ASSET PURCHASE AGREEMENT



        ASSET PURCHASE AGREEMENT, dated June 12, 2000 (this "Agreement"), by and

among PETSTORE.COM, INC., a Delaware corporation (the "Seller"), PETS.COM, INC.,

a Delaware corporation ("Parent"), and P-SUB CORPORATION, a Delaware corporation

and a wholly owned subsidiary of Parent (the "Purchaser").



                              W I T N E S S E T H:



        WHEREAS, at the Closing (as defined below), the Purchaser desires to

purchase from the Seller, and the Seller desires to sell to the Purchaser,

certain assets, properties and businesses of the Seller upon the terms and

subject to the conditions set forth herein; and



        WHEREAS, concurrently herewith, the stockholders of Seller listed on

Exhibit A attached hereto have granted irrevocable proxies appointing the

members of the board of directors of the Seller to vote their shares to approve

the terms of this Agreement and the transactions contemplated thereby.



        NOW, THEREFORE, in consideration of the premises and of the mutual

covenants contained herein, the parties hereto, intending to be legally bound,

hereby agree as follows:



                                    ARTICLE I



                    PURCHASE AND SALE OF ASSETS; THE CLOSING



        1.1 Purchase of Assets. On the Closing Date (as defined below), upon the

terms and subject to the conditions set forth in this Agreement, the Seller

hereby agrees to sell, convey, assign, transfer and deliver to the Purchaser,

free and clear of all Liens (as defined below) except as set forth in Schedule

1.1, and the Purchaser hereby agrees to purchase and accept from the Seller, all

of the Seller's right, title and interest, including all intellectual property

rights, in and to the following assets, properties and rights of the Seller

(except as expressly excluded below) (collectively, the "Assets"):



               (a) the contracts, agreements, licenses and other legally binding

commitments, agreements and understandings listed on Schedule 1.1(a) hereto (the

"Operating Agreements");



               (b) the contracts, agreements, licenses and other legally binding

commitments, agreements and understandings (the "Content Agreements") and the

properties, all as listed on Schedule 1.1(b) hereto (together with the Content

Agreements, the "Content Assets");



               (c) all patents, copyrights, trademarks, trade names (including,

"PetStore.com"), trade styles, business names, service marks, Internet domain

names (including,



<PAGE>   2



"www.PetStore.com"), designs, logos, slogans, and general intangibles of like

nature, and toll-free telephone numbers, together with all goodwill, rights and

licenses thereto and applications and registrations therefor (including any

continuations, divisionals, continuations-in-part, renewals, reissues, and

applications for any of the foregoing); copyrights (including any registrations

and applications for any of the foregoing); Software ((as defined below), except

any Software required to be sold by the Seller as part of the wind down of its

business in accordance with the Operating Plan (as defined below)); "mask works"

(as defined under 17 U.S.C. Section 901) and any registrations and applications

for "mask works"; technology (except any technology required to be sold by the

Seller as part of the wind down of its business in accordance with the Operating

Plan), trade secrets and other confidential information, know-how, proprietary

processes, formulae, algorithms, models (including, without limitation, business

models), and methodologies (collectively, "Trade Secrets"); rights of publicity

and privacy relating to the use of the names, likenesses, voices, signatures and

biographical information of real person; in each case used in or necessary for

the conduct of the Seller's business as conducted or contemplated to be

conducted or as has ever been conducted at any time (all of the foregoing in

this Section 1.1(c) collectively referred to as "Intellectual Property"),

including, but not limited to, all Intellectual Property listed on Schedule

1.1(c) hereto;



               (d) all customer lists (the "Customer Lists"), which include the

Flying Fish Customer List (as defined below), including, but not limited to,

those set forth on Schedule 1.1(d)(i); the subscriber list for Petstories, the

Seller's Newsletter (the "Newsletter List") including, but not limited to, those

set forth on Schedule 1.1(d)(ii); the members list for the Seller's Affiliate

Program (the "Affiliate List") including, but not limited to, those set forth on

Schedule 1.1(d)(iii); all supplier lists, mailings lists and all lists of

content providers, pet experts, veterinarians and other contributors to the

Seller's business (collectively, the "Other Lists") including, but not limited

to, those set forth on Schedule 1.1(d)(iv); and all email addresses, mailing

addresses, telephone and facsimile numbers for the Persons listed on the

foregoing Schedules to the extent available, together with all records,

confidential and other proprietary information related to each of the foregoing

(the Customer Lists, Newsletter List, Affiliate List and Other Lists,

collectively, the "Address Lists"). All Address Lists shall be delivered by the

Seller at Closing. For the purposes of this Agreement, "Flying Fish Customer

List" means all unique e-mail addresses relating to the Flying Fish Business and

"Person" means any individual, corporation, partnership, limited liability

company, joint venture, association, joint stock company, trust, unincorporated

organization or other entity or organization, including any government or

political subdivision or any agency or instrumentality thereof;



               (e) all of the business, assets and/or properties utilized

exclusively or primarily by the Seller in conducting certain business under the

fictitious business names and/or tradenames of "Flying Fish Express" and/or

"Marine Resource" (the "Flying Fish Business"), and listed on Schedule 1.1(e)

hereto (the "Flying Fish Assets").



        For the purposes of this Agreement, "Software" means 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,







                                      -2-

<PAGE>   3



including any and all data and collections of data, and (c) all documentation,

including user manuals and training materials, relating to any of the foregoing.



        Notwithstanding anything in this Agreement to the contrary, but subject

to Sections 5.3, 5.5 and 6.2(c) hereof, no contract, agreement, license or lease

of the Seller that is part of the Assets and that is not capable of being

delegated, assigned or transferred to the Purchaser without the consent or

waiver of another party to such contract, agreement, license or lease, or under

which any delegation, assignment or purported assignment to the Purchaser would

constitute a breach or default, shall be delegated, assigned or transferred to

the Purchaser without having first obtained such requisite consents or waivers

and, to the extent such consents and approvals are not obtained and in full

force and effect as of the Closing Date, the Seller shall cooperate with the

Purchaser (i) to establish lawful arrangements which result in the benefits and

obligations under such contracts, agreements, licenses and leases being

apportioned in a manner that is consistent with the purpose and intention of

this Agreement and (ii) if so requested by the Purchaser and at the Seller's

reasonable expense, to obtain any such consents and waivers, and enforce the

Seller's rights under such contracts, agreements, licenses and leases on behalf

and for the benefit of, and as directed by, the Purchaser; provided, however,

that if the Closing occurs, nothing in this paragraph shall prevent the Seller

from dissolving following the Closing.



        1.2 Excluded Assets. Notwithstanding anything herein to the contrary,

the Seller is not selling to the Purchaser and the Purchaser shall not acquire

any interest in, and the term "Assets" shall not include, any of the following

assets of the Seller (the "Excluded Assets"): (i) all cash on hand; (ii) all

account receivables; (iii) all prepaid taxes; (iv) rights to any federal, state,

local or foreign tax refunds except to the extent such refund is allocable to

the Purchaser under Section 8.3; (v) all rights of the Seller pursuant to this

Agreement; and (vi) any and all assets of the Seller not specifically

contemplated in Section 1.1.



        1.3 Purchase Price. On the Closing Date, upon the terms and subject to

the conditions set forth in this Agreement, including Section 1.7 of this

Agreement, Parent shall pay to the Seller, and to the extent applicable its

designee, an aggregate purchase price for the Assets (the "Purchase Price")

consisting of 5,243,752 shares of Common Stock, $0.00125 par value, of Parent

(the "Securities"). One hundred percent (100%) of the Securities shall be issued

to the Seller at the Closing (as defined below), of which ten percent (10%) of

the Securities shall be held in Escrow (as defined below) according to the terms

of the Escrow Agreement (as defined below).



        1.4 The Closing. Subject to the satisfaction or waiver of all the

conditions to closing set forth in Article VI hereof, the closing of the

purchase and sale of the Assets hereunder (the "Closing") shall take place at

the offices of Venture Law Group, counsel to the Purchaser at 10:00 a.m.,

California time, on the third Business Day (as defined below) following the date

on which the conditions set forth in Article VI hereof have been satisfied or at

such other time and place as may be mutually agreed upon by the parties hereto.

The date on which the Closing occurs is referred to herein as the "Closing

Date". As used in this Agreement, the term "Business Day" means any day except a

Saturday, Sunday or a day on which banking institutions







                                      -3-

<PAGE>   4



in the State of California are obligated or permitted by law, regulation or

governmental order to close.



        1.5 Exclusion of Liabilities. Except as provided in Section 1.6, the

Purchaser shall not assume and shall not be liable for, and the Seller shall

retain and remain solely liable for and obligated to discharge, all of the

debts, contracts, agreements, commitments, obligations and other liabilities of

any nature whatsoever of the Seller and whether known or unknown, accrued or not

accrued, fixed or contingent, oral or in writing (collectively, the "Excluded

Liabilities"), including without limitation, the liabilities set forth on

Schedule 1.5, provided, however, this Section shall not limit the Purchaser's

right of indemnity under Section 7.1.



        1.6 Assumption of Specified Liabilities and Warrants of the Purchaser.

(a) On the Closing Date, the Purchaser shall assume and agree to pay, perform

and discharge, promptly when payment or performance is due or required, all

liabilities and obligations of the Purchaser under or with respect to the

Assets, including, without limitations, the Assigned Contracts (as defined

below), to the extent that such liabilities or obligations arise or accrue

subsequent to the Closing Date, which, in the case of Taxes are allocated to

Purchaser as provided in Section 8.3(c) (the "Assumed Liabilities").



               (b) On the Closing Date, each outstanding warrant to purchase

capital stock of the Seller set forth on Schedule 1.6(b)(the "Assumed Warrants")

will be assumed by Parent, and will continue to have, and be subject to, the

same terms and conditions governing such warrants immediately prior to the

Closing Date; provided however that (i) such Assumed Warrants will be

exercisable for that number of whole shares of Parent Common Stock equal to the

product of (i) the number of shares of the Seller that the holder would have

been entitled to receive under the Assumed Warrant prior to assumption and (ii)

the exchange ratio of 0.098 (the "Exchange Ratio"). The per share exercise price

for the shares of Common Stock issuable upon exercise of such assumed option

will be equal to the quotient determined by dividing the aggregate exercise

price under the Assumed Warrants by the Exchange Ratio. Parent's obligation to

assume the Assumed Warrants under this Section 1.6(b) is subject to each warrant

holder entering into an amendment to warrant agreement with Parent prior to the

closing on terms satisfactory to Parent setting forth the number of whole shares

of Parent Common Stock exercisable under each Assumed Warrant and the exercise

price of the Assumed Warrant. Notwithstanding the foregoing, in no event shall

the aggregate number of shares of Parent Common Stock issuable upon exercise of

the Assumed Warrants exceed 285,066.



        1.7 Escrow Fund. At the Closing, in order to satisfy any obligations of

the Seller arising under Article VII hereof, the Purchaser shall, on behalf of

the Seller, deposit in escrow certificates representing [*] of the [*] (the

"Escrow Fund") with U.S. Stock Transfer Corporation or such other agent as shall

be mutually agreeable among the parties hereto (the "Escrow Agent") pursuant to

the Escrow Agreement to be entered into by and among Parent, the Purchaser, the

Seller and the Escrow Agent substantially in the form attached hereto as Exhibit

B (the "Escrow Agreement"). The Escrow Agreement shall provide for distributions

of the Escrow





* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED

SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.







                                      -4-

<PAGE>   5



Fund first, to pay fees and expenses of the Escrow Fund; second, if and to the

extent that Indemnified Parties (as such term is defined in Section 7.2(c)

hereof) are entitled (either on the basis of (i) an agreement among the parties

hereto (in which case the Seller shall deliver joint written instructions to the

Escrow Agent to deliver the amount agreed to be owed in respect of such claims

in the manner specified in such instructions) or (ii) a Final Decree (as defined

in the Escrow Agreement)) to indemnification pursuant to Article VII hereof; and

third, with respect to any remaining amounts, to the Seller. Indemnified Parties

shall be entitled to make claims against the Escrow Fund. Any payment made from

the Escrow Fund, except to Seller, shall be treated as an adjustment to the

Purchase Price.



        1.8 Income Tax Treatment. It is intended by the parties hereto that the

transactions contemplated by this Agreement shall constitute a fully taxable

asset sale and the parties shall report such transactions consistently with that

position on their respective Tax Returns.



        1.9 Purchaser's Rights to Address Lists. The Seller agrees that:



               (a) the Seller shall comply with the terms of the transition plan

attached hereto as Exhibit C (the "Transition Plan");



               (b) on the date of this Agreement, the Seller shall send an email

to all Persons on the Address Lists containing the information set forth in the

Transition Plan;



               (c) from the date of this Agreement until the Closing Date, the

Seller, or if requested by Purchaser, a third party reasonably agreeable to

Seller and Purchaser, shall send such other emails to the Persons on the Address

Lists as requested by the Purchaser and containing such information as required

by the Purchaser and consistent with the Purchaser's ordinary course of

business; such emails shall be stated to be from the Purchaser and shall permit

recipients to reply directly to the Purchaser. Purchaser shall pay all expenses

of any third party incurred in connection with sending such emails;



               (d) the Seller shall not contact or solicit any Persons on the

Address Lists as of and subsequent to the date of this Agreement unless this

Agreement is terminated pursuant to Section 8.1 or as otherwise agreed to in

writing by the Purchaser; provided however, the Seller may contact persons on

the Address Lists (except Persons listed on the Customer Lists, Affiliate List,

Newsletter List or any registered user) in respect of the wind down of its

business in accordance with the Operating Plan; and



               (e) the Seller will allow an independent auditor, mutually agreed

upon between the parties, to review the email files to verify that all emails

have been sent to all Persons on the Address Lists and that such emails contain

the information requested by the Purchaser.



                                   ARTICLE II



                  REPRESENTATIONS AND WARRANTIES OF THE SELLER







                                      -5-

<PAGE>   6



        The Seller hereby represents and warrants to the Purchaser, as of the

date hereof and as of the Closing Date, as follows:



        2.1 Organization of the Seller; Subsidiaries. (a) The Seller (i) is a

corporation duly organized, validly existing and in good standing under the laws

of the State of Delaware, (ii) was originally organized under the laws of the

State of Delaware on January 28, 1999 (as TruePet.com, Inc.) and commenced

operations on October 1998; (iii) has all requisite power and authority to own,

lease and operate its assets and properties and to conduct its business as

conducted or contemplated to be conducted; (iv) does not conduct, and has not

conducted, business in any jurisdiction outside of the United States of America;

and (v) is duly qualified and authorized to transact business as a foreign

corporation in each jurisdiction listed with respect thereto on Schedule 2.1,

which listed jurisdictions are the only jurisdictions where the nature of its

businesses or operations, or its ownership or leasing of property, requires such

qualification or authorization (other than such jurisdictions where the failure

to be so qualified or authorized would not result, individually or in the

aggregate, in a Material Adverse Effect (as defined below) on the Seller). The

Seller has heretofore delivered to the Purchaser correct and complete copies of

its certificate of incorporation, bylaws and other charter and organizational

documents, as currently in effect.



               (b) The Seller does not own any equity or voting interest in or

have control of any other entity, nor is it party to any agreement or

arrangement (other than this Agreement) contemplating or providing for the

foregoing.



        2.2 Seller's Capital Structure.



               (a) The authorized capital stock of the Seller consists of: (i)

40,000,000 shares of common stock, par value $.0001 per share (the "Common

Stock") and (ii) 22,550,828 shares of preferred stock, par value $.0001 per

share (the "Preferred Stock").



               (b) As of the date hereof, (i) 2,990,868 shares of Common Stock

are issued and outstanding, all of which are validly issued, fully paid and

nonassessable; (ii) no shares of Common Stock are held in the treasury of the

Seller; (iii) 5,636,915 shares of Series A Preferred Stock, 13,305,303 shares of

Series B Preferred Stock, and 1,591,895 shares of Series C Preferred Stock are

issued and outstanding, all of which are validly issued, fully paid and

nonassessable; (iv) a sufficient number of shares of Common Stock are reserved

for issuance upon conversion of outstanding Preferred Stock; (v) 326,667 shares

of Common Stock are reserved for issuance upon exercise of outstanding warrants;

(vi) 980,383 shares of Series A Preferred Stock, 36,179 shares of Series B

Preferred Stock, and 325,614 shares of Series C Preferred Stock are reserved for

issuance upon exercise of outstanding warrants; and (vii) 5,276,530 shares of

Common Stock are reserved for issuance or remain available for issuance as

restricted stock or upon exercise of options granted under the Company's 1999

Stock Plan as in effect as of the date hereof and attached hereto as Exhibit D

(the "1999 Stock Plan"); and the Company's 2000 Stock Option Plan as in effect

as of the date hereof and attached hereto as Exhibit E (the "2000 Stock Plan")

(which constitute the only plans, arrangements or agreements







                                      -6-

<PAGE>   7



pursuant to which employees, former employees or consultants (including

non-employee directors) of the Seller have received options, rights, restricted

stock or similar equity interests).



               (c) As of the date of this Agreement, Schedule 2.2(c) sets forth

a complete and accurate list of each of the record and beneficial holders of (i)

each class or series of the Seller's capital stock and the number of shares of

the Seller's capital stock held by each holder as of the date hereof and the

number of shares or other securities into which such capital stock is

convertible and (ii) options, rights and warrants and the exercise price, date

of grant, and number of shares and class of capital stock of the Seller into

which such options, rights and warrants are exercisable by each such holder as

of the date hereof and the vesting schedules of each such option, right or

warrant, including any acceleration of vesting. Except as set forth on Schedule

2.2(c), no shares of capital stock of the Seller and no securities convertible

into or exercisable for shares of capital stock of the Seller are convertible

into or exercisable for any other class or series of capital stock of the Seller

other than Common Stock. Immediately prior to the Closing, the Seller shall

provide the Purchaser with a revised capitalization table substantially in the

form of Schedule 2.2(c) and setting forth any changes made in the capitalization

of the Seller after the date hereof and prior to Closing, including an update of

each of the representations made in Section 2.2(a) through 2.2(d) to the date of

Closing.



               (d) Except as set forth in this Section 2.2, as of the date of

this Agreement, there are no equity securities of any class of the Seller, or

any securities exchangeable into or exercisable for such equity securities,

issued and outstanding or reserved for issuance, and the Seller has not

authorized the issuance of any such securities. Except as set forth in this

Section 2.2, as of the date of this Agreement, there are no options, warrants,

equity securities, calls, rights, commitments or agreements of any character to

which the Seller is a party or by which it is bound obligating the Seller to

issue, deliver or sell, or cause to be issued, delivered or sold, additional

shares of capital stock of the Seller or obligating the Seller to grant, extend,

accelerate the vesting of or enter into any such option, warrant, equity

security, call, right, commitment or agreement.



               (e) All outstanding warrants to purchase capital stock of the

Seller, other than Assumed Warrants, terminate upon Closing without any further

action by, or any further liability of, the Seller or any other party.



        2.3 Authorization, Validity and Enforceability. The Seller has the

requisite corporate power and authority to execute, deliver and perform its

obligations under each Transaction Document (as defined below) to which it is a

party. As of the Closing Date, the execution, delivery and performance by the

Seller of the Transaction Documents to which it is a party and the consummation

by the Seller of the transactions contemplated thereby shall have been duly

authorized by all necessary corporate action on the part of the Seller and its

stockholders, and no other corporate proceedings on the part of the Seller or

its stockholders will be necessary to authorize the Transaction Documents to

which it is a party or the transactions contemplated thereby. This Agreement has

been duly executed and delivered by the Seller and constitutes, and each other

Transaction Document to which it is a party will upon due execution and delivery

thereof constitute, the legal, valid and binding obligation of the Seller,

enforceable







                                      -7-

<PAGE>   8



against the Seller in accordance with the terms hereof and thereof, subject to

applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,

moratorium and similar laws affecting creditor's rights and remedies generally,

and subject, as to enforceability, to general principles of equity, including

principles of commercial reasonableness, good faith and fair dealing (regardless

of whether enforcement is sought in a proceeding at law or equity). "Transaction

Documents" means (i) this Agreement, (ii) the Escrow Agreement and (iii) all

other documents required to be executed and delivered by the Seller hereunder or

thereunder.



        2.4 No Violation or Breach by the Seller. (a) Except as set forth on

Schedule 2.4, the execution, delivery and performance by the Seller of this

Agreement and the other Transaction Documents to which it is a party, as of the

date of this Agreement, and the consummation of the transactions contemplated

hereby and thereby, as of the Closing Date, do not and will not conflict with,

result in a violation or breach of, constitute a default (or an event which with

the giving of notice or the lapse of time or both would constitute a default) or

give rise to any right of termination, amendment, cancellation or acceleration

of any right or obligation of the Seller under, or result in any loss of any

benefit to which the Seller is entitled, or result in the creation or imposition

of any Lien (as defined below) upon any assets or properties of the Seller,

under the terms of (a) the certificate of incorporation, bylaws or other charter

or organizational document of the Seller, (b) any contract, agreement, lease,

license, mortgage, note, bond, debenture, indenture or other instrument or

obligation to which the Seller is a party or by or to which it or its assets or

properties may be bound or subject, (c) any order, writ, judgment, injunction,

award, decree, law, statute, rule or regulation applicable to the Seller or (d)

any license, permit, order, consent, approval, registration, authorization or

qualification with or under any foreign, federal, state or local law or

governmental or regulatory body (any of the foregoing, a "Permit") of the

Seller; and



               (b) all of the Assets as used in the Seller's business conform to

all applicable laws and no notice of any violation of any law relating to any of

the Assets has been received by the Seller.



        2.5 Consents and Approvals. Except as set forth on Schedule 2.5, no

consent, approval, authorization, license or order of, registration or filing

with, or notice to, any federal, state, local, foreign or other court,

administrative agency or commission, other governmental authority or regulatory

body (each, a "Governmental Authority") or any other Person (such consents,

approvals, authorizations, licenses, orders, registrations, filings or notices

referred to collectively herein as "Consents") as of the Closing Date is

necessary to be obtained, made or given by the Seller in connection with the

execution, delivery and performance by the Seller of this Agreement or any other

Transaction Document to which the Seller is a party or the consummation by the

Seller of the transactions contemplated hereby or thereby.



        2.6 Title to Assets. (a) The Seller has good, valid and marketable title

or license to, or in the case of leased assets, valid and subsisting leasehold

interests in, each and all of the Assets and, by the execution and delivery at

the Closing of the instruments of transfer provided for herein, the Purchaser

will be vested with good, valid and marketable title to, or will lease under

valid and subsisting leases, each and all of the Assets, free and clear of all

liens







                                      -8-

<PAGE>   9



(except liens for Taxes not yet due and payable), mortgages, pledges,

imperfections of title, security interests, restrictions, prior assignments,

easements, leases, licenses or sublicenses, options, rights of first refusal or

first offer, and encumbrances (collectively, "Liens"), except as set forth in

Schedules 2.6 and 2.15(c).



               (b) None of the Assets that constitute tangible personal property

is held under any lease, security agreement, conditional sales contract, Lien or

other title retention or security arrangement.



               (c) All of the Assets are in good operating condition and repair,

reasonable wear and tear excepted, and are suitable for the purposes for which

they are currently used.



        2.7 Absence of Changes; Financial Statements; Absence of Undisclosed

Liabilities. (a) Except as contemplated hereby and in the operating plan

previously delivered by the Seller to the Purchaser and attached hereto as

Exhibit F (the "Operating Plan"), since the Balance Sheet Date (as defined

below), (i) there has not been any change, event or development which has had or

is reasonably likely to have a Material Adverse Effect on the Assets or a

material adverse effect on the ability of the Seller to perform its obligations,

or consummate the transactions contemplated, hereunder and (ii) the business of

the Seller has been conducted only in the ordinary and usual course consistent

with past practice. For purposes of this Agreement, "Material Adverse Effect"

means, any change, event or development or effect that, either individually or

in the aggregate, materially and adversely affects, or is reasonably likely to

materially and adversely affect, the value or usefulness of the Assets, other

than continuing losses and the payment of expenses and operation of the Seller's

business in accordance with the Operating Plan. Since the date hereof, except as

contemplated by the Operating Plan there has been no material adverse change in

the business, operations, financial condition or prospects of the Seller or any

event, condition or contingency that could reasonably be expected to have a

Material Adverse Effect



               (b) Schedule 2.7(b) contains true and complete copies of (i) the

audited balance sheet (the "Balance Sheet"), statement of stockholders' equity

and statement of cash flows of the Seller as of and for the year ended December

31, 1999 (the "Balance Sheet Date"), and (ii) the unaudited balance sheet,

statement of stockholders' equity and statement of cash flows of the Seller for

the three month period ended March 31, 2000 (collectively, the "Financial

Statements"). The Financial Statements (i) have been prepared in accordance with

GAAP applied on a consistent basis during the periods involved (except as may be

indicated in such Financial Statements or in the notes thereto) and (ii) fairly

present the financial position of the Seller as of the date set forth therein

and the results of its operations for the period then ended (subject to normal

year-end adjustments which in the aggregate are not material). The Operating

Plan reflects the material obligations and liabilities of the Seller since March

31, 2000.



               (c) Except as set forth on Schedule 2.7(c), the Seller has no

obligations, indebtedness or liabilities of any nature (whether known or unknown

and whether accrued, absolute, contingent or otherwise, and whether due or to

become due) that are not







                                      -9-

<PAGE>   10



shown on the Balance Sheet or the notes thereto, other than those incurred since

the Balance Sheet Date in the ordinary course of the Seller's business

consistent with past custom and practice which are reflected in the Financial

Statements or as identified by the Operating Plan.



        2.8 Legal Proceedings. Except as set forth on Schedule 2.8 and except in

relation to trade creditors to whom the Seller owes no more than $50,000

individually (but not exceeding among such excluded creditors $250,000 in the

aggregate), there is no pending or, to the knowledge of the Seller, threatened,

action, suit, claim, proceeding or investigation before any Governmental

Authority against or involving the Seller or the Assets or this Agreement. The

Seller is not bound by or subject to any order, judgment, injunction, award or

decree of any Governmental Authority or arbitration tribunal.



        2.9 Brokers. Except for Alterity Partners (payment of which shall be an

obligation of Discovery.com, Inc.), no broker, finder or investment banker has

been retained or authorized to act on behalf of the Seller or any Affiliate of

the Seller who is or might be entitled to any brokerage, finder's or other fee,

commission or compensation in connection with the transactions contemplated by

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