lender.

          (e)  Officer's  Certificates.  At  the  time  of the  delivery  of the
     financial  statements  provided  for in  Sections  6.01(a)  (b) and (c),  a
     certificate  of the chief  financial  officer of the Borrower to the effect
     that no Default or Event of Default  exists or, if any  Default or Event of
     Default  does  exist,  specifying  the  nature and  extent  thereof,  which
     certificate,  in the case of the certificate delivered pursuant to Sections
     6.01(a) and (b),  shall set forth the  calculations  required to  establish
     whether the Borrower was in compliance  with the provisions of Section 7.05
     as at the end of such fiscal quarter or year, as the case may be.

          (f) Notice of Default or Litigation. Promptly, and in any event within
     five Business Days after the Borrower obtains knowledge thereof,  notice of
     (x) the occurrence of any event which  constitutes a Default or an Event of
     Default,  which  notice  shall  specify the nature  thereof,  the period of
     existence  thereof  and what  action  the  Borrower  proposes  to take with
     respect thereto or (y) the  commencement of or any significant  development
     in any litigation or governmental  proceeding  pending against the Borrower
     which is likely to have a  Material  Adverse  Effect or is likely to have a
     material  adverse  effect on the  ability of the  Borrower  to perform  its
     obligations  hereunder,  under any other Credit Document or any Transaction
     Document.

          (g) Auditors'  Reports.  Promptly upon receipt thereof, a copy of each
     final  report or  "management  letter"  submitted  to the  Borrower  by its
     independent  accountants in connection with any annual,  interim or special
     audit made by it of the books of the Borrower.

          (h) Other Reports and Filings.  Promptly  after the filing or delivery
     thereof, copies of all financial information,  proxy materials and reports,
     if any, which the Borrower shall publicly file with the SEC.

          (i)  Environmental  Matters.  Promptly  after any senior or  executive
     officer of the Borrower obtains knowledge thereof, notice of one or more of
     the following  environmental  matters,  unless such  environmental  matters
     could  not,   individually   or  when   aggregated   with  all  other  such
     environmental  matters,  be reasonably  expected to have a Material Adverse
     Effect:

               (i) any pending or  threatened  Environmental  Claim  against the
          Borrower  or any  Real  Property  owned,  leased  or  operated  by the
          Borrower;

               (ii) any  condition  or  occurrence  on or arising  from any Real
          Property owned, leased or operated by the Borrower that (a) results in
          noncompliance by the Borrower with any applicable Environmental Law or
          (b) could reasonably be expected to form the basis of an Environmental
          Claim against the Borrower or any such Real Property;

               (iii) any condition or  occurrence  on any Real  Property  owned,
          leased or operated by the Borrower  that could  reasonably be expected
          to cause such Real Property to be subject to any  restrictions  on the
          ownership,  occupancy,  use or transferability by the Borrower of such
          Real Property under any Environmental Law; and

               (iv) the taking of any removal or remedial  action in response to
          the actual or alleged  presence of any Hazardous  Material on any Real
          Property owned,  leased or operated by the Borrower as required by any
          Environmental Law or any governmental or other administrative  agency;
          provided,  that in any event the Borrower  shall deliver to the Lender
          all  notices   received  by  the  Borrower  from  any   government  or
          governmental  agency under,  or pursuant to, CERCLA which identify the
          Borrower as potentially  responsible  parties for remediation costs or
          which  otherwise  notify the  Borrower of  potential  liability  under
          CERCLA.  All such  notices  shall  describe in  reasonable  detail the
          nature of the claim, investigation,  condition,  occurrence or removal
          or remedial action and the Borrower's response thereto.

          (j) Other  Information.  From time to time, such other  information or
     documents (financial or otherwise) as the Lender may reasonably request.

     6.02  Books,  Records and  Inspections.  The  Borrower  will  permit,  upon
reasonable notice to the Borrower,  officers and designated  representatives  of
the Lender to visit and inspect any of the  properties or assets of the Borrower
in whomsoever's possession,  and to examine the books of account of the Borrower
and discuss the affairs,  finances and  accounts of the  Borrower  with,  and be
advised as to the same by, its and their officers and  independent  accountants,
all at such reasonable times and intervals and to such reasonable  extent as the
Lender may desire.

     6.03  Payment of Taxes.  The  Borrower  will pay and  discharge  all taxes,
assessments  and  governmental  charges  or levies  imposed  upon it or upon its
income or profits, or upon any properties  belonging to it, prior to the date on
which penalties  attach thereto,  and all lawful claims which, if unpaid,  might
become a Lien not  otherwise  permitted  pursuant to Section 7.03 or charge upon
any properties of the Borrower, provided that the Borrower shall not be required
to pay any such tax, assessment,  charge, levy or claim which is being contested
in good faith and by proper  proceedings  if payment of same is not a  condition
precedent to being able to contest same and, if not such a condition,  if it has
maintained adequate reserves with respect thereto in accordance with GAAP.

     6.04 Existence;  Franchises.  The Borrower will do or cause to be done, all
things  necessary to preserve  and keep in full force and effect its  existence,
material rights, franchises,  licenses, patents and authority, provided that any
transaction   permitted  by  Section  7.02  or  any  failure  which  would  not,
individually  or in the  aggregate,  have a  Material  Adverse  Effect  will not
constitute a breach of this Section 6.04.

     6.05  Compliance  with  Statutes,  etc.  The  Borrower  will  comply in all
material respects with all applicable statutes  (including,  without limitation,
all  applicable   Environmental  Laws),  regulations  and  orders  of,  and  all
applicable  restrictions  imposed  by,  all  governmental  bodies,  domestic  or
foreign,  in respect of the conduct of its  business  and the  ownership  of its
property except for such  non-compliance  which could not reasonably be expected
to have a Material  Adverse Effect or could not reasonably be expected to have a
material  adverse  effect  on  the  ability  of  the  Borrower  to  perform  its
obligations under any Credit Document and/or Transaction Document to which it is
a party.

     6.06 Good Repair. The Borrower will ensure that its material properties and
equipment used or useful in its business in whomsoever's possession they may be,
are kept, in all material respects, in good repair, working order and condition,
normal wear and tear excepted.

     6.07 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial
reporting  and tax  purposes,  cause  (i)  each of its  fiscal  years  to end on
December  31 of each year and (ii) each of its fiscal  quarters  to end on March
31, June 30, September 30 and December 31 of each year.

     6.08 Use of  Proceeds.  All proceeds of the Loans shall be used as provided
in Section 5.05.

     6.09 Corporate  Formalities.  The Borrower will satisfy customary corporate
formalities,   including  the  holding  of  regular  board  of  directors'   and
shareholders' meetings and the maintenance of corporate offices and records.

     6.10 Compliance with Environmental  Laws. (a) The Borrower will comply with
all  Environmental  Laws applicable to the ownership or use of its Real Property
now or  hereafter  owned,  leased  or  operated  by  the  Borrower  except  such
non-compliances  as could not,  individually or in the aggregate,  reasonably be
expected to have a Material Adverse Effect, and will promptly pay or cause to be
paid all costs and expenses  incurred in connection  with such  compliance,  and
will keep or cause to be kept all such Real Property free and clear of any Liens
imposed  pursuant to such  Environmental  Laws.  The Borrower will not generate,
use,  treat,  store,  release or  dispose  of, or permit  the  generation,  use,
treatment,  storage,  Release or disposal  of  Hazardous  Materials  on any Real
Property  now or  hereafter  owned,  leased  or  operated  by the  Borrower,  or
transport or permit the  transportation  of  Hazardous  Materials to or from any
such Real Property,  except for Hazardous  Materials  generated,  used, treated,
stored, released or disposed of at any such Real Properties in compliance in all
material respects with all applicable Environmental Laws and reasonably required
in  connection  with the  operation,  use and  maintenance  of the  business  or
operations of the Borrower.

     (b) At any time that the Borrower  gives  notice to the Lender  pursuant to
Section  6.01(i),  then at the  reasonable  written  request of the Lender,  the
Borrower will provide,  at the sole expense of the  Borrower,  an  environmental
site assessment report concerning any Real Property owned, leased or operated by
the Borrower,  prepared by an environmental  consulting firm reasonably approved
by the Lender, indicating the presence or absence of Hazardous Materials and the
potential  cost of any  removal  or  remedial  action  in  connection  with such
Hazardous Materials on such Real Property.  If the Borrower fails to provide the
same within  ninety (90) days after such request was made,  the Lender may order
the same,  the cost of which shall be borne by the  Borrower,  and the  Borrower
shall  grant and hereby  grant to the Lender and its agents  access to such Real
Property and specifically grant the Lender an irrevocable non-exclusive license,
subject  to the  rights of  tenants,  to  undertake  such an  assessment  at any
reasonable  time upon  reasonable  notice to the  Borrower,  all at the sole and
reasonable expense of the Borrower.

     6.11  Performance  of  Obligations.  The  Borrower  will perform all of its
obligations under the terms of each material  agreement,  contract or instrument
by which  it is  bound,  except  such  non-performances  as  could  not,  either
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse Effect.

     SECTION 7. Negative  Covenants.  The Borrower  hereby  covenants and agrees
that as of the Effective Date and thereafter for so long as this Agreement is in
effect and until the  Commitment  has  terminated  and the Loans,  together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:

     7.01 Business. The Borrower will not engage (directly or indirectly) in any
business other than the type of business in which the Borrower is engaged on the
Effective Date and reasonable extensions thereof.

     7.02  Consolidation,  Merger, Sale or Purchase of Assets, etc. The Borrower
will not  wind  up,  liquidate  or  dissolve  its  affairs,  or  enter  into any
transaction of merger or  consolidation,  or sell or otherwise dispose of all or
any part of its property or assets (other than inventory in the ordinary  course
of business), or enter into any sale-leaseback transactions,  or purchase, lease
or  otherwise  acquire  all or any part of the  property or assets of any Person
(other than purchases of inventory in the ordinary course of business), or agree
to do any of the foregoing at any future time,  except that the following  shall
be permitted:

          (a) Capital  Expenditures  to the extent  within the  limitations  set
     forth in Section 7.05;

          (b) the  investments,  acquisitions  and transfers or  dispositions of
     properties permitted pursuant to Section 7.06;

          (c) the Borrower  may lease (as lessee)  real or personal  property in
     the  ordinary  course of business  (so long as such lease does not create a
     Capitalized  Lease  Obligation not otherwise  permitted by Section 7.04(b);
     and

          (d) the transactions contemplated by the Transaction Documents.

     7.03 Liens. The Borrower will not create,  incur, assume or suffer to exist
any Lien upon or with  respect  to any  property  or assets of any kind (real or
personal, tangible or intangible) of the Borrower whether now owned or hereafter
acquired,  or sell any such property or assets  subject to an  understanding  or
agreement,  contingent  or  otherwise,  to  repurchase  such  property or assets
(including sales of accounts  receivable or notes with recourse to the Borrower)
or assign  any right to  receive  income,  or file or permit  the  filing of any
financing  statement under the UCC or any other similar notice of Lien under any
similar  recording  or notice  statute;  provided  that the  provisions  of this
Section 7.03 shall not prevent the creation, incurrence, assumption or existence
of the following  (with such Liens  described  below being herein referred to as
"Permitted Liens"):

          (a) Liens for taxes,  assessments or governmental charges or rules not
     yet due or Liens for taxes,  assessments or  governmental  charges or rules
     being  contested  in good faith and by  appropriate  proceedings  for which
     adequate  reserves  (in the good faith  judgment of the  management  of the
     Borrower) have been established in accordance with GAAP;

          (b) Liens in respect of property or assets of the Borrower  imposed by
     law which were  incurred  in the  ordinary  course of  business  and do not
     secure  indebtedness for borrowed money, such as carriers',  warehousemen's
     and mechanics' Liens,  statutory  landlord's Liens, and other similar Liens
     arising in the  ordinary  course of  business,  and (x) which do not in the
     aggregate  materially  detract from the value of such property or assets or
     materially  impair the use thereof in the  operation of the business of the
     Borrower taken as a whole or (y) which are being contested in good faith by
     appropriate  proceedings,  which  proceedings have the effect of preventing
     the forfeiture or sale of the property or asset subject to such Lien;

          (c) Liens  created by or pursuant to the  Security  Documents or other
     Liens in favor of the Lender;

          (d) Liens in existence on the Initial Borrowing Date which are listed,
     and the property subject thereto described,  in Schedule I, but only to the
     respective  date,  if any,  set forth in such  Schedule I for the  removal,
     replacement and termination of any such Liens, plus renewals, replacements,
     refinancings  and  extensions  of such  Liens to the  extent  set  forth on
     Schedule I;

          (e) Liens arising from judgments,  decrees or attachments (or securing
     of appeal bonds with respect thereto) in circumstances  not constituting an
     Event of Default  under  Section  8.09,  provided  that no cash or property
     (other than  proceeds  of  insurance  payable by reason of such  judgments,
     decrees or  attachments) is deposited or delivered to secure any respective
     judgment or award, or any appeal bond in respect  thereof,  the fair market
     value of which exceeds $10,000;

          (f) Liens (other than any Lien imposed by ERISA)  incurred or deposits
     made in the  ordinary  course  of  business  in  connection  with  workers'
     compensation, unemployment insurance and other types of social security, or
     to secure the performance of tenders,  statutory obligations,  surety bonds
     (other than appeal bonds), bids, leases, government contracts,  performance
     and  return-of-money  bonds and other similar  obligations  incurred in the
     ordinary  course of business  (exclusive of  obligations  in respect of the
     payment for borrowed money), provided that the aggregate amount of deposits
     at any time pursuant to this clause (f) shall not exceed $25,000;

          (g)   easements,   rights-of-way,   restrictions,   minor  defects  or
     irregularities  in title and other  similar  charges  or  encumbrances  not
     interfering  in any  material  respect  with the  ordinary  conduct  of the
     business of the Borrower; and

          (h) Liens arising from UCC financing  statements  regarding  operating
     leases and Liens securing  Capitalized Lease Obligations  permitted by this
     Agreement.

     7.04 Indebtedness. The Borrower will not contract, create, incur, assume or
suffer to exist any Indebtedness, except:

          (a)  Indebtedness  incurred  pursuant to this  Agreement and the other
     Credit Documents;

          (b) Capitalized  Lease  Obligations of the Borrower  provided that the
     aggregate amount of Indebtedness incurred pursuant to this clause (b) after
     the date hereof shall not exceed $400,000 at any time; and

          (c) A letter of credit in a stated amount not to exceed $1,200,000.

     7.05 Capital Expenditures. The Borrower will not incur Capital Expenditures
in any fiscal year of the Borrower in excess of the lesser of (i)  $2,000,000 or
(ii) the  amount  set forth in the most  recent  cash flow  budget for such year
provided by the Borrower to the Lender and acceptable to the Lender.

     7.06 Advances,  Investments and Loans.  The Borrower will not,  directly or
indirectly,  lend  money or give  credit  or make  advances  to any  Person,  or
purchase  or  acquire  any stock,  obligations  or  securities  of, or any other
interest in, or make any capital  contribution to, any other Person, or purchase
or own a futures contract or otherwise become liable for the purchase or sale of
currency  or other  commodities  at a future  date in the  nature  of a  futures
contract,   or  hold  cash  or  Cash  Equivalents  (each  of  the  foregoing  an
"Investment" and, collectively,  "Investments"), except that the following shall
be permitted:

          (a) the Borrower may acquire and hold accounts  receivables  owing it,
     if created or acquired in the  ordinary  course of business  and payable or
     dischargeable in accordance with customary trade terms;

          (b) loans and advances to employees in an aggregate  principal  amount
     not to exceed $100,000 at any time outstanding shall be permitted; and

          (c) the  Borrower  may hold cash in deposit  accounts in the  ordinary
     course of business and Cash  Equivalents  provided that so long as any Loan
     is  outstanding  such  cash and Cash  Equivalents  may not be in  excess of
     $500,000 (other than such cash and Cash Equivalents  representing  proceeds
     of a Loan pending the application thereof).

     7.07  Dividends,  etc. The Borrower will not authorize,  declare or pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or  return  any  capital  to its  stockholders  or  authorize  or make any other
distribution,  payment or delivery of  property or cash to its  stockholders  as
such, or redeem, retire, purchase or otherwise acquire,  directly or indirectly,
for a  consideration,  any  shares  of any  class of its  capital  stock  now or
hereafter  outstanding  (or any  warrants  for or options or stock  appreciation
rights in respect of any of such shares),  or set aside any funds for any of the
foregoing  purposes,  as the case may be, now or hereafter  outstanding  (or any
options or  warrants  or stock  appreciation  rights  issued by such Person with
respect to its capital  stock) (all of the  foregoing  "Dividends"),  other than
payments of Dividends on the Preferred Stock.

     7.08  Transactions  with  Affiliates.  The Borrower will not enter into any
transaction or series of transactions  after the Initial  Borrowing Date whether
or not in the ordinary  course of business,  with any Affiliate of the Borrower;
provided,  that the  foregoing  restrictions  shall not apply to (i) advances to
employees  of the  Borrower to the extent  permitted  by Section  7.06(b),  (ii)
employment  arrangements  (including  arrangements made with respect to bonuses)
entered  into in the  ordinary  course of  business,  or (iii) the  transactions
contemplated by the Transaction Documents.

     7.09  Prohibition  on Creation of  Subsidiaries.  The Borrower shall not be
permitted to establish, create or acquire any Subsidiary or Subsidiaries.

     SECTION 8. Events of Default.  Upon the  occurrence of any of the following
specified events (each an "Event of Default"):

     8.01  Payments.  The Borrower  shall (i) default in the payment when due of
any  principal  of any Loan or (ii)  default,  and such default  shall  continue
unremedied  for three or more Business  Days, in the payment after notice of any
interest on the Loans or any Fees or any other amounts owing  hereunder or under
any other Credit Document; or

     8.02 Representations,  etc. Any representation,  warranty or statement made
by the  Borrower  herein  or in  any  other  Document  or in  any  statement  or
certificate  delivered  or required to be delivered  pursuant  hereto or thereto
shall prove to be untrue in any material respect on the date as of which made or
deemed made; or

     8.03  Covenants.  The Borrower shall (a) default in the due  performance or
observance  by it of any  term,  covenant  or  agreement  contained  in  Section
6.01(e)(x) or Section 7, or (b) default in the due  performance or observance by
it of any term,  covenant or agreement  (other than those referred to in Section
8.01,  8.02 or clause (a) of this Section 8.03)  contained in this Agreement and
such default shall  continue  unremedied for a period of 10 days after notice to
the Borrower by the Lender; or

     8.04 Default Under Other Agreements.  (a) The Borrower shall (i) default in
any payment with respect to any Indebtedness (other than the Obligations) beyond
the  period  of  grace,  if  any,  applicable  thereto  or (ii)  default  in the
observance or  performance  of any  agreement or condition  relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto,  or any other event shall occur or condition exist, the effect
of which  default  or other  event or  condition  is to cause,  or to permit the
holder or holders of such  Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause,  any such  Indebtedness  to become due prior to its
stated  maturity or (b) any such  Indebtedness of the Borrower shall be declared
to be due and  payable,  or  required  to be prepaid  other than by a  regularly
scheduled required  prepayment,  prior to the stated maturity thereof,  provided
that it shall not  constitute a Default or an Event of Default  pursuant to this
Section 8.04 unless the principal  amount of any one issue of such  Indebtedness
exceeds $250,000 in the aggregate; or

     8.05  Bankruptcy,  etc.  The  Borrower  shall  commence  a  voluntary  case
concerning   itself  under  Title  11  of  the  United   States  Code   entitled
"Bankruptcy,"  as now or  hereafter  in effect,  or any  successor  thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against the Borrower and
the petition is not  controverted  within 30 days, or is not dismissed within 60
days,  after  commencement  of the  case;  or a  custodian  (as  defined  in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially  all
of the property of the Borrower;  or the Borrower commences any other proceeding
under any  reorganization,  arrangement,  adjustment of debt, relief of debtors,
dissolution,  insolvency  or  liquidation  or  similar  law of any  jurisdiction
whether  now or  hereafter  in  effect  relating  to the  Borrower;  or there is
commenced against the Borrower any such proceeding which remains undismissed for
a period of 60 days; or the Borrower is  adjudicated  insolvent or bankrupt;  or
any order of relief or other  order  approving  any such case or  proceeding  is
entered;  the Borrower  suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue  undischarged or unstayed
for a period of 60 days;  or the  Borrower  makes a general  assignment  for the
benefit of creditors;  or any corporate  action is taken by the Borrower for the
purpose of effecting any of the foregoing; or

     8.06  Security  Documents.  At any time after the  execution  and  delivery
thereof,  any of the  Security  Documents  shall  cease to be in full  force and
effect,  or  shall  cease to give the  Lender  the  Liens,  rights,  powers  and
privileges  purported to be created thereby  superior to and prior to the rights
of all third Persons  (except as permitted by Section  7.03),  and subject to no
other Liens (except as permitted by Section 7.03), or the Borrower shall default
in the due  performance or observance of any term,  covenant or agreement on its
part to be performed or observed pursuant to any such Security Document and such
default  shall  continue  beyond  the  period  of  grace,  if any,  specifically
applicable thereto pursuant to the terms of such Security Document; or

     8.07  Judgments.  One or more judgments or decrees shall be entered against
the Borrower  involving a liability in the aggregate  (not paid or fully covered
by a reputable  and solvent  insurance  company) and such  judgments and decrees
either shall be final and non-appealable or shall not be vacated,  discharged or
stayed or bonded pending  appeal for any period of 30 consecutive  days, and the
aggregate amount of all such judgments equals or exceeds $250,000; or

     8.08 Change of Control. A Change of Control shall occur; or

     8.09 Transaction Documents. The Borrower shall default in the observance or
performance  in any  material  respect of any  Transaction  Document;  provided,
however if such  default is capable of being cured such  default  shall not have
been remedied within 30 days of such default;

then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Lender may by written notice to the Borrower, take
any or all of the  following  actions,  without  prejudice  to the rights of the
Lender,  to  enforce  its  claims  against  the  Borrower,  except as  otherwise
specifically  provided  for in this  Agreement  (provided  that,  if an Event of
Default specified in Section 8.05 shall occur with respect to the Borrower,  the
result  which  would  occur upon the  giving of written  notice by the Lender as
specified  in clauses (i) and (ii) below shall occur  automatically  without the
giving of any such notice): (i) declare the Commitment terminated, whereupon the
Commitment shall forthwith terminate immediately;  (ii) declare the principal of
and any  accrued  interest  in  respect of all Loans and all  Obligations  owing
hereunder to be,  whereupon  the same shall  become,  forthwith  due and payable
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby waived by the Borrower; and (iii) enforce any or all of the Liens and
security interests created pursuant to the Security Documents.

     SECTION 9. Definitions.  As used herein, the following terms shall have the
meanings herein specified unless the context otherwise  requires.  Defined terms
in this  Agreement  shall  include in the singular  number the plural and in the
plural the singular:

     "Affiliate"  shall  mean,  with  respect to any  Person,  any other  Person
directly or indirectly controlling (including, but not limited to, all directors
and officers of such Person),  controlled by, or under direct or indirect common
control with such Person.  A Person shall be deemed to control a corporation  if
such Person possesses,  directly or indirectly, the power (i) to vote 5% or more
of the securities  having ordinary voting power for the election of directors of
such  corporation or (ii) to direct or cause the direction of the management and
policies  of  such   corporation,   whether  through  the  ownership  of  voting
securities,  by  contract  or  otherwise.  Notwithstanding  the  foregoing,  for
purposes  of this  Agreement,  neither  the Lender nor its  Affiliates  shall be
deemed Affiliates of the Borrower.

     "Agreement" shall mean this Credit Agreement,  as the same may be from time
to time modified, amended and/or supplemented.

     "Applicable Base Rate Margin" shall mean 2.00%.

     "Applicable Eurodollar Margin" shall mean 3.00%.

     "Asset  Sale"  shall mean the sale,  transfer or other  disposition  by the
Borrower to any Person of any asset of the Borrower (other than sales, transfers
or other  dispositions  (i) in the  ordinary  course of business of inventory or
(ii)  made in  connection  with the  purchase  by the  Borrower  of  replacement
equipment pursuant to Section 2.11(c) of the Security Agreement in an amount not
exceeding $500,000 during the term of this Agreement).

     "Bankruptcy Code" shall have the meaning provided in Section 8.05.

     "Base  Rate" at any time shall mean the higher of (i) the rate which is 1/2
of 1% in excess of the Federal Funds Rate and (ii) the Prime Lending Rate.

     "Base  Rate  Loan"  shall  mean each  Loan  bearing  interest  at the rates
provided in Section 1.04(a).

     "Borrower"  shall  have  the  meaning  provided  in the  preamble  of  this
Agreement.

     "Borrowing"  shall mean the  incurrence of one Type of Loan by the Borrower
from the Lender on a given date (or resulting from conversions on a given date).

     "Business  Day"  shall mean (i) for all  purposes  other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the City of New York or  Boston,  Massachusetts  a legal  holiday or a day on
which banking  institutions are authorized by law or other governmental  actions
to close and (ii) with respect to all notices and  determinations  in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) and which is also a day for trading by
and between banks in U.S. dollar deposits in the interbank Eurodollar market.

     "Capital  Expenditures"  shall mean,  for any period,  the aggregate of all
expenditures  (whether paid in cash or accrued as  liabilities  and including in
all  events  all  amounts  expended  or  capitalized  under  Capital  Leases but
excluding any amount representing  capitalized  interest) by the Borrower during
that period that, in conformity with GAAP, are or are required to be included in
the property,  plant or equipment reflected in the consolidated balance sheet of
the Borrower.

     "Capital  Lease" as  applied  to any  Person,  shall  mean any lease of any
property  (whether real,  personal or mixed) by that Person as lessee which,  in
conformity  with GAAP,  is accounted for as a capital lease on the balance sheet
of that Person.

     "Capitalized  Lease  Obligations" as applied to any Person,  shall mean all
obligations  under Capital Leases of such Person or any of its  Subsidiaries  in
each case taken at the amount thereof accounted for as liabilities in accordance
with GAAP.

     "Cash  Equivalents"  shall mean, as to any Person, (i) securities issued or
directly and fully  guaranteed  or insured by the United States or any agency or
instrumentality  thereof  (provided that the full faith and credit of the United
States is pledged in support  thereof)  having  maturities  of not more than six
months from the date of acquisition,  (ii) marketable direct  obligations issued
by any state of the United States or any political subdivision of any such state
or any public  instrumentality  thereof maturing within six months from the date
of acquisition  thereof and, at the time of  acquisition,  having one of the two
highest ratings  obtainable  from either  Standard & Poor's Ratings  Services or
Moody's  Investors  Service,  Inc.,  (iii) Dollar  denominated time deposits and
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company having, a long-term  unsecured debt
rating of at least "A" or the equivalent  thereof from Standard & Poor's Ratings
Services or "A2" or the equivalent thereof from Moody's Investors Service,  Inc.
with maturities of not more than six months from the date of acquisition by such
Person, (iv) repurchase  obligations with a term of not more than seven days for
underlying  securities  of the types  described in clause (i) above entered into
with any bank meeting the  qualifications  specified in clause (iii) above,  (v)
commercial paper issued by any Person incorporated in the United States rated at
least A-1 or the equivalent  thereof by Standard & Poor's Ratings Services or at
least P-1 or the equivalent  thereof by Moody's Investors  Service,  Inc. and in
each case  maturing  not more than six months after the date of  acquisition  by
such Person and (vi)  investments  in money  market funds  substantially  all of
whose assets are comprised of  securities of the types  described in clauses (i)
through (v) above.

     "Cash  Proceeds"  shall mean, with respect to any Asset Sale, the aggregate
cash payments  (including any cash received by way of deferred  payment pursuant
to a note receivable  issued in connection with such Asset Sale, but only as and
when so received) received by the Borrower from such Asset Sale.

     "CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.

     "Change  of  Control"  shall  mean (i) any Person or group (as such term is
used  under  the  Exchange  Act)  of  Persons  (other  than  the  Lender  or its
Affiliates) owns  (beneficially or of record) more than 15% of the voting equity
interest  in  the  Borrower's  capital  stock,  assuming  the  exercise  of  all
securities  exercisable,  convertible or exchangeable  for or into common equity
interests  held by such  Person  or  group,  and (ii)  during  any  period of 12
consecutive  calendar  months after the Effective  Date,  individuals who at the
beginning  of such period  constituted  the Board of  Directors  of the Borrower
(together  with any new directors  whose  election by such Board of Directors or
whose  nomination for election by the  stockholders or members,  as the case may
be, of the Borrower was approved by a vote of a majority of the  directors  then
still in office who were either  directors  at the  beginning  of such period or
whose election or nomination for election was previously so approved)  cease for
any reason to constitute a majority of such Board of Directors then in office.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time, and the regulations promulgated and rulings issued thereunder.  Section
references  to the  Code  are to the  Code,  as in  effect  at the  date of this
Agreement  and  any  subsequent  provisions  of the  Code,  amendatory  thereof,
supplemental thereto or substituted therefor.

     "Commitment"  shall  mean  $20,000,000,  as  the  same  may be  reduced  or
terminated pursuant to Sections 2.02, 2.03 or 8.

     "Contingent  Obligations"  shall mean, as to any Person,  any obligation of
such Person  guaranteeing  or intending to guarantee any  Indebtedness,  leases,
dividends or other obligations ("primary  obligations") of any other Person (the
"primary  obligor") in any manner,  whether  directly or indirectly,  including,
without  limitation,  any obligation of such Person,  whether or not contingent,
(a) to purchase any such primary obligation or any property  constituting direct
or  indirect  security  therefor,  (b) to  advance  or supply  funds (i) for the
purchase or payment of any such primary  obligation or (ii) to maintain  working
capital or equity  capital of the primary  obligor or  otherwise to maintain the
net  worth  or  solvency  of the  primary  obligor,  (c) to  purchase  property,
securities  or services  primarily  for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof, provided, however, that
the term Contingent Obligation shall not include endorsements of instruments for
deposit or  collection  in the ordinary  course of  business.  The amount of any
Contingent  Obligation  shall be deemed to be an amount  equal to the  stated or
determinable  amount  of  the  primary  obligation  in  respect  of  which  such
Contingent  Obligation  is made or, if not stated or  determinable,  the maximum
reasonably  anticipated  liability in respect  thereof  (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.

     "Credit  Documents"  shall mean this Agreement and, after the execution and
delivery thereof  pursuant to the terms of this Agreement,  each of the Security
Documents and any documents executed in connection therewith.

     "Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.

     "Dividends" shall have the meaning provided in Section 7.07.

     "Documents" shall mean and include the Credit Documents and the Transaction
Documents.

     "Effective Date" shall have the meaning provided in Section 10.09.

     "Environmental Claims" shall mean any and all administrative, regulatory or
judicial actions,  suits, demands,  demand letters,  directives,  claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any  Environmental  Law or any permit issued,  or any approval given,
under any such  Environmental  Law  (hereafter,  "Claims"),  including,  without
limitation, (a) any and all Claims by governmental or regulatory authorities for
enforcement,  cleanup, removal,  response,  remedial or other actions or damages
pursuant to any applicable  Environmental Law, and (b) any and all Claims by any
third party  seeking  damages,  contribution,  indemnification,  cost  recovery,
compensation or injunctive relief in connection with alleged injury or threat of
injury to health,  safety or the  environment  due to the  presence of Hazardous
Materials.

     "Environmental  Law"  shall  mean  any  Federal,  state,  foreign  or local
statute, law, rule, regulation,  ordinance, code, guideline,  written policy and
rule of common law now or hereafter  in effect and in each case as amended,  and
any judicial or administrative interpretation thereof, including any judicial or
administrative  order, consent decree or judgment,  relating to the environment,
employee  health  and  safety  or  Hazardous   Materials,   including,   without
limitation,  CERCLA;  RCRA; the Federal Water  Pollution  Control Act, 33 U.S.C.
Section 1251 et seq.; the Toxic Substances  Control Act, 15 U.S.C.  Section 2601
et seq.;  the Clean Air Act, 42 U.S.C.  Section 7401 et seq.;  the Safe Drinking
Water Act, 42 U.S.C.  Section 3803 et seq.;  the Oil  Pollution  Act of 1990, 33
U.S.C.   Section  2701  et  seq.;  the  Emergency  Planning  and  the  Community
Right-to-Know  Act of 1986,  42  U.S.C.  Section  11001 et seq.;  the  Hazardous
Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the Occupational
Safety and Health Act, 29 U.S.C. Section 651 et seq.; and any state and local or
foreign counterparts or equivalents, in each case as amended from time to time.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time, and the  regulations  promulgated  and rulings issued
thereunder.  Section  references to ERISA are to ERISA, as in effect at the date
of this Agreement and any subsequent  provisions of ERISA,  amendatory  thereof,
supplemental thereto or substituted therefor.

     "Eurodollar  Loans"  shall  mean each Loan  bearing  interest  at the rates
provided in Section 1.04(b).

     "Eurodollar  Rate" shall mean with respect to any  Borrowing of  Eurodollar
Loans for any Interest  Period,  the rate appearing on Page 3750 of the Telerate
Service  (or on any  successor  or  substitute  page  of  such  Service,  or any
successor  to  or  substitute  for  such  Service,   providing  rate  quotations
comparable  to  those  currently  provided  on such  page of  such  Service,  as
determined by the Lender from time to time for purposes of providing  quotations
of interest rates applicable to dollar deposits in the London interbank  market)
at  approximately  11:00  a.m.,  London  time,  two  Business  Days prior to the
commencement  of such Interest  Period,  as the rate for dollar  deposits with a
maturity comparable to such Interest Period.

     "Event of Default" shall have the meaning provided in Section 8.

     "Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

     "GAAP" shall mean generally  accepted  accounting  principles in the United
States  of  America  as in  effect  on the  date of  this  Agreement;  it  being
understood and agreed that  determinations  in accordance with GAAP for purposes
of Section 7.09,  including  defined terms as used therein,  are subject (to the
extent provided therein) to Section 10.06(a).

     "Hazardous  Materials" shall mean (a) any petroleum or petroleum  products,
radioactive  materials,  asbestos in any form that is or could  become  friable,
urea  formaldehyde  foam  insulation,   transformers  or  other  equipment  that
contained electric fluid containing levels of  polychlorinated  biphenyls and/or
radon gas; (b) any chemicals,  materials or substances defined as or included in
the  definition  of  "hazardous   substances,"   "hazardous  waste,"  "hazardous
materials,"  "extremely  hazardous waste," "restricted  hazardous waste," "toxic
substances,"  "toxic  pollutants,"  "contaminants," or "pollutants," or words of
similar meaning and regulatory effect,  under any applicable  Environmental Law;
and (c) any  other  chemical,  material  or  substance,  exposure  to  which  is
prohibited, limited or regulated by any governmental authority.

     "Indebtedness"  of any Person  shall  mean,  without  duplication,  (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets  or  services  which in  accordance  with  GAAP  would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters  of  credit  issued  for  the  account  of  such  Person  and,   without
duplication,  all drafts drawn  thereunder,  (iv) all  Indebtedness  of a second
Person secured by any Lien on any property  owned by such first Person,  whether
or not such indebtedness has been assumed, (v) all Capitalized Lease Obligations
of such Person,  (vi) all obligations of such Person to pay a specified purchase
price  for  goods or  services  whether  or not  delivered  or  accepted,  i.e.,
take-or-pay  and similar  obligations,  (vii) all net obligations of such Person
under  interest rate hedging  agreements and similar  derivatives  agreement and
(viii) all  Contingent  Obligations of such Person,  provided that  Indebtedness
shall not include trade payables,  deferred revenue, taxes and accrued expenses,
in each case arising in the ordinary course of business.

     "Initial  Borrowing  Date"  shall  mean the date  upon  which  the  initial
Borrowing of Loans occurs.

     "Intellectual  Property  Assignment"  shall have the meaning  specified  in
Section 4A.10(b).

     "Interest  Expense"  shall mean,  for any period,  total  interest  expense
(including  that  attributable to Capital Leases in accordance with GAAP) of the
Borrower on a consolidated basis with respect to all outstanding Indebtedness of
the Borrower, including, without limitation, all capitalized interest.

     "Interest  Period"  with  respect  to any  Eurodollar  Loan  shall mean the
interest period applicable thereto, as determined pursuant to Section 1.05.

     "Investment" shall have the meaning provided in Section 7.06.

     "Leasehold"  of any Person shall mean all of the right,  title and interest
of such  Person as lessee or  licensee  in, to and under  leases or  licenses of
land, improvements and/or fixtures.

     "Lender" shall have the meaning provided in the preamble of this Agreement.

     "Lien" shall mean any mortgage,  pledge,  security  interest,  encumbrance,
lien  or  charge  of any  kind  (including  any  agreement  to  give  any of the
foregoing,  any conditional sale or other title retention agreement or any lease
in the nature thereof).

     "Loan" shall have the meaning provided in Section 1.01.

     "Margin Stock" shall have the meaning provided in Regulation U.

     "Material  Adverse  Effect"  shall  mean a material  adverse  effect on the
business,  property, assets,  liabilities,  operations,  condition (financial or
otherwise) or prospects of the Borrower.

     "Maturity Date" shall mean April 14, 2003.

     "Net Cash  Proceeds"  shall mean,  with respect to any Asset Sale, the Cash
Proceeds  resulting  therefrom  net of  reasonable  expenses of sale  (including
payment of principal,  premium and interest of other Indebtedness secured by the
assets the subject of the Asset Sale and  required  to be, and which is,  repaid
under the terms thereof as a result of such Asset Sale),  and incremental  taxes
paid or payable as a result thereof.

     "Net Income"  shall mean,  for any period,  the net income (or loss) of the
Borrower on a  consolidated  basis for such period taken as a single  accounting
period determined in conformity with GAAP, provided that there shall be excluded
the  income (or loss) of any Person in which any other  Person  (other  than the
Borrower) has a joint interest,  except to the extent of the amount of dividends
or other distributions  actually paid to the Borrower by such Person during such
period.

     "Notice  Office"  shall  mean the office of the  Lender  designated  to the
Borrower in writing from time to time.

     "Obligations"  shall mean all amounts,  direct or indirect,  contingent  or
absolute, of every type or description,  and at any time existing,  owing to the
Lender pursuant to the terms of this Agreement or any other Credit Document.

     "Payment  Office"  shall mean the office of the  Lender  designated  to the
Borrower in writing from time to time.

     "Permitted Liens" shall have the meaning provided in Section 7.03.

     "Person"  shall mean any  individual,  partnership,  joint  venture,  firm,
corporation,  limited liability company, association,  trust or other enterprise
or any  government  or  political  subdivision  or  any  agency,  department  or
instrumentality thereof.

     "Preferred  Stock" shall mean the Preferred Stock purchased by an Affiliate
of the Lender  pursuant to the  Securities  Purchase  Agreement.

     "Prime  Lending  Rate"  shall mean the rate  which  Bankers  Trust  Company
announces from time to time as its prime lending rate, the Prime Lending Rate to
change when and as such prime lending rate changes.

     "RCRA" shall mean the Resource  Conservation  and Recovery Act, as amended,
42 U.S.C. Section 6901 et seq.

     "Real  Property"  of any  Person  shall  mean all of the  right,  title and
interest of such Person in and to land,  improvements  and  fixtures,  including
Leaseholds.

     "Recovery  Event"  shall  mean  the  receipt  by the  Borrower  of any cash
insurance  proceeds or condemnation  award payable (i) by reason of theft, loss,
physical  destruction  or damage or any other  similar event with respect to any
property  or asset  of the  Borrower  (including  without  limitation,  business
interruption insurance), or (ii) by reason of any condemnation,  taking, seizing
or similar event with respect to any property or asset of the Borrower.

     "Regulation  T, U and X" shall mean  Regulations T, U and X of the Board of
Governors of the Federal  Reserve  System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.

     "SEC" shall mean the Securities  and Exchange  Commission and any successor
thereto.

     "Second Borrowing Date" shall mean the date upon which the second Borrowing
of Loans occurs.

     "Securities  Purchase  Agreement" shall mean the Purchase  Agreement by and
between the Borrower and the Lender, dated as of April 14, 2000.

     "Security Agreement" shall have the meaning provided in Section 4A.10(b).

     "Security Documents" shall mean the Security Agreement and the Intellectual
Property Assignment.

     "Service  Agreement"  shall have the  meaning  provided  in the  Securities
Purchase Agreement.

     "Subsidiary" of any Person shall mean and include (i) any corporation  more
than 50% of whose  stock of any class or  classes  having  by the terms  thereof
ordinary  voting power to elect a majority of the directors of such  corporation
(irrespective  of  whether  or not at the time  stock of any class or classes of
such  corporation  shall  have or  might  have  voting  power by  reason  of the
happening of any  contingency)  is at the time owned by such Person  directly or
indirectly  through  Subsidiaries and (ii) any partnership,  association,  joint
venture or other  entity in which such  Person  directly or  indirectly  through
Subsidiaries,  has more than a 50% equity interest at the time. Unless otherwise
expressly  provided,   all  references  herein  to  "Subsidiary"  shall  mean  a
Subsidiary of the Borrower.

     "Taxes" shall have the meaning provided in Section 3.03.

     "Term Note" shall mean the note dated April 5th,  2000 made by the Borrower
to the order of BEW, Inc., an affiliate of the Lender.

     "Transaction  Documents" shall mean the Securities  Purchase  Agreement and
any other document or instrument entered into in connection therewith, including
without  limitation the Preferred  Stock and all other  Documents (as defined in
the Securities Purchase Agreement).

     "Type" shall mean any type of Loan  determined with respect to the interest
option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.

     "UCC" shall mean the  Uniform  Commercial  Code,  as in effect from time to
time in the relevant jurisdiction.

     SECTION 10. Miscellaneous.

     10.01 Payment of Expenses,  etc. The Borrower agrees to: (i) whether or not
the  transactions  herein  contemplated  are  consummated,  pay  all  reasonable
out-of-pocket   costs  and  expenses  of  the  Lender  in  connection  with  the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents  and  instruments  referred  to therein and any  amendment,  waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements  of White & Case  LLP) and of the  Lender in  connection  with the
enforcement of the Credit  Documents and the documents and instruments  referred
to therein (including, without limitation, the reasonable fees and disbursements
of  counsel  for the  Lender);  (ii) pay and hold the Lender  harmless  from and
against  any and all  present  and  future  stamp and other  similar  taxes with
respect to the foregoing  matters and save the Lender  harmless from and against
any and all liabilities  with respect to or resulting from any delay or omission
(other than to the extent  attributable  to the  Lender) to pay such taxes;  and
(iii) indemnify the Lender, its officers, directors, employees,  representatives
and agents (each an  "Indemnified  Person")  from and hold each of them harmless
against  any  and  all  losses,   liabilities,   claims,   damages  or  expenses
(collectively  "Indemnified  Liabilities")  incurred  by  any of  them  (whether
asserted by the Borrower or  otherwise) as a result of, or arising out of, or in
any way related to, or by reason of, (a) any investigation,  litigation or other
proceeding  (whether  or not the  Lender  is a  party  thereto)  related  to the
entering  into  and/or  performance  of any  Credit  Document  or the use of the
proceeds  of any  Loans  hereunder  or  the  consummation  of  any  transactions
contemplated  in  any  Credit  Document,   including,  without  limitation,  the
reasonable  fees and  disbursements  of counsel  incurred in connection with any
such  investigation,  litigation or other proceeding (but excluding (i) any such
losses,  liabilities,  claims,  damages or  expenses  to the extent  incurred by
reason  of the  gross  negligence  or  willful  misconduct  of the  Person to be
indemnified,  (ii) the reimbursement of amounts paid by an Indemnified Person on
any  final,  non-appealable  judgment  in  the  Borrower's  favor  against  such
Indemnified  Person  by  a  court  of  competent  jurisdiction,   or  (iii)  the
reimbursement of amounts paid by an Indemnified  Person seeking  indemnification
in any settlement of any claim constituting Indemnified Liabilities with a party
other than the Borrower which was effected by an Indemnified  Person without the
prior consent of the Borrower, unless either (x) the Borrower has had reasonable
opportunity  to defend such  Indemnified  Person  against such claim and has not
promptly  and  diligently   prosecuted   such  defense  by  counsel   reasonably
satisfactory  to such  Indemnified  Person  or (y) the  Borrower  has  failed to
provide  evidence  reasonably  satisfactory  to the  Lender  of  the  Borrower's
financial ability to satisfy its indemnity  obligations  hereunder in respect of
such claim) or (b) the actual or alleged presence of Hazardous  Materials in the
air,  surface  water,  groundwater,  surface or  subsurface of any Real Property
owned  or at  any  time  operated  by the  Borrower,  the  generation,  storage,
transportation or disposal of Hazardous Materials at any location whether or not
owned or operated by the Borrower, the non-compliance of any Real Property owned
or at any time  operated by the  Borrower  with  federal,  state and local laws,
regulations, and ordinances (including applicable permits thereunder) applicable
to any such Real  Property,  or any  Environmental  Claim  asserted  against the
Borrower or any such Real Property, including, in each case, without limitation,
the reasonable fees and disbursements of counsel and other consultants  incurred
in connection with any such  investigation,  litigation or other proceeding (but
excluding  any losses,  liabilities,  claims,  damages or expenses to the extent
incurred by reason of the gross  negligence or willful  misconduct of the Person
to be indemnified). To the extent that the undertaking to indemnify, pay or hold
harmless the Lender set forth in the  preceding  sentence  may be  unenforceable
because it is violative of any law or public policy, the Borrower shall make the
maximum  contribution to the payment and satisfaction of each of the indemnified
liabilities which is permissible under applicable law.

     10.02 Right of Setoff.  In addition to any rights now or hereafter  granted
under  applicable  law or  otherwise,  and not by way of  limitation of any such
rights,  if an Event of Default then exists,  the Lender is hereby authorized at
any time or from time to time,  without  presentment,  demand,  protest or other
notice of any kind to the Borrower or to any other Person, any such notice being
hereby  expressly  waived,  to set off and to appropriate  and apply any and all
deposits  (general or special)  and any other  Indebtedness  at any time held or
owing by the Lender to or for the credit or the account of the Borrower  against
and on account of the  Obligations and liabilities of the Borrower to the Lender
under this Agreement or under any of the other Credit  Documents,  and all other
claims of any  nature  or  description  arising  out of or  connected  with this
Agreement  or any other  Credit  Document,  irrespective  of  whether or not the
Lender  shall have made any demand  hereunder  and  although  said  Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.

     10.03 Notices.  Except as otherwise  expressly provided herein, all notices
and other  communications  provided for hereunder shall be in writing (including
facsimile communication) and mailed, faxed or delivered (a) if to the Lender, at
its address  specified as the Notice Office and (b) if to the  Borrower,  at the
address  specified next to the signature of the Borrower below. All such notices
and  communications  shall not be effective  until received by the Lender or the
Borrower,  as the case may be.  Each party  hereto may, by a notice to the other
party in  accordance  herewith,  specify a  different  address for notices to it
hereunder.

     10.04  Assignments.  This Agreement  shall be binding upon and inure to the
benefit of and be enforceable  by the  respective  successors and assigns of the
parties hereto; provided,  however, that the Borrower may not assign or transfer
any of its rights or obligations hereunder without the consent of the Lender.

     10.05 No Waiver;  Remedies  Cumulative.  No failure or delay on the part of
the Lender in exercising  any right,  power or privilege  hereunder or under any
other  Credit  Document  and no course of dealing  between the  Borrower and the
Lender  shall  operate  as a waiver  thereof;  nor shall any  single or  partial
exercise of any right,  power or  privilege  hereunder or under any other Credit
Document  preclude any other or further  exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein  expressly  provided are  cumulative  and not  exclusive of any rights or
remedies  which the Lender would  otherwise  have. No notice to or demand on the
Borrower in any case shall  entitle the Borrower to any other or further  notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Lender to any other or further action in any circumstances without notice
or demand.

     10.06  Calculations;  Computations.  (a)  The  financial  statements  to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with GAAP,  as in effect on the Initial  Borrowing  Date,  consistently  applied
throughout the periods  involved (except as set forth in the notes thereto or as
otherwise  disclosed in writing by the Borrower to the  Lender),  provided  that
except as otherwise  specifically provided herein, all computations  determining
compliance with Section 7.09,  including  definitions used therein shall utilize
accounting  principles and policies in accordance with GAAP, as in effect on the
Initial Borrowing Date.

     (b) All  computations  of interest and fees hereunder  shall be made on the
basis of a year of 360 days for the actual number of days  (including  the first
day but excluding the last day)  occurring in the period for which such interest
or fees are payable.

     10.07  GOVERNING LAW;  SUBMISSION TO  JURISDICTION;  VENUE;  WAIVER OF JURY
TRIAL;  WAIVER OF  CERTAIN  CLAIMS.  (a) THIS  AGREEMENT  AND THE  OTHER  CREDIT
DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.  ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER  CREDIT  DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED  STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK,  AND, BY EXECUTION
AND DELIVERY OF THIS  AGREEMENT,  THE BORROWER  HEREBY  IRREVOCABLY  ACCEPTS FOR
ITSELF  AND IN RESPECT  OF ITS  PROPERTY,  GENERALLY  AND  UNCONDITIONALLY,  THE
JURISDICTION OF THE AFORESAID  COURTS.  THE BORROWER HEREBY FURTHER  IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION  OVER THE BORROWER,  AND
AGREES NOT TO PLEAD OR CLAIM,  IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS  AGREEMENT OR ANY OTHER  CREDIT  DOCUMENT  BROUGHT IN ANY OF THE  AFORESAID
COURTS,  THAT ANY SUCH COURT LACKS JURISDICTION OVER THE BORROWER.  THE BORROWER
FURTHER  IRREVOCABLY  CONSENTS  TO  THE  SERVICE  OF  PROCESS  OUT OF ANY OF THE
AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO THE BORROWER,  AT
ITS ADDRESS  FOR  NOTICES  PURSUANT  TO SECTION  10.03,  SUCH  SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER  IRREVOCABLY  WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING  COMMENCED  HEREUNDER OR UNDER
ANY OTHER  CREDIT  DOCUMENT  THAT  SERVICE OF PROCESS  WAS IN ANY WAY INVALID OR
INEFFECTIVE.  NOTHING  HEREIN  SHALL  AFFECT  THE  RIGHT OF THE  LENDER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.

     (b) THE BORROWER HEREBY  IRREVOCABLY  WAIVES ANY OBJECTION WHICH IT MAY NOW
OR  HEREAFTER  HAVE TO THE  LAYING OF VENUE OF ANY OF THE  AFORESAID  ACTIONS OR
PROCEEDINGS  ARISING OUT OF OR IN  CONNECTION  WITH THIS  AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER  IRREVOCABLY  WAIVES  AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.

     (c) EACH OF THE PARTIES TO THIS  AGREEMENT  HEREBY  IRREVOCABLY  WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM  ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

     (d) THE  BORROWER  AGREES THAT IT WILL NOT ASSERT  AGAINST THE LENDER,  AND
HEREBY  WAIVES,  ANY CLAIM FOR  CONSEQUENTIAL,  INCIDENTAL,  SPECIAL OR PUNITIVE
DAMAGES IN  CONNECTION  WITH THIS  AGREEMENT,  OR ANY OTHER  CREDIT  DOCUMENT OR
TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     10.08  Counterparts.  This  Agreement  may be  executed  in any  number  of
counterparts and by the different parties hereto on separate counterparts,  each
of which when so executed and delivered  shall be an original,  but all of which
shall together  constitute one and the same  instrument.  A set of  counterparts
executed by all the parties  hereto  shall be lodged with the  Borrower  and the
Lender.

     10.09 Effectiveness. This Agreement shall become effective on the date (the
"Effective Date") on which each of the Borrower and the Lender shall have signed
a counterpart hereof (whether the same or different counterparts) and shall have
delivered  (including by way of facsimile  device) the same to the Lender at its
Notice Office.

     10.10  Headings  Descriptive.  The  headings  of the several  sections  and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

     10.11  Amendment  or Waiver.  Neither this  Agreement  nor any other Credit
Document nor any terms hereof or thereof may be changed,  waived,  discharged or
terminated  unless such change,  waiver,  discharge or termination is in writing
signed by the Borrower and the Lender.

     10.12  Survival.  All  indemnities  set  forth  herein  including,  without
limitation,  in Section  10.01 shall  survive the  execution  and  delivery  and
termination of this Agreement and the making and repayment of the Loans.

                                      * * *

<PAGE>

     IN WITNESS WHEREOF,  each of the parties hereto has caused a counterpart of
this  Agreement  to be duly  executed  and  delivered as of the date first above
written.

Address:                                             PEAPOD, INC.
9933 Woods Drive
Skokie, IL 60077
fax no.: (847) 583-9494
Attention:  Andrew Parkinson                         By:________________________
                                                        Name:
                                                        Title:

                                                     KONINKLIJKE AHOLD NV

                                                     By:________________________
                                                        Name:
                                                        Title:

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