Agreement and Plan of Merger


                           Dated as of March 12, 2001


                                      Among

                             RateXchange Corporation

                                   as Acquiror


                                Xpit Corporation

                          a subsidiary of the Acquiror


                                 Xpit.com, Inc.

                                       and

                     certain Shareholders of Xpit.com, Inc.

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<TABLE>
                                                  Table of Contents

<S>      <C>      <C>                                                                                            <C>
1. Definitions....................................................................................................1
         1.1      Cross-referenced Definitions....................................................................1
         1.2      Standard Definitions............................................................................2

2. The Merger.....................................................................................................5
         2.1      The Merger Generally............................................................................5
         2.2      Conversion of Company Shares....................................................................5
         2.3      Closing.........................................................................................6
         2.4      Company Closing Liabilities.....................................................................8
         2.5      Adjustment of Merger Consideration..............................................................9

3. Conditions Precedent..........................................................................................10
         3.1      Conditions to the Obligations of All Parties...................................................10
         3.2      Conditions to Obligations of the Acquiror and Newco............................................10
         3.3      Conditions to Obligations of the Company and the Company Shareholders..........................11

4. Seller Representations and Warranties.........................................................................11
         4.1      Existence and Power............................................................................11
         4.2      Authorization..................................................................................12
         4.3      Governmental Authorization; Consents...........................................................12
         4.4      Non-Contravention..............................................................................12
         4.5      Title..........................................................................................13
         4.6      Capitalization.................................................................................13
         4.7      No Subsidiaries................................................................................13
         4.8      Financial Statements...........................................................................13
         4.9      Absence of Certain Changes.....................................................................14
         4.10     Properties.....................................................................................15
         4.11     No Undisclosed Material Liabilities............................................................15
         4.12     Litigation.....................................................................................15
         4.13     Material Contracts.............................................................................16
         4.14     Compliance with Laws; No Defaults..............................................................16
         4.15     Finders' Fees..................................................................................16
         4.16     Intellectual Property..........................................................................16
         4.17     Employee Benefits..............................................................................17
         4.18     Environmental Compliance.......................................................................17
         4.19     Tax Matters....................................................................................18
         4.20     Transactions with Affiliates...................................................................18
         4.21     Non-competition................................................................................18
         4.22     Other Information..............................................................................19

5. Acquiror Representations and Warranties.......................................................................19
         5.1      Organization and Existence.....................................................................19
         5.2      Authorization..................................................................................19


                                                       -i-                                         Merger Agreement


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         5.3      Governmental Authorization.....................................................................19
         5.4      Non-Contravention..............................................................................19
         5.5      Title..........................................................................................20
         5.6      Capitalization.................................................................................20
         5.7      Financial Statements...........................................................................20
         5.8      Absence of Certain Changes.....................................................................20
         5.9      Compliance with Laws; No Defaults..............................................................21
         5.10     Finders' Fees..................................................................................21
         5.11     SEC Filings....................................................................................21
         5.12     Company Information............................................................................21

6. Covenants of the Company and the Company Shareholders.........................................................22
         6.1      Conduct of the Company's Business..............................................................22
         6.2      Other Offers...................................................................................22
         6.3      Access to Information..........................................................................23
         6.4      Confidentiality................................................................................23
         6.5      Notices of Certain Events......................................................................24
         6.6      Approvals......................................................................................24
         6.7      Public Announcements...........................................................................24
         6.8      Transfer Taxes.................................................................................24
         6.9      Shareholder Actions............................................................................24

7. Acquiror Covenants............................................................................................25
         7.1      Confidentiality................................................................................25
         7.2      Director.......................................................................................25
         7.3      Officers and Directors Insurance Coverage......................................................25
         7.4      Stock Ownership After Merger...................................................................25
         7.5      Approvals......................................................................................28
         7.6      Public Announcements...........................................................................28
         7.7      Federal Tax Cooperation........................................................................28
         7.8      Transfer Taxes.................................................................................28
         7.9      Certain Tax Matters............................................................................28
         7.10     1934 Act Filings...............................................................................29

8. Investor Matters..............................................................................................30
         8.1      Representations and Warranties.................................................................30
         8.2      Securities Legended and Not Registered.........................................................30

9. Survival; Indemnification.....................................................................................31
         9.1      Survival.......................................................................................31
         9.2      Indemnification................................................................................31
         9.3      Procedures.....................................................................................32

10. Termination..................................................................................................33
         10.1     Grounds for Termination........................................................................33
         10.2     Effect of Termination..........................................................................33

                                                       -ii-                                        Merger Agreement


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11. Miscellaneous................................................................................................33
         11.1     Notices........................................................................................33
         11.2     Amendment; No Waivers; Integration.............................................................34
         11.3     Expenses.......................................................................................34
         11.4     Continuation of Attorney-Client Privilege......................................................34
         11.5     Assignment.....................................................................................35
         11.6     Governing Law; Jurisdiction....................................................................35
         11.7     Headings.......................................................................................35
         11.8     Counterparts...................................................................................35

Exhibit A     Form of Acquiror Note
        B     Form of Acquiror Pledge Agreement
        C     Form of Shareholder Pledge Agreement
        D     Form of Registration Rights Agreement
        E     Form of Employment Offer Letters
        F     Form of Consulting Agreement
        G     Form of Designation of Rights and Preferences of Series A Preferred Stock

Schedule 2.3(b)(vi)    Employees
         4.13          Material Contracts.
         4.16          Intellectual Property.
         4.19          Tax Matters.
         4.20          Transactions with Affiliates

                                                        -iii-                                      Merger Agreement
</TABLE>

<PAGE>


                          Agreement and Plan of Merger

         AGREEMENT dated as of March 12, 2001 among RateXchange  Corporation,  a
Delaware  corporation  (with its successors and assigns,  the "Acquiror"),  Xpit
Corporation,  a Delaware  subsidiary of the Acquiror  (with its  successors  and
assigns,  "Newco"),  Xpit.com,  Inc., an Idaho corporation (the "Company"),  and
Sockeye Trading,  LLC, an Idaho limited  liability company and Ramsey Financial,
Inc.,  a  Kentucky   corporation   (each,   with  its  successors,   a  "Company
Shareholder").

         WHEREAS,  the Company  Shareholders are the owners of all of the issued
and outstanding shares of common stock of the Company;

         WHEREAS,  the Acquiror is a public company whose shares of common stock
are traded on the American Stock Exchange under the symbol RTX;

         WHEREAS, the Acquiror desires to cause the Company to merge into Newco,
with Newco being the  surviving  company of such  merger,  in  exchange  for the
Company  shareholders  receiving  shares of the Acquiror's  Series A Convertible
Preferred  stock, a promissory note and cash, as more fully described below, and
the  Company  Shareholders  desire to have the  Company  merge into Newco and to
acquire such shares, promissory note, and cash upon the terms and subject to the
conditions hereinafter set forth;

         WHEREAS, Newco is a subsidiary of the Acquiror formed for such purpose;
and

         WHEREAS,  the  parties  intend  that  the  Merger  will  qualify  as  a
reorganization  under  Section  368(a)(2)(D)  of the  Internal  Revenue Code (as
defined below);

         NOW, THEREFORE, the parties agree as follows:

                                 1. Definitions

         1.1   Cross-referenced   Definitions.   The   following   terms,   when
capitalized,  are used  herein  with the  meaning  set forth in the  Section  or
portion of this Agreement referred to below:

          Acquiror                      Preamble                 p. 1

          Acquiror Note                 Section 2.2(c)(i)        p. 6

          Acquiror Pledge Agreement     Section  2.3(b)(iv)      p. 7

          Acquiror SEC Reports          Section 5.11             p. 21

          Acquisition  Proposal         Section  6.2(i)          p. 22

          Closing  Balance  Sheet       Section  2.4(a)          p. 8

          Closing Date                  Section 2.3(a)           p. 6

          Closing  Deadline             Section 2.3(a)           p. 6

          Company                       Preamble                 p. 1

          Company Shareholder           Preamble                 p. 1

          Damages                       Section 9.2(a)           p. 31

          Consulting  Agreement/        Section 2.3(b)(vi)       p. 7
          Employment Offer Letters

                                      -1-                       Merger Agreement

<PAGE>


          Employees                     Section 2.3(b)(vi)       p.

          Environmental Law             Section 4.18             p. 17

          Financial Statements          Section 4.8              p. 13

          Hazardous Substance           Section 4.18             p. 17

          Indemnified Party             Section 9.3(a)           p. 32

          Indemnifying Party            Section 9.3(a)           p. 32

          Merger                        Section 2.1              p. 5

          Merger Time                   Section 2.3(d)           p. 7

          Newco                         Preamble                 p. 1

          Notice of Alternative         Section 2.4(b)           p. 8
          Calculation

          Registration Rights Agreement Section 2.3(b)(v)        p. 6

          Shareholder Pledge Agreement  Section 2.3(c)(ii)       p. 7

          Tax Affiliate                 Section 4.19             p. 18

         1.2 Standard  Definitions.  The following terms, when capitalized,  are
used herein with the following meanings:

         "Acquiror  Share"  means an issued  and  outstanding  share of Series A
Convertible Preferred Stock of the Acquiror, with the rights,  preferences,  and
limitations as set forth in the attached Exhibit G..

         "Affiliate"  means, with respect to any Person, (i) any Person directly
or  indirectly  controlling,  controlled  by, or under common  control with such
other  Person or an  Affiliate  of such other  Person,  (ii) if such Person is a
corporation or similar  entity,  each member of such Person's board of directors
or similar body, (iii) if such Person is a natural person,  any relative of such
Person and any  corporation  or similar  entity of whose board of  directors  or
similar body such Person is a member, (iv) all general and limited  partnerships
of which such  Person is a general  partner,  (v) if such Person is a general or
limited  partnership,  all general partners of such Person,  (vi) all trusts and
estates of which such Person is a fiduciary or beneficiary, (vii) if such Person
is an estate or trust,  each  fiduciary of such Person and each  beneficiary  of
such Person and (viii) all Affiliates of Affiliates of such Person. Each Company
Shareholder shall be deemed to be an "Affiliate" of the Company.

         "Business  Day" means  each day other than a Saturday  or a Sunday or a
day on which banks in San Francisco, California are authorized or required to be
closed.

         "Idaho Statute" means the Idaho Business Corporations Act, as amended.

         "Company  Closing  Liabilities"  means  the  aggregate  amount,  at the
Closing  Date, of (i)  liabilities  of the Company  properly  shown on a balance
sheet  prepared in accordance  with  Generally  Accepted  Accounting  Principles
("GAAP"),  each such  liability in the amount  properly shown on a balance sheet
properly  prepared in accordance  with GAAP,  (ii) all prepayment  premiums that
would be payable if all  Company  Closing  Liabilities  were paid in full on the
Closing Date (whether or not any such  liability  actually is so paid) and (iii)
contingent liabilities, claims and assessments of which the Company or a Company
Shareholder has received written notice or which has been asserted or threatened
orally or in writing to the Company or a

                                      -2-                       Merger Agreement

<PAGE>


Company  Shareholder,  (even if such  items  would  not  properly  be shown on a
balance sheet  pursuant to the  provisions of GAAP),  each in the amount that is
the loss,  cost and expense  that the Company is  reasonably  likely to incur on
account of such liability, claim or assessment.

         "Company Share" means an issued and  outstanding  share of common stock
of the Company.

         "Contract"   means  each  contract,   agreement,   lease,   commitment,
arrangement,  plan and understanding to which the Company is a party, whether or
not legally enforceable by the other party or parties thereto.

         "Debt" of any  Person  means all  obligations  for  borrowed  money and
overdrafts,  all  obligations  evidenced  by bonds,  debentures,  notes or other
similar  instruments,  all  obligations  to pay the deferred  purchase  price of
property or services,  except trade accounts  payable,  payroll  liabilities and
deferred  revenues  arising in the ordinary  course of business  consistent with
past practice,  all  obligations  as lessee which are  capitalized in accordance
with  GAAP,  all  obligations  of others  secured by a Lien on any asset of such
Person,  whether or not such  obligations  are assumed by such  Person,  and all
obligations of others guaranteed by such Person.

         "Delaware  Statute"  means the  Delaware  General  Corporation  Law, as
amended.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended, and the rules and regulations promulgated  thereunder,  as amended from
time to time.

         "Financial Statement Date" means December 31, 2000.

         "GAAP" means  generally  accepted  accounting  principles  applied on a
basis consistent with that used to prepare the Financial Statements.

         "Guarantee"  by  any  Person  means  any   obligation,   contingent  or
otherwise,  of such Person directly or indirectly guaranteeing any obligation of
any other Person and,  without  limiting the  generality of the  foregoing,  any
obligation,  direct or indirect,  contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
obligation (whether arising by virtue of partnership arrangements,  by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other  manner the obligee of such  obligation
of the  payment  thereof  or to protect  such  obligee  against  loss in respect
thereof  (in  whole or in  part),  provided  that the term  Guarantee  shall not
include  endorsements  for  collection  or  deposit  in the  ordinary  course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

         "Intellectual  Property  Right"  means  any  trademark,  service  mark,
registration  thereof or  application  for  registration  therefor,  trade name,
invention,  patent,  patent  application,  trade  secret,  know-how,  copyright,
copyright  registration,  application for copyright  registration,  or any other
similar type of proprietary  intellectual  property right, in each case which is
owned or licensed and used or held for use by the Company.

                                       -3-                      Merger Agreement

<PAGE>


         "Internal  Revenue  Code" means the Internal  Revenue Code of 1986,  as
amended, and the rules and regulations promulgated  thereunder,  as amended from
time to time.

         "Lien" means,  with respect to any asset, any mortgage,  lien,  pledge,
charge,  security  interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset  which it has  acquired  or holds  subject to the  interest  of a
vendor or lessor under any conditional  sale  agreement,  capital lease or other
title retention agreement relating to such asset.

         "Majority Company Shareholders" means Company Shareholders that own, at
the time of determination (or, if the time of determination is after the Closing
Date,  that owned at the Closing Date),  in the aggregate,  not less than 51% of
the  total  number  of  Company   Shares  then  owned  by  all  of  the  Company
Shareholders.

         "Material  Adverse  Change"  means a  material  adverse  change  in the
business,  assets, condition (financial or otherwise),  results of operations or
prospects of the Company.

         "Material  Adverse  Effect"  means a  material  adverse  effect  on the
condition (financial or otherwise),  business,  assets, results of operations or
prospects of the Company.

         "1933  Act"  means  the  Securities  Act of  1933  and  the  rules  and
regulations issued thereunder, as amended from time to time.

         "1934 Act" means the Securities  Exchange Act of 1934 and the rules and
regulations issued thereunder, as amended from time to time.

         "Person" means an individual, a corporation,  a partnership,  a limited
liability  company,  an  association,  a trust or other entity or  organization,
including a government or political  subdivision or an agency or instrumentality
thereof.

         "Prepayment Premium" means any premium, penalty or compensation payable
upon the repayment of any obligation prior to its stated maturity.

         To "Register" any securities  means to effect the  registration of such
securities by preparing and filing a registration  statement or similar document
in  compliance   with  the  1933  Act,  and  the   declaration  or  ordering  of
effectiveness of such registration statement or document. The words "Registered"
and "Registration" have corresponding meanings.

         "Rule 144" means Rule 144  promulgated  by the  Securities and Exchange
Commission under the 1933 Act and any successor rule to  substantially  the same
effect, in each case as amended from time.

         "Tax"  payable by any Person  means any tax or  governmental  charge or
assessment  imposed on such  Person,  including  without  limitation  any tax or
governmental  charge or assessment  measured by such Person's net income,  gross
income,  gross receipts or sales; any use, ad valorem,  value added,  franchise,
profits, license,  payroll,  employment,  excise, severance,  stamp, occupation,
premium, property, environmental, windfall profit, alternative or add-on minimum
tax or governmental charge or assessment;  any withholding of amounts paid to or
by such Person on account of any such tax or governmental  charge or assessment;
and any interest

                                      -4-                       Merger Agreement

<PAGE>


or any penalty, addition to tax or additional amount imposed by any governmental
authority responsible for the imposition of any Tax.

         "Transfer Tax" means any stock transfer,  other transfer,  sales,  use,
documentary,  stamp,  registration and other similar Tax imposed on any party to
this  Agreement by reason of its entry into this Agreement and the completion of
the  transactions  contemplated  hereby on the Closing Date, but excluding Taxes
imposed on any party measured by the net or gross income of such party.

         "Treasury  Regulations"  means  the  regulations   promulgated  by  the
Department  of Treasury  pursuant to the Internal  Revenue Code and published in
the Code of Federal Regulations, as amended from time to time.

                                 2. The Merger

         2.1 The Merger  Generally.  At the Merger  Time,  the Company  shall be
merged with and into Newco in accordance with the Idaho Statute and the Delaware
Statute (the  "Merger"),  whereupon the separate  existence of the Company shall
cease, and Newco shall be the surviving  corporation.  From and after the Merger
Time,  title to all  property  owned by each of Newco and the  Company  shall be
vested in Newco,  and Newco shall have all liabilities of Newco and the Company,
all as provided by the Idaho  Statute and the  Delaware  Statute.  At the Merger
Time, the  certificate of  incorporation  and bylaws of Newco,  as the surviving
company of the  Merger,  shall  continue  to be the same as the  certificate  of
incorporation  and bylaws of Newco in effect at the Merger Time.  From and after
the Merger Time, until successors are duly elected or appointed and qualified in
accordance  with  applicable  law,  the  directors  and officers of Newco at the
Merger Time shall  continue to be the  directors  and officers of Newco,  as the
surviving company of the Merger.

         2.2 Conversion of Company Shares. At the Merger Time:

         (a) Each share of capital  stock of the Company  held by the Company as
treasury stock immediately  prior to the Merger Time shall be cancelled,  and no
payment shall be made with respect thereof.

         (b) Each share of common stock of Newco  outstanding  immediately prior
to the Merger Time shall  continue to be one share of common stock of Newco,  as
the surviving company of the Merger,  and after the Merger Time shall constitute
the only outstanding  shares of capital stock of Newco, as the surviving company
of the Merger.

         (c) Each Company Share outstanding immediately prior to the Merger Time
shall be converted into:

              (i) a number  of  Acquiror  Preferred  Shares  equal to  2,000,000
         divided by the total number of Company Shares  outstanding  immediately
         prior to the Merger Time; and

              (ii) a cash payment in the amount of $500,000 divided by the total
         number of Company Shares  outstanding  immediately  prior to the Merger
         Time; and

                                      -5-                       Merger Agreement

<PAGE>


              (iii) a promissory note of the Acquiror in substantially  the form
         of Exhibit A, in an original principal amount equal to $500,000 divided
         by the total number of Company Shares outstanding  immediately prior to
         the Merger Time (subject to adjustment  pursuant to Section 2.5 (p. 9))
         (each, an "Acquiror Note")

         Each Company  Shareholder  shall  receive a single  Acquiror  Note in a
         principal amount equal to $500,000  multiplied by the number of Company
         Shares held by it  immediately  prior to the Merger Time divided by the
         total number of Company  Shares  outstanding  immediately  prior to the
         Merger Time.

         (d) No fractional  Acquiror Shares shall be issued in the Merger.  If a
Company  Shareholder  would be entitled to receive a fractional  Acquiror Share,
such Company  Shareholder shall instead receive,  in lieu thereof,  an amount in
cash  determined by  multiplying  $2.75 by the fraction of an Acquiror  Share to
which such Company Shareholder would otherwise have been entitled.

         2.3 Closing.

         (a) The  closing  of the  transactions  necessary  to effect the Merger
shall take place at the offices of the Acquiror in San  Francisco on a date (the
"Closing Date") on or before the Closing Deadline (as defined below)  designated
by the Acquiror by not less than three days prior written  notice to the Company
Shareholders  or, if the Acquiror  fails to designate  such a date,  the Closing
Deadline  (or in any  event,  another  date  agreed to by the  Acquiror  and the
Majority Company Shareholders).  If any Company Shareholder at any time notifies
the  Acquiror  that the  conditions  precedent  set  forth in  Article  3 to the
obligation  of the  Acquiror  to  consummate  the  Merger  have been or shall be
satisfied  on a  particular  date,  the  Acquiror  shall use its best efforts to
designate a Closing Date that is as soon as is reasonably  practicable after the
date such conditions precedent are satisfied. The "Closing Deadline" means March
14, 2001,  or such later date that the parties may agree upon as the deadline to
complete the  transactions  necessary to consummate the Merger  pursuant to this
Agreement.

         (b) On the Closing Date, the Acquiror shall:

              (i) deliver to each Company Shareholder a newly-issued certificate
         representing  50% of the  Acquiror  Shares to be issued to such Company
         Shareholder pursuant to the Merger (rounded to the nearest whole share)
         and  issue  to each  Company  Shareholder  a  newly-issued  certificate
         representing the remaining Acquiror Shares to be issued pursuant to the
         Merger but retain  possession of such  certificates  as contemplated by
         the  Shareholder   Pledge   Agreement   referred  to  below,  all  such
         certificates  being  registered in the name of the  respective  Company
         Shareholders;

              (ii) deliver to each Company Shareholder the cash payment required
         pursuant to Section  2.2(c)(ii)  (which cash payments shall be made, in
         the  case of  Company  Shareholders  Sockeye  Trading,  LLC and  Ramsey
         Financial,  Inc., by wire transfer of immediately  available funds, and
         in the case of all other Company Shareholders, by delivery of a check);

              (iii) execute and deliver to each Company  Shareholder an Acquiror
         Note;

                                      -6-                       Merger Agreement

<PAGE>


              (iv)  execute  and deliver to the  Company  Shareholders  a Pledge
         Agreement  in  substantially  the  form  attached  as  Exhibit  B  (the
         "Acquiror Pledge Agreement");

              (v) execute and deliver to the Company Shareholders a Registration
         Rights Agreement in  substantially  the form attached as Exhibit D (the
         "Registration Rights Agreement"); and

              (vi)  deliver a form of  Employment  Offer  Letter for the persons
         identified on Schedule 2.3(b)(vi) (the "Employees").  The Offer Letters
         will be delivered to the Employees in  substantially  the form attached
         as Exhibit E after the close; and

              (vii)  execute  and  deliver a  Consulting  Agreement  to Sawtooth
         Investment  Management,  LLC in  substantially  the  form  attached  as
         Exhibit F.

              (c) On the Closing Date:

              (i) each  Company  Shareholder  shall  deliver  to the  Acquiror a
         certificate or  certificates  registered in such Company  Shareholder's
         name  representing  all of the  Company  Shares  owned by such  Company
         Shareholder, duly endorsed or accompanied by stock powers duly endorsed
         in the name of the Acquiror;

              (ii) each  Company  Shareholder  shall  execute and deliver to the
         Acquiror a  Shareholder  Pledge  Agreement  in  substantially  the form
         attached as Exhibit C (the "Shareholder Pledge Agreement");

              (iii) each Company  Shareholder  shall  execute and deliver to the
         Acquiror the Registration Rights Agreement; and

              (iv) Sawtooth Investment Management, LLC shall execute and deliver
         to the Acquiror the Consulting Agreement.

         (d) On the Closing  Date (or,  if not  reasonably  practicable,  on the
following  Business Day), the Company and Newco shall file with the Secretary of
State of the  State of  Delaware  a  certificate  of merger  complying  with the
Delaware  Statute  and shall  file with the  Secretary  of State of the State of
Idaho articles of merger  complying  with the Idaho Statute,  and shall make all
other  filings and take all other actions  required by the Delaware  Statute and
the Idaho  Statute  in  connection  with the  Merger.  The Merger  shall  become
effective at the "Merger  Time," which is the time at which such  certificate of
merger and articles of merger are duly filed with both the  Secretaries of State
of the State of Delaware and of the State of Idaho.

         (e) Subject to the terms and conditions of this  Agreement,  each party
shall use its best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things  necessary,  proper or advisable  under Sections
252 and 251 of the Delaware  Statute,  Title 30, Chapter 1, sections 1101 - 1106
of the Idaho Statute,  other  applicable  provisions of the Delaware Statute and
the Idaho Statute and other  applicable  laws and  regulations to consummate the
Merger. At and after the Merger Time, the officers and directors of the Acquiror
and Newco shall be authorized to execute and deliver,  in the name and on behalf
of the Acquiror or Newco,  any deeds,  bills of sale,  assignments or assurances
and to take and do,  in the name and on  behalf of the  Acquiror  or Newco,  any
other  actions and things to vest,  perfect or confirm of record or otherwise in
Newco any and all right,  title and interest in, to and under any of the rights,
properties or assets of the Company.

                                      -7-                       Merger Agreement

<PAGE>


         2.4 Company Closing Liabilities.

         (a) As promptly as practicable  after the Closing Date (but in no event
more than 30 days after the Closing  Date),  the Acquiror  shall cause a balance
sheet of the Company as at the closing of  business  on the  Closing  Date,  but
without  giving  effect to the  Merger  (the  "Closing  Balance  Sheet"),  to be
prepared in accordance with GAAP, and shall prepare a certificate  based on such
Closing  Balance  Sheet  (among  other  things)  setting  forth  the  Acquiror's
calculation of the Company Closing  Liabilities,  and the Acquiror shall deliver
the Closing Balance Sheet and such certificate to the Company Shareholders.

         (b)  If  any  Company   Shareholder   disagrees   with  the  Acquiror's
calculation of the Company Closing  Liabilities,  such Company Shareholder shall
raise  such  disagreement  with the other  Company  Shareholders.  The  Majority
Company  Shareholders may agree upon a proposed  alternative  calculation of the
Company Closing  Liabilities,  whereupon the Majority  Company  Shareholders may
prepare one (and only one) notice of such  alternative  calculation (the "Notice
of  Alternative  Calculation"),  which  shall set forth in detail  the  Majority
Company  Shareholders'  calculation of the Company Closing Liabilities and shall
describe and explain each item and amount included in the Acquiror's calculation
of Company  Closing  Liabilities  with which the Majority  Company  Shareholders
disagree,  and shall set forth in detail an alternate  amount  calculated by the
Majority Company Shareholders.  The Notice of Alternative  Calculation,  if any,
shall be delivered to the  Acquiror  within 30 days after the Acquiror  delivers
the documents  referred to in subsection  (a) to the Company  Shareholders.  Any
calculation,  item or amount shown on the  Acquiror's  Closing  Balance Sheet or
calculation  of  the  Company  Closing  Liabilities  that  is  not  specifically
disagreed  with  in such a  Notice  of  Alternative  Calculation  signed  by the
Majority Company  Shareholders and timely delivered shall be deemed to have been
agreed to by each of the Company Shareholders.

         (c) If a Notice  of  Alternative  Calculation  shall be duly  prepared,
signed and delivered as described in subsection  (b), it shall be binding on the
Company  Shareholders  and the  parties  shall use their  best  efforts to reach
agreement on the disputed items or amounts in order to agree thereupon,  none of
which  agreed-upon  amounts  shall be more  favorable to the  Acquiror  than the
amount  thereof  initially  calculated by the Acquiror nor more favorable to the
Company  Shareholders  than  the  amount  thereof  set  forth in the  Notice  of
Alternative  Calculation.  Any such amount  agreed upon by the  Acquiror and the
Majority Company  Shareholders  shall be conclusive and binding upon all parties
hereto, including any Company Shareholders that do not agree to it.

         (d) If the Acquiror and the Majority Company  Shareholders are not able
to reach agreement as to the amount of the Company Closing Liabilities within 30
days after the Acquiror's receipt of the Notice of Alternative Calculation, then
ArthurAndersen,  LLP shall  determine the disputed amount of the Company Closing
Liabilities,  which  determination  shall be binding upon all parties hereto. In
making such  determination,  such  accountants  shall follow the  definition  of
"Company  Closing  Liabilities"  and, in  addition,  shall  consider  only those
calculations,  items and amounts  shown on the  Acquiror's  calculations  of the
Company Closing Liabilities that were specifically disagreed with in a Notice of
Alternative Calculation signed by

                                      -8-                       Merger Agreement

<PAGE>


the Majority Company Shareholders and timely delivered.  Moreover, the amount of
the Company  Closing  Liabilities  determined by such  accountants  shall not be
greater than the amount set forth in the Acquiror's certificate or less than the
amount set forth in the Notice of  Alternative  Calculation.  Judgment  upon any
award  rendered  by  such  accountants  may  be  entered  in  any  court  having
jurisdiction thereof.

         (e) The Acquiror on the one hand, and the Company Shareholders (jointly
and severally) on the other hand,  shall bear a portion of the reasonable  costs
and  expenses  incurred  in  connection  with  such   accountants'   review  and
determination  (including  without limitation such party's and the other party's
out-of-pocket  attorneys' fees and expenses and out-of-pocket  expenses incurred
in gathering and presenting  information to the accountants)  based on the ratio
of the difference  between the finally determined amount and the amount proposed
by such party and the total amount in dispute.  For example,  if the  Acquiror's
calculation of the Company Closing Liabilities was $200,000 and the amount shown
in the Notice of  Alternative  Calculation  was $150,000,  the amount in dispute
would be $50,000.  If the  accountants  were ultimately to resolve the matter by
determining that the amount of the Company Closing Liabilities is $180,000,  the
Acquiror would bear 40% of the expenses  referred to above  ($20,000  divided by
$50,000) and the Company  Shareholders  would jointly and severally  bear 60% of
the expenses  referred to above ($30,000 divided by $50,000).  As a condition to
referring  any dispute to such  accountants  rather  than having the  Acquiror's
calculation be determinative,  the Company Shareholders shall provide reasonably
adequate assurances to the Acquiror that they will pay their portion of the cost
of such accountants' review.

         2.5  Adjustment  of Merger  Consideration.  Within 30 days after  final
determination  of the amount of the  Company  Closing  Liabilities  pursuant  to
Section 2.4 (whether upon the failure of the Majority  Company  Shareholders  to
object timely to the Acquiror's  calculation thereof, upon agreement between the
Acquiror and the Majority  Company  Shareholders  or upon  determination  by the
accountants referred to in Section 2.4(d)):

              (i)  The   principal   amount  of  each  Acquiror  Note  shall  be
         automatically  reduced by such Acquiror Notes' pro rata share (based on
         the respective original principal amounts of the Acquiror Notes) of the
         amount  (if any) by  which  the  Company  Closing  Liabilities  exceeds
         $60,000,  without any notice or further action by any Person, effective
         as of the Closing Date (so that interest  shall accrue from the Closing
         Date on the principal amount as so reduced).

              (ii) If the amount of the Company  Closing  Liabilities is greater
         than $560,000,  the Acquiror Notes shall be cancelled in their entirety
         and the Company  Shareholders shall be jointly and severally obligated,
         at their option, either:

         (A)  to pay to the  Acquiror  an amount in cash  equal to the lesser of
              (x) the amount by which the  Company  Closing  Liabilities  exceed
              $560,000 or (y) $6,000,000, and/or

         (B)  to return to the Acquiror a number of Acquiror Shares equal to the
              amount payable pursuant to clause (A) (less any cash payments made
              pursuant to clause (A)) divided by $2.75.

                                      -9-                       Merger Agreement

<PAGE>


                            3. Conditions Precedent

         3.1 Conditions to the  Obligations of All Parties.  The  obligations of
the Acquiror,  Newco, the Company and each Company Shareholder to consummate the
Merger are subject to the satisfaction of the following conditions precedent:

         (a) No provision of any  applicable  law or regulation and no judgment,
injunction, order or decree shall prohibit the Merger;

         (b) All  actions by or in respect of or filings  with any  governmental
body,  agency,  official or authority required to permit the consummation of the
Merger pursuant to this Agreement shall have been obtained; and

         (c) No  proceeding  seeking  to  prohibit  the  Merger  shall have been
instituted by any Person other than a party hereto before any court,  arbitrator
or governmental body, agency or official and be pending.

         3.2  Conditions  to   Obligations  of  the  Acquiror  and  Newco.   The
obligations  of the Acquiror and Newco to  consummate  the Merger,  to issue the
Acquiror   Shares  and  to  deliver  the  Acquiror  Notes  are  subject  to  the
satisfaction  (or the written  waiver by the Acquiror) of the following  further
conditions precedent:

         (a) Tender by the Company  Shareholders of the documents required to be
delivered by Section 2.3(c) (p. 7);

         (b) The Company and each Company  Shareholder  shall have  performed in
all  material  respects  all  of  their  obligations  hereunder  required  to be
performed on or before the Closing Date;

         (c) The  representations and warranties of the Company and each Company
Shareholder  contained in this Agreement and in any certificate or other writing
delivered  by the Company or any Company  Shareholder  pursuant  hereto shall be
true and correct in all material respects;

         (d) No court, arbitrator or governmental body, agency or official shall
have issued any order,  and there shall not be any statute,  rule or regulation,
restraining  the  effective  operation  by the  Acquiror of the  business of the
Company after the Closing Date;

         (e) Tender to the  Acquiror of the  resignations  of each member of the
Company's board of directors;

         (f) Receipt by the Acquiror of a  certificate  of the  president of the
Company to the effect set forth in paragraphs (b) and (c) above; and

         (g) Receipt by the Acquiror of all documents it may reasonably  request
relating to the  existence of the Company and each Company  Shareholder  that is
not a natural person and the authority of the Person executing this Agreement on
behalf  of the  Company  and  each  such  Company  Shareholder,  all in form and
substance reasonably satisfactory to the Acquiror.

                                      -10-                      Merger Agreement

<PAGE>


         3.3   Conditions  to   Obligations  of  the  Company  and  the  Company
Shareholders.  The  obligations  of the Company and each Company  Shareholder to
consummate the Merger is subject to the  satisfaction  (or the written waiver by
the  Majority  Company   Shareholders)  of  the  following  further   conditions
precedent:

         (a) Tender by the Acquiror of the documents and cash payments  required
to be delivered by Section 2.3(b) (p. 6);


         (b) The  Acquiror  and  Newco  shall  have  performed  in all  material
respects  all of their  obligations  hereunder  required to be  performed  on or
before the Closing Date;

         (c) The  representations  and  warranties  of the  Acquiror  and  Newco
contained in this Agreement and in any certificate or other writing delivered by
the Acquiror or Newco pursuant  hereto shall be true and correct in all material
respects;

         (d) Receipt by the Company  Shareholders  of a certificate of the chief
executive  officer of the Acquiror to the effect set forth in paragraphs (b) and
(c) above; and

         (e) Receipt by the Company  Shareholders  of all  documents the Company
Shareholders  may reasonably  request  relating to the existence of the Acquiror
and Newco and the authority of the Person  executing this Agreement on behalf of
the Acquiror and Newco, all in form and substance reasonably satisfactory to the
Majority Company Shareholders.

                    4. Seller Representations and Warranties

         The Company and the Company  Shareholders  hereby represent and warrant
to the Acquiror, on the date hereof and on the Closing Date, as follows:

         4.1   Existence  and  Power.   The  Company  is  a   corporation   duly
incorporated, validly existing and in good standing under the laws of Idaho, and
has all corporate powers and all governmental licenses, authorizations, consents
and approvals  required to carry on its business as now conducted.  Each Company
Shareholder  that  is a  corporation,  limited  partnership,  limited  liability
company  or  similar   entity  is  a  corporation  or  other  such  entity  duly
incorporated or formed,  validly existing and in good standing under the laws of
its jurisdiction of  incorporation or formation,  and has all corporate or legal
powers required to execute,  deliver and perform this Agreement, the Shareholder
Pledge Agreement and the Registration Rights Agreement. Each Company Shareholder
that executes this Agreement as a trustee,  executor or personal  representative
has  all  fiduciary   powers   (pursuant  to  the   instruments  and  agreements
establishing  such trust or estate and  applicable  law)  required  to  execute,
deliver and perform this  Agreement,  the Shareholder  Pledge  Agreement and the
Registration   Rights  Agreement  as  such  a  trustee,   executor  or  personal
representative.

         4.2  Authorization.  The  execution,  delivery and  performance  by the
Company and each Company  Shareholder of this Agreement,  the Shareholder Pledge
Agreement and the  Registration  Rights  Agreement and the  consummation  by the
Company and each Company Shareholder of the transactions contemplated hereby are
within such party's  corporate or legal powers and have been duly  authorized by
all necessary  corporate,  entity,  shareholder,  partner,

                                      -11-                      Merger Agreement

<PAGE>


member,  trustee and beneficiary  actions.  The Company's board of directors has
unanimously adopted,  approved,  declared the advisability of and recommended to
the  Company's   shareholders  this  Agreement  and  the  Merger.   The  Company
Shareholders  have  unanimously  adopted and  approved  this  Agreement  and the
Merger. This Agreement  constitutes a valid and binding agreement of the Company
and  each  Company  Shareholder;   the  Shareholder  Pledge  Agreement  and  the
Registration Rights Agreement,  when executed and delivered on the Closing Date,
will each constitute a valid and binding obligation of each Company Shareholder;
and each  Consulting  Agreement and Employment  Offer Letter,  when executed and
delivered on the Closing Date, will constitute a valid and binding obligation of
the Company Shareholder party thereto.

         4.3 Governmental Authorization;  Consents. The execution,  delivery and
performance by the Company and each Company  Shareholder of this Agreement,  the
Shareholder Pledge Agreement,  the Registration Rights Agreement, the Consulting
Agreement and Employment  Offer  Letters,  and the  consummation  of the Merger,
require no action by or in respect of, or filing with,  any  governmental  body,
agency, official or authority,  other than the filing of a certificate of merger
and articles of merger as contemplated by Section 2.3(d). No consent,  approval,
waiver or other action by any Person under any contract,  agreement,  indenture,
lease,  instrument  or  other  document  to which  the  Company  or any  Company
Shareholder is a party or by which any of them is bound is required or necessary
for the execution,  delivery and performance of this Agreement,  the Shareholder
Pledge Agreement, the Registration Rights Agreement, the Consulting Agreement or
the Employment Offer Letters by the Company and each Company  Shareholder or the
consummation of the transactions contemplated hereby.

         4.4 Non-Contravention.  The execution,  delivery and performance by the
Company and each Company  Shareholder of this Agreement,  the Shareholder Pledge
Agreement,  the Registration Rights Agreement,  the Consulting Agreement and the
Employment  Offer Letters and the consummation of the Merger do not and will not
(a) contravene or conflict with the articles of  incorporation  or bylaws of the
Company or the articles of incorporation, bylaws or other governing documents of
such  Company  Shareholder  (including  such Company  Shareholder's  partnership
agreement,  limited  liability  company  agreement,  trust  agreement  or  other
agreement or instrument, as the case may be), (b) contravene or conflict with or
constitute  a  violation  of any  provision  of any law,  regulation,  judgment,
injunction,  order or decree  binding upon or  applicable to the Company or such
Company Shareholder;  (c) contravene or conflict with, or constitute a violation
of or default under, or give rise to any right of  termination,  cancellation or
acceleration  of any right or obligation of the Company  under,  or to a loss of
any material benefit to which the Company is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or any license,
franchise,   permit  or  other  similar  authorization  held  the  Company;  (d)
contravene  or conflict  with or  constitute a violation of or default under any
material  provision of any agreement,  contract or other instrument binding upon
such Company Shareholder or (e) result in the creation or imposition of any Lien
on any asset of the Company.

                                      -12-                      Merger Agreement

<PAGE>


         4.5  Title.  As of the  Closing  Date and as of the date  hereof,  each
Company  Shareholder owns,  legally,  beneficially and of record,  the number of
Company Shares set forth under such Company  Shareholder's name on the signature
pages of this Agreement, subject to no Liens. All of the Company Shares owned by
each Company  Shareholder  have been duly  authorized and validly issued and are
fully paid and nonassessable.

         4.6  Capitalization.  The  authorized  capital  stock  of  the  Company
consists of 50,000,000 shares of common stock and 25,000,000 shares of preferred
stock.  As of the date  hereof,  there are  issued  and  outstanding  15,080,000
Company Shares and no shares of preferred  stock are issued or  outstanding.  No
employee or other Person holds any option to purchase any shares of common stock
of the Company that is now  exercisable  or may at any time in the future become
exercisable, except for options that will be exercised or cancelled at or before
the Closing Date. Except as described in this Section, as of the date hereof and
the Closing Date,  there are no outstanding (i) shares of capital stock or other
voting  securities of the Company,  (ii)  securities of the Company  convertible
into or  exchangeable  for shares of capital  stock or voting  securities of the
Company  or (iii)  options  or other  rights to  acquire  from the  Company,  or
obligations of the Company to issue,  deliver,  repurchase,  redeem or otherwise
acquire any capital stock,  voting securities or securities  convertible into or
exchangeable  for capital stock or voting  securities of the Company (whether or
not now exercisable).

         4.7 No  Subsidiaries.  There are no  subsidiaries  of the Company.  The
Company does not hold any shares of capital stock of any other corporation.

         4.8 Financial Statements.  The audited balance sheet ("Balance Sheet"),
income  statement,  statement of cash flows and related footnote  disclosures of
the  Company at the  Financial  Statement  Date and for the  fiscal  year of the
Company then ended,  which have been  delivered  to the Company  before the date
hereof (the "Financial  Statements"),  fairly present,  in accordance with GAAP,
the financial  position of the Company as of the date thereof and the results of
operations and cash flows for the period then ended.

         4.9 Absence of Certain Changes. Except as required by this Agreement or
reflected on Schedule 4.9, since the Financial  Statement  Date, the Company has
conducted its business in the ordinary course consistent with past practices and
there has not been:

         (a) any Material Adverse Change or any event,  occurrence,  development
or state of  circumstances or facts which could reasonably be expected to result
in a Material Adverse Change;

         (b) any declaration,  setting aside or payment of any dividend or other
distribution  on any  shares of the  Company's  capital  stock,  any  payment on
account of the purchase, redemption,  retirement or acquisition of any shares of
the  Company's  capital  stock or any option,  warrant or other right to acquire
shares of the Company's capital stock;

         (c) any  amendment  of any  term  of any  outstanding  security  of the
Company;

         (d) any incurrence or assumption by the Company of any Debt;

                                      -13-                      Merger Agreement

<PAGE>


         (e) any creation or assumption  by the Company of any Lien,  other than
Liens arising in the ordinary  course of business  consistent with past practice
which (i) do not secure  Debt,  (ii) do not secure any  obligation  in an amount
exceeding $25,000 in the aggregate and (iii) do not in the aggregate  materially
detract  from the value of the  Company's  assets or  materially  impair the use
thereof in the operation of its business;

         (f) any making or acquisition of any investment in any Person,  whether
by means  of  share  purchase,  capital  contribution,  loan,  time  deposit  or
otherwise,  other than demand deposits and short-term cash  investments  made in
the ordinary course of business consistent with past practice;

         (g) any damage,  destruction  or other  casualty  loss  (whether or not
covered by  insurance)  affecting  the business or assets of the Company  which,
individually  or in the  aggregate,  has had or would  reasonably be expected to
have a Material Adverse Effect;

         (h) any  transaction  or commitment  made, or any contract or agreement
entered into, by the Company  relating to its assets or business  (including the
acquisition or disposition of any assets) or any  relinquishment  by the Company
of any contract or other right, in either case,  material to the Company,  other
than transactions and commitments in the ordinary course of business  consistent
with past practice (and other than pursuant to this Agreement);

         (i) any change in any method of accounting  or  accounting  practice by
the Company;

         (j) any (i) grant of any severance or termination  pay to any director,
officer or  employee  of the  Company,  (ii)  entering  into of any  employment,
deferred  compensation or other similar  agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company, (iii)
event or communication which causes the Company,  any Company Shareholder or the
Acquiror to believe that any key employee may not continue to be employed by the
Company  after the Closing  Date,  (iv)  increase in benefits  payable  under an
existing  severance or  termination  pay policy or  employment  agreement or (v)
increase in compensation, bonus or other benefits payable to directors, officers
or employees of the Company,  whether or not in the ordinary  course of business
or consistent with past practice; or

         (k) any labor  dispute,  other than  routine or  immaterial  individual
grievances,  or any activity or  proceeding  by a labor union or  representative
thereof to organize  any  employees of the Company,  or any  lockouts,  strikes,
slowdowns, work stoppages or threats thereof by or with respect to any employees
of the Company.

         4.10  Properties.  The  Company  does  not own  any  real  property  or
fixtures,  including  without  limitation any plants,  buildings,  structures or
land.  The Company has and will have after the Closing Date good and  marketable
title to (or in the case of leased  property valid  leasehold  interests in) all
property and assets (whether real or personal, tangible or intangible) reflected
on the Balance Sheet or acquired after the Financial  Statement Date, except for
(i) assets that are not  necessary to the  operations  of the Company and are in
the aggregate not material and (ii)  inventory,  in each case to the extent sold
in the ordinary course of business  consistent with past practice.  None of such
properties or assets is subject to any Liens, except Liens disclosed in

                                      -14-                      Merger Agreement

<PAGE>


the  Financial  Statements  securing  obligations  disclosed  in such  Financial
Statements and Liens that could be incurred  after the Financial  Statement Date
without causing the representation in Section 4.9(e) (p. 14) to be untrue.

         4.11 No Undisclosed Material  Liabilities.  There are no liabilities of
the  Company of any kind  whatsoever,  whether  accrued,  contingent,  absolute,
determined, determinable or otherwise, other than:

              (i)  liabilities  disclosed or provided for in the Balance  Sheet;
         and

              (ii)  liabilities  incurred  in the  ordinary  course of  business
         consistent  with past practice and in  compliance  with Section 4.9 (p.
         14) since the Financial Statement Date.

The Company has not guaranteed any obligation of any other Person.

         4.12 Litigation.  There is no action, suit, investigation or proceeding
pending against,  or to the knowledge of the Company or any Company  Shareholder
threatened against or affecting, the Company or any of its properties before any
court or  arbitrator or any  governmental  body,  agency,  official or authority
which, if determined or resolved adversely to the Company in accordance with the
plaintiff's  demands,  would  reasonably be expected to have a Material  Adverse
Effect.

         4.13  Material  Contracts.  Except for  agreements,  contracts,  plans,
leases,  arrangements or commitments  disclosed in Schedule 4.13, the Company is
not a party to or subject to:

              (i) any lease providing for annual rentals of $10,000 or more;

              (ii) any Contract for the purchase of materials,  supplies, goods,
         services,  equipment or other assets  providing for annual  payments by
         the Company of $10,000 or more;

              (iii) any sales,  distribution or other similar Contract providing
         for the sale by the Company of goods that provides for annual  payments
         to the Company of $10,000 or more;

              (iv) any partnership, joint venture or other similar Contract;

              (v) any Contract relating to Debt of the Company;

              (vi) any license  agreement,  franchise  agreement  or Contract in
         respect of similar rights granted to or held by the Company;

              (vii) any agency,  dealer,  sales  representative or other similar
         Contract;

              (viii) any Contract that  substantially  limits the freedom of the
         Company to compete in any line of business or with any Person or in any
         area or which  would so limit  the  freedom  of the  Company  after the
         Closing Date; or

              (ix)  any  other  Contract  not  made in the  ordinary  course  of
         business consistent with past practice that is material to the Company.

         4.14 Compliance with Laws; No Defaults. The Company is not in violation
of, and has not since January 1, 2000 violated,  any applicable provision of any
laws, statutes,  ordinances or regulations,  except for violations that have not
had and  would  not  reasonably  be  expected  to have,  individually  or in the
aggregate, a Material Adverse Effect. The Company is not in default

                                      -15-                      Merger Agreement

<PAGE>


under,  and no condition  exists that with notice or lapse of time or both would
constitute a default under, (i) any agreement relating to Debt of the Company or
(ii) any judgment,  order or injunction of any court, arbitrator or governmental
body, agency, official or authority.

         4.15 Finders' Fees. There is no investment  banker,  broker,  finder or
other  intermediary which has been retained by or is authorized to act on behalf
of any  Company  Shareholder  or the Company who might be entitled to any fee or
commission from the Acquiror,  the Company or any of their respective affiliates
upon consummation of the transactions contemplated by this Agreement.

         4.16 Intellectual Property.

         (a)  Schedule  4.16 is a  complete  list of all  Intellectual  Property
Rights of the Company,  specifying as to each, as applicable:  (i) the nature of
such Intellectual  Property Right; (ii) the owner of such Intellectual  Property
Right;  (iii) the jurisdictions by or in which such Intellectual  Property Right
has been issued or  registered or in which an  application  for such issuance or
registration   has  been  filed,   including  the  respective   registration  or
application  numbers;   and  (iv)  material  licenses,   sublicenses  and  other
agreements  as to which the Company is a party and  pursuant to which any Person
is authorized to use such Intellectual Property Right, including the identity of
all parties thereto, a description of the nature and subject matter thereof, the
applicable royalty and the term thereof.

         (b) The Company has not, since January 1, 2000, been sued or charged in
writing  with or been a  defendant  in any  claim,  suit,  action or  proceeding
relating to its business that has not been finally  terminated without liability
to  the  Company  prior  to the  date  hereof  and  that  involves  a  claim  of
infringement of any patents,  trademarks,  service marks or copyrights.  Neither
the Company nor any Company  Shareholder has any knowledge of any other claim or
infringement by the Company, and no knowledge of any continuing  infringement by
any other Person of any Intellectual  Property Rights. No Intellectual  Property
Right is subject to any  outstanding  order,  judgment,  decree,  stipulation or
agreement  restricting  the  use  thereof  by the  Company  or  restricting  the
licensing thereof by the Company or any Person. The Company has not entered into
any agreement to indemnify any other Person  against any charge of  infringement
of any patent, trademark, service mark or copyright.

         (c)  None of the  processes  and  formulae,  research  and  development
results and other know-how of the Company,  the value of which to the Company is
contingent upon maintenance of the confidentiality  thereof,  has been disclosed
by the Company to any Person other than employees, representatives and agents of
the Company.

         4.17  Employee  Benefits.  There is no Person  (other than the Company)
that at any time  conducted  the  business now  conducted  by the  Company;  the
Company has not been a member of a controlled  group of corporations  and trades
or  businesses  (whether or not  incorporated)  under  common  control that were
treated as a single  employer  under  Section 414 of the Internal  Revenue Code.
There is no employee  pension benefit plan which is covered by Title IV of ERISA
or subject to the minimum  funding  standards  under Section 412 of the Internal
Revenue

                                      -16-                      Merger Agreement

<PAGE>


Code which is (or has been at any time) maintained by the Company or contributed
to by the  Company  for  persons  who,  at the time of such  contribution,  were
employees of the Company.

         4.18  Environmental   Compliance.   No  notice,   demand,  request  for
information,  citation,  summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no  investigation  or review is pending,
or to the knowledge of the Company or any Company Shareholder, threatened by any
governmental  or other entity (i) with  respect to any alleged  violation by the
Company of any  Environmental  Law (as defined below),  (ii) with respect to any
alleged failure by the Company to have any  environmental  permit,  certificate,
license, approval, registration or authorization required in connection with the
conduct of its  business  or (iii) with  respect to any  generation,  treatment,
storage,  recycling,  transportation  or disposal  or release,  as defined in 42
U.S.C.  " 9601(22) of any Hazardous  Substance (as defined  below)  generated or
used by the Company. The Company has not generated,  transported, disposed of or
arranged for the  transportation  or disposal  (directly or  indirectly)  of any
Hazardous  Substance  to any  location  which is listed or proposed  for listing
under the Comprehensive Environmental Responses,  Compensation and Liability Act
of 1980, as amended, or on any similar state list.

         "Environmental Law" means each federal,  state and local statute,  law,
regulation,  ordinance, rule, judgment,  judicial decision, order, decree, code,
plan, injunction,  permit, concession,  grant, franchise, license, agreement, or
governmental   restriction,   relating  to  the  environment  or  to  emissions,
discharges or releases of Hazardous  Substances into the environment  including,
without  limitation,  ambient air,  surface  water,  ground  water,  or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.

         "Hazardous  Substance"  mean  any  and  all  pollutants,  contaminants,
asbestos,  petroleum or petroleum  products,  chemicals  or  industrial,  toxic,
radioactive or hazardous substances, materials or wastes.

         4.19 Tax Matters.

         Schedule  4.19  sets  forth a list of each Tax  Affiliate  (as  defined
below),  if any,  and the tax  periods for which each Person so listed was a Tax
Affiliate.  No federal  income tax returns for the Company  have been audited by
the  Internal  Revenue  Service and the Company has not agreed with the Internal
Revenue  Service to any extension of the statute of limitations  with respect to
its federal  income taxes for any year.  The Company and each Tax Affiliate have
filed all United States  federal  income tax returns and all other  material tax
returns  which are  required  to be filed by them and have paid all Taxes due as
shown on such returns or pursuant to any  assessment  received by the Company or
any Tax  Affiliate.  The charges,  accruals and reserves on the Balance Sheet in
respect  of Taxes  are  adequate.  Schedule  4.19 sets  forth a list of  states,
territories  and  jurisdictions  (whether  foreign  or  domestic)  to which  any
material  Tax is or will be  properly  payable  by the  Company  as a result  of
Company activity on or before the Closing Date.

         "Tax Affiliate"  during any period means each Person that,  during such
period,  conducted  the  business  now  conducted by the Company and each Person
that, during such

                                      -17-                      Merger Agreement

<PAGE>


period,  was a member of (i) the affiliated group of corporations (as defined in
Section  1504(a)  of the  Internal  Revenue  Code) of which the  Company or such
Person was a member or (ii) the  combined,  consolidated  or unitary  group (for
purposes  of any  applicable  state or local  Tax) of which the  Company or such
Person was a member.

         4.20  Transactions  with  Affiliates.  Except as  described in Schedule
4.20,  the Company is not a party to any Contract  with any Affiliate or Company
Shareholder.

         4.21 Non-competition.  No Company Shareholder has any present intention
to engage, either directly or indirectly,  as a principal or for its own account
or solely or jointly with others, or as stockholder in any corporation or holder
of an ownership  interest in any other entity,  in the business of maintaining a
medium for the multilateral exchange of communications bandwidth.

         4.22 Other Information. None of the documents delivered to the Acquiror
in connection with the transactions  contemplated by this Agreement,  taken as a
whole,  contains  any untrue  statement  of a material  fact or omits to state a
material fact  necessary in order to make the statements  contained  therein not
misleading.

                   5. Acquiror Representations and Warranties

         The  Acquiror  and Newco  hereby  represent  and warrant to the Company
Shareholders, on the date hereof and on the Closing Date, as follows:

         5.1  Organization  and  Existence.  Each of the Acquiror and Newco is a
corporation duly  incorporated,  validly existing and in good standing under the
laws of Delaware,  and has all  corporate  powers and all material  governmental
licenses,  authorizations,  consents  and  approvals  required  to  carry on its
business as now conducted.

         5.2  Authorization.  The  execution,  delivery and  performance  by the
Acquiror and Newco of this Agreement,  the Acquiror  Notes,  the Acquiror Pledge
Agreement,  the  Registration  Rights  Agreement,  the Consulting  Agreement and
Employment Offer Letters,  and the consummation by the Acquiror and Newco of the
transactions  contemplated hereby are within the respective  corporate powers of
the Acquiror and Newco and have been duly authorized by all necessary  corporate
action on the part of the Acquiror  and Newco.  Newco's  board of directors  has
unanimously adopted,  approved,  declared the advisability of and recommended to
the Acquiror this Agreement and the Merger. The Acquiror, as sole shareholder of
Newco,  has adopted and approved this  Agreement and the Merger.  This Agreement
constitutes  a valid and binding  agreement  of the  Acquiror  and Newco and the
Acquiror  Notes,  the  Acquiror  Pledge  Agreement,   the  Registration   Rights
Agreement,  the Consulting Agreement and Employment Offer Letters, when executed
and delivered on the Closing Date, will constitute valid and binding obligations
of the Acquiror.

         5.3 Governmental Authorization. The execution, delivery and performance
by the Acquiror and Newco of this Agreement,  the Acquiror  Notes,  the Acquiror
Pledge Agreement,  the Registration Rights Agreement,  the Consulting  Agreement
and the Employment Offer Letters

                                      -18-                      Merger Agreement

<PAGE>


require no action by or in respect of, or filing with,  any  governmental  body,
agency, official or authority.

         5.4 Non-Contravention.  The execution,  delivery and performance by the
Acquiror and Newco of this Agreement,  the Acquiror  Notes,  the Acquiror Pledge
Agreement,  the Registration Rights Agreement,  the Consulting Agreement and the
Employment Offer Letters do not and will not (a) contravene or conflict with the
certificate of  incorporation or bylaws of the Acquiror or Newco, (b) contravene
or conflict  with or constitute a violation of any provision of any provision of
any law,  regulation,  judgment,  injunction,  order or decree  binding upon the
Acquiror or Newco, (c) contravene or conflict with, or constitute a violation of
or default under any agreement,  contract or other  instrument  binding upon the
Acquiror or Newco.

         5.5 Title.  Upon the issuance and sale  contemplated by this Agreement,
each Company  Shareholder will own,  legally,  beneficially  and of record,  the
Acquiror  Shares  represented  by a  certificate  in the  name of  such  Company
Shareholder, subject to no Liens. All of the Acquiror Shares will have been duly
authorized and validly issued and will be fully paid and nonassessable.

         5.6  Capitalization.  The  authorized  capital  stock  of the  Acquiror
consists  of  300,000,000  shares  of  common  stock  and  60,000,000  shares of
preferred  stock.  As of the  date  hereof  and  the  Closing  Date,  there  are
17,785,114  shares of Acquiror  common stock issued and outstanding and options,
warrants  and rights to acquire an aggregate  of  16,131,815  shares of Acquiror
common  stock.  On or before the Closing Date the  Acquiror  will have filed the
Designation of Rights and  Preferences  of Series A Preferred  Stock in the form
attached  hereto as Exhibit G. Except as  described in this  Section,  as of the
date hereof and the Closing Date, there are no outstanding (i) shares of capital
stock or  other  voting  securities  of the  Acquiror,  (ii)  securities  of the
Acquiror  convertible into or exchangeable for shares of capital stock or voting
securities  of the Acquiror or (iii) options or other rights to acquire from the
Acquiror, or obligations of the Acquiror to issue, deliver,  repurchase,  redeem
or  otherwise  acquire  any  capital  stock,  voting  securities  or  securities
convertible into or exchangeable  for capital stock or voting  securities of the
Acquiror (whether or not now exercisable).

         5.7 Financial  Statements.  The audited balance sheet, income statement
and  statement  of cash flows of the  Acquiror at December  31, 1999 and for the
fiscal year of the Acquiror  then ended,  which are  included in the  Acquiror's
Form 10-K/A filed pursuant to the 1934 Act, fairly  present,  in accordance with
generally accepted accounting principles, the financial position of the Acquiror
as of the date  thereof  and the  results of  operations  and cash flows for the
period then ended. The Financial Statements presented to the Company on February
22, 2001 for fiscal year 2000,  fairly  present,  in accordance  with  generally
accepted accounting principles, the financial position of the Acquiror as of the
date  thereof and the results of  operations  and cash flows for the period then
ended, subject to normal year-end adjustments.

         5.8 Absence of Certain Changes.  Since December 31, 1999, there has not
been any material adverse change in the business,  assets,  condition (financial
or otherwise),  result of operations or prospects of the Acquiror, or any event,
occurrence, development or state of

                                      -19-                      Merger Agreement

<PAGE>


circumstances  or facts which could  reasonably  be expected to result in such a
material adverse change.

         5.9 Compliance with Laws; No Defaults. The Acquiror is not in violation
of, and has not since  December 31, 1999 violated,  any applicable  provision of
any laws,  statutes,  ordinances or regulations,  including  without  limitation
Acquiror's  listing  agreement  with the  American  Stock  Exchange,  except for
violations  that have not had and  would not  reasonably  be  expected  to have,
individually  or in the  aggregate,  a material  adverse effect on the condition
(financial or otherwise),  business,  assets, results of operations or prospects
of the Acquiror.  The Acquiror is not in default under,  and no condition exists
that with notice or lapse of time or both would  constitute a default under, (i)
any agreement  relating to Debt of the Acquiror or (ii) any  judgment,  order or
injunction of any court,  arbitrator or governmental body,  agency,  official or
authority.

         5.10 Finders' Fees. There is no investment  banker,  broker,  finder or
other  intermediary which has been retained by or is authorized to act on behalf
of the Acquiror who might be entitled to any fee or commission from the Company,
any Company  Shareholder or any of their  Affiliates  upon  consummation  of the
transactions contemplated by this Agreement.

         5.11 SEC Filings.  The  Acquiror  has filed all reports  required to be
filed  with the  Securities  and  Exchange  Commission  since  January  1,  1999
(collectively, the "Acquiror SEC Reports"). None of the Acquiror SEC Reports, as
of their  respective  dates (as amended through the date hereof),  contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated  therein or necessary to make the statements  therein,  in light of
the circumstances  under which they were made, not misleading.  The Acquiror SEC
Reports,  taken together with this Agreement and the other information regarding
the Acquiror  provided to Michael Boren,  David Boren and Doug Bates on February
22,  2001 by the  Acquiror,  do not, as of the date hereof and as of the Closing
Date,  contain  any  untrue  statement  of a  material  fact or omit to  state a
material fact  necessary in order to make the statements  contained  therein not
misleading.

         5.12  Company  Information.  The  Acquiror  has  received  and reviewed
information  about the Company,  has had an opportunity to discuss the Company's
business,  management,  and financial  affairs with its management and to review
the Company's  facilities.  The Acquiror understands that these discussions,  as
well as any written information issued by the Company, were intended to describe
the aspects of the Company's  business and prospects that the Company  considers
material,  but were not necessarily  exhaustive.  The Acquiror  understands that
certain  material  provided by the Company contains  forward-looking  statements
relating to future events or future financial performance that involve risks and
uncertainties  that may cause the Company's actual results to differ  materially
from  any  forward-looking   statement.   The  Acquiror  understands  that  such
statements are only  projections of possible  outcomes and that actual events or
results may differ materially. The foregoing,  however, does not limit or modify
the representations and warranties of the Company in Section 4 of this Agreement
or the right of the Acquiror to rely thereon.

                                      -20-                      Merger Agreement

<PAGE>


            6. Covenants of the Company and the Company Shareholders

         6.1 Conduct of the Company's  Business.  From the date hereof until the
Closing  Date,  the Company  shall  conduct its business in the ordinary  course
consistent with past practice and use its reasonable  efforts to preserve intact
its  business  organization  and  relationships  with  third  parties  and  keep
available the services of its present  officers and employees.  Without limiting
the  generality of the  foregoing,  from the date hereof until the Closing Date,
the Company agrees that it shall not:

              (i) adopt any change in its articles of incorporation or bylaws;

              (ii)  merge or  consolidate  with any other  Person  or  acquire a
         material amount of assets of any other Person;

              (iii) sell,  lease,  license or otherwise  dispose of any material
         assets or property except pursuant to existing contracts or commitments
         and in the ordinary course consistent with past practice;

              (iv) pay or discharge  any  liability or obligation of the Company
         except  when the  same  becomes  due and  payable  (or,  in the case of
         ordinary trade obligations  arising in the ordinary course of business,
         in the ordinary course consistent with past practice); or

              (v) agree or commit to do any of the foregoing.

The  Company  shall not (a) take or agree to take any action that would make any
representation  and warranty of the Company or any Company  Shareholder  in this
Agreement  (including without limitation the  representations  and warranties in
Section 4.9 (p. 14))  inaccurate  in any respect at, or as of any time prior to,
the Closing  Date or (ii) omit or agree to omit to take any action  necessary to
prevent any such representation or warranty from being inaccurate in any respect
at any such time.

         6.2 Other Offers.  Until after the Closing Date or earlier  termination
of this Agreement, neither the Company, any Company Shareholder nor any officer,
director, employee or agent of any of them shall, directly or indirectly:

              (i) take any action to solicit, initiate or encourage any offer or
         proposal  for,  or any  indication  of  interest  in, a merger or other
         business  combination  involving the Company, or the acquisition of any
         equity  interest in the Company,  or the  acquisition  of a substantial
         portion of the assets of the Company (other than the  transaction  with
         the  Acquiror   contemplated  by  this   Agreement)  (an   "Acquisition
         Proposal"); or

              (ii)  subject,  in the case of the Company  only, to the fiduciary
         duties of the board of directors of the Company under  applicable  law,
         as  advised  by  legal  counsel  of  recognized  expertise,  engage  in
         negotiations with, or disclose any non-public  information  relating to
         the Company to, or afford access to the properties, books or records of
         the Company to, any Person that may be considering making, or has made,
         an Acquisition Proposal.

The Company and each  Company  Shareholder  shall  promptly  notify the Acquiror
after it receives any Acquisition  Proposal or any indication that any Person is
considering  making an  Acquisition  Proposal,  or any  request  for  non-public
information relating to the Company, or for

                                      -21-                      Merger Agreement

<PAGE>

access to the properties, books or records of the Company by any Person that may
be considering making, or has made, an Acquisition Proposal,  and shall keep the
Acquiror fully informed as to the status and details of any Acquisition Proposal
or such indication or request.

         6.3 Access to Information. From the date hereof until the Closing Date,
the  Company  and each  Company  Shareholder  (a) shall give the  Acquiror,  its
counsel, financial advisors,  auditors and other authorized representatives full
access to the offices,  properties,  books and records of the Company, (b) shall
furnish to the Acquiror,  its counsel,  financial  advisors,  auditors and other
authorized   representatives   such  financial  and  operating  data  and  other
information  relating to the Company as such Persons may reasonably  request and
(c) shall instruct the employees,  counsel and financial advisors of the Company
to cooperate  with the Acquiror in its  investigation  of the Company;  provided
that no investigation  pursuant to this Section shall affect any  representation
or  warranty  given by the  Company or any Company  Shareholder  hereunder.

         6.4 Confidentiality.  Before the Closing Date and after any termination
of this  Agreement,  the Company and each Company  Shareholder  shall hold,  and
shall  use its  best  efforts  to  cause  its  officers,  directors,  employees,
accountants,  counsel, consultants,  advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or  administrative  process or by other
requirements  of law, all  documents  and  information  concerning  the Acquiror
furnished  to the  Company or any Company  Shareholder  in  connection  with the
transactions  contemplated  by this  Agreement,  except to the extent  that such
information can be shown to have been (a) previously known on a non-confidential
basis by the Company or such Company Shareholder, (b) in the public domain other
than by reason of the  violation  of this  Section  by the  Company or a Company
Shareholder  or (c) later  lawfully  acquired  by the  Company  or such  Company
Shareholder  from  sources  other  than the  Acquiror  and not in  breach of any
confidentiality agreement with the Acquiror;  provided that the Company and each
Company  Shareholder may disclose such  information to its officers,  directors,
employees,  accountants, counsel, consultants, advisors and agents in connection
with the  transactions  contemplated by this Agreement,  so long as such Persons
are  informed by the Company or such  Company  Shareholder  of the  confidential
nature of such  information  and are  directed  by the  Company or such  Company
Shareholder  to treat such  information  confidentially.  The  obligation of the
Company to hold any such  information  in  confidence  shall be  satisfied if it
exercises  the same care with  respect to such  information  as it would take to
preserve the confidentiality of its own similar  information.  If this Agreement
is terminated, the Company and each Company Shareholder shall, and shall use its
best efforts to cause its officers, directors, employees,  accountants, counsel,
consultants,  advisors and agents to,  destroy or deliver to the Acquiror,  upon
request, all documents and other materials, and all copies thereof,  obtained by
or on behalf of the  Company or any  Company  Shareholder  from the  Acquiror in
connection with this Agreement that are subject to such confidence.

                                      -22-                      Merger Agreement
<PAGE>

         6.5 Notices of Certain Events. The Company and each Company Shareholder
shall promptly notify the Acquiror of:

              (i) any notice or other  communication  from any  Person  alleging
         that the consent of such  Person is or may be  required  in  connection
         with the transactions contemplated by this Agreement;

              (ii) any notice or other  communication  from any  governmental or
         regulatory  agency or authority  in  connection  with the  transactions
         contemplated by this Agreement; and

              (iii) any actions,  suits,  claims,  investigations or proceedings
         commenced  or, to its  knowledge  threatened  against,  relating  to or
         involving or otherwise affecting the Company or any Company Shareholder
         that,  if  pending  on the  date of this  Agreement,  would  have  been
         required to have been  disclosed  pursuant  to Section  4.12 (p. 15) or
         that relate to the  consummation  of the  transactions  contemplated by
         this Agreement.

         6.6  Approvals.  The Company and the Company  Shareholders  jointly and
severally agree to use reasonable efforts to obtain all consents, authorizations
or approvals  required for completion of the transactions  contemplated  hereby.

         6.7  Public   Announcements.   Neither  the  Company  nor  any  Company
Shareholder  shall  issue any press  release or make any public  statement  with
respect to this Agreement or the  transactions  contemplated  hereby without the
prior written consent of the Acquiror (as to, among other things, the content of
such press release).

         6.8 Transfer  Taxes.  The Company  Shareholders  shall pay when due all
Transfer Taxes imposed on the Company  Shareholders  as a result of any transfer
of  Company  Shares  to  Acquiror  pursuant  to  the  Merger,  and  the  Company
Shareholders  jointly and  severally  agree to indemnify  and hold  harmless the
Acquiror and the Company from and against any such Transfer Taxes.

         6.9  Shareholder  Actions.  Each  Company  Shareholder  shall  take all
actions  available to it to cause the Company to comply with the  covenants  set
forth in this Article 6,  including but not limited to voting its Company Shares
in  opposition  to any action that would  violate such  covenants and voting its
Company  Shares in favor of actions  taken to cause the  Company to comply  with
such covenants (including without limitation the removal of directors).


                             7. Acquiror Covenants

         7.1 Confidentiality.  Before the Closing Date and after any termination
of this  Agreement,  the Acquiror  shall hold, and shall use its best efforts to
cause its officers,  directors,  employees,  accountants,  counsel, consultants,
advisors  and agents to hold,  in  confidence,  unless  compelled to disclose by
judicial  or  administrative  process  or by  other  requirements  of  law,  all
documents and  information  concerning the Company  furnished to the Acquiror in
connection with the transactions  contemplated by this Agreement,  except to the
extent that such information can be shown to have been (a) previously known on a
non-confidential  basis by the Acquiror,  (b) in the public domain other than by
reason  of the  Acquiror's  violation  of this  Section  or (c)  later  lawfully
acquired by the Acquiror from sources other than a Company Shareholder or

                                      -23-                      Merger Agreement

<PAGE>


the Company and not in breach of any confidentiality  agreement with the Company
or the Company  Shareholders;  provided  that the  Acquiror  may  disclose  such
information  to  its  officers,  directors,  employees,   accountants,  counsel,
consultants,   advisors  and  agents  in   connection   with  the   transactions
contemplated  by this  Agreement,  so long as such  Persons are  informed by the
Acquiror of the confidential  nature of such information and are directed by the
Acquiror  to  treat  such  information  confidentially.  The  obligation  of the
Acquiror to hold any such  information  in  confidence  shall be satisfied if it
exercises  the same care with  respect to such  information  as it would take to
preserve the confidentiality of its own similar  information.  If this Agreement
is terminated,  the Acquiror shall,  and shall use its best efforts to cause its
officers, directors, employees,  accountants, counsel, consultants, advisors and
agents to,  destroy or deliver to the Company,  upon request,  all documents and
other  materials,  and all  copies  thereof,  obtained  by or on  behalf  of the
Acquiror from the Company  Shareholders  and the Company in connection with this
Agreement that are subject to such confidence.

         7.2 Director.  The Acquiror shall use its best efforts to cause Michael
Boren and David Boren to be  nominated  and elected to the board of directors of
the Acquiror as soon as reasonably practicable after the Merger Time, subject to
the following conditions precedent:  (i) they shall cooperate in the preparation
of the relevant proxy  statement and furnish all  information  required for such
proxy  statement  and (ii) they  shall not have  been  convicted  of a felony or
violation of any  securities  laws,  or otherwise be  unqualified  to serve as a
director of the Acquiror.

         7.3 Officers and Directors Insurance Coverage.  For at least five years
after the Merger Time the Buyer shall use its best efforts to provide  officers'
and directors'  liability  insurance  covering the Person referred to in Section
7.2 on terms no less favorable than customarily  maintained by similar companies
(and  in  any   event  on  terms  no  less   favorable   than   maintained   for
similarly-situated directors of the Acquiror).

         7.4 Stock Ownership After Merger.

         (a) Maintenance of Ownership of Newco.  Until the first  anniversary of
the Closing Date, the Acquiror shall not,  without the prior written approval of
the Majority Company Shareholders (which shall not unreasonably be withheld):

              (i) take any action,  or cause or permit  Newco to take any action
         (including   without  limitation  the  issuance,   sale,   transfer  or
         disposition  of any  capital  stock of Newco or options or  warrants to
         acquire  capital stock of Newco,  the  modification of the terms of any
         outstanding  securities  of Newco or any  recapitalization  or  similar
         transaction),  if as a result  the  Acquiror  would (x) own less than a
         majority of the outstanding  common stock of Newco,  (y) be entitled to
         less  than a  majority  of the  votes  to be  cast in the  election  of
         directors  of Newco or (z) be entitled to less than 50% of the value to
         be distributed on liquidation of Newco (in each case on a fully-diluted
         basis,  i.e.  assuming  exercise of all options and warrants to acquire
         capital stock of Newco);

              (ii)  cause  or  permit  Newco  to  sell  or  dispose  of  all  or
         substantially  all of its  assets or to merge,  consolidate  or combine
         with any other Person; or

                                      -24-                      Merger Agreement

<PAGE>


              (iii) cause or permit  Newco to issue any  capital  stock of Newco
         (or  options or  warrants  to acquire  capital  stock of Newco or other
         securities  convertible  into capital  stock of Newco)  ("Newco  Equity
         Securities") except that, so long as clause (i) above is not violated:

         (x)  Newco may issue stock  options,  stock  purchase  rights and stock
              bonuses to employees, consultants, officers and directors of Newco
              as compensation for services performed for Newco and

         (y)  if Newco shall first have given the Company Shareholders, not less
              than 30 days before particular Newco Equity Securities are issued:

              (A)   a notice  setting forth the price at which Newco proposes to
                    issue such Newco  Equity  Securities,  the general  terms of
                    such  Newco  Equity  Securities  and the  maximum  number or
                    amount of such Newco Equity  Securities  that it proposes to
                    issue (a "Newco Issuance Notice") and

              (B)   a form of  subscription  agreement  pursuant  to which  each
                    Company  Shareholder may commit to purchase the Newco Equity
                    Securities  described in such Newco Issuance Notice,  at the
                    price  and on the terms  described  in such  Newco  Issuance
                    Notice,  up to a maximum number or amount to be specified by
                    such Company Shareholder (a "Newco Subscription  Agreement")
                    (it  being  understood  that  Newco  may  impose  a  minimum
                    subscription  requirement  on the  Company  Shareholders  by
                    describing it in such Newco Issuance  Notice,  provided that
                    the minimum subscription shall not in any event have a price
                    in excess of $25,000);

              then Newco may issue the Newco Equity Securities described in such
              Newco Issuance  Notice at any time or from time to time during the
              180-day period following the date of such Newco Issuance Notice at
              the price set forth in such Newco Issuance Notice (or a price that
              is less  favorable to the  purchaser) and up to the maximum number
              or amount set forth in such Newco Issuance  Notice,  provided that
              if any Company Shareholder that properly  completed,  executed and
              delivered a Newco Subscription  Agreement within 20 days after the
              date of such Newco Issuance Notice is not given the opportunity to
              purchase  the  maximum  number  or  amount  of such  Newco  Equity
              Securities  that it subscribed  for:


              (1)   Newco shall not issue any such Newco  Equity  Securities  to
                    any  Person  other  than a Company  Shareholder  unless  the
                    aggregate  amount or number of such Newco Equity  Securities
                    issued  to the  Company  Shareholders  is not less  than the
                    amount or number of such Newco Equity  Securities  issued to
                    other Persons  (i.e.  not less than 50% of such Newco Equity
                    Securities are issued to Company Shareholders); and

              (2)   if there is more  than one  such  Company  Shareholder,  the
                    number or amount of Newco Equity  Securities  that each such
                    Company  Shareholder  is given the  opportunity  to purchase
                    shall be allocated among them in proportion to the number of
                    Company Shares each held immediately before the Merger.

                                      -25-                      Merger Agreement

<PAGE>


A Company  Shareholder  who subscribes for Newco Equity  Securities  may, at its
option,  pay all or a  portion  of the  purchase  price  for such  Newco  Equity
Securities  by  transferring  to Newco the Acquiror Note payable to such Company
Shareholder,  and Newco will treat each  Acquiror Note so  transferred  as if it
were cash in an amount equal to its principal  amount plus the amount of accrued
and unpaid interest at the date so transferred.

         (b)  Protection  of Pledged  Stock.  Until  payment  of all  principal,
interest and other amounts  payable on the Acquiror  Notes,  the Acquiror  shall
not,  without the prior written  approval of the Majority  Company  Shareholders
(which shall not unreasonably be withheld;  it being  acknowledged that it shall
be reasonable  for the Majority  Company  Shareholders  to withhold such consent
unless Acquiror secures or provides other reasonably  satisfactory  assurance of
its ability to pay when due all amounts outstanding under the Acquiror Notes):

              (i) take any action,  or cause or permit  Newco to take any action
         prohibited by subsection (a);

              (ii) cause or permit Newco to issue capital stock to the Acquiror;

              (iii)  sell,  transfer or dispose of, or create or suffer to exist
         any Lien on, the  shares of Newco  common  stock held by the  Acquiror,
         other than  pursuant to the Acquiror  Pledge  Agreement;  (iv) cause or
         permit Newco to incur any  indebtedness  for borrowed money; (v) create
         or suffer to exist any Lien on any assets of Newco;

              (vi)  cause or permit  Newco to sell,  transfer  or dispose of any
         assets of Newco, other than sales in the ordinary course of business or
         in exchange  for fair market  value and other than the  disposition  or
         abandonment  of assets that are obsolete or no longer usable in Newco's
         business; or

              (vii)  cause or  permit  Newco to issue  options  or  warrants  to
         purchase  Newco's capital stock unless:  (A) the exercise price thereof
         is not less  than the fair  market  value of such  stock at the time of
         issuance  of such  option or  warrant,  as  determined  by the Board of
         Directors of Newco,  and (B) the aggregate number of shares issuable on
         exercise of such options, if issued, would not (x) constitute more than
         10% of the outstanding  common stock of Newco,  (y) entitle the holders
         in the  aggregate  to  more  than  10% of the  votes  to be cast in the
         election  of  directors  of  Newco or (z)  entitle  the  holder  in the
         aggregate  to  more  than  10%  of  the  value  to  be  distributed  on
         liquidation of Newco.

         7.5 Approvals.  The Acquiror shall obtain all consents,  authorizations
or approvals required for it to complete the Merger.

         7.6  Public  Announcements.   The  Acquiror  shall  consult  the  chief
executive  officer of the Company before issuing any press release or making any
public statement with respect to this Agreement or the transactions contemplated
hereby and, except as may be required by applicable law or any listing agreement
with any national securities exchange, shall not issue any such press release or
make any such public statement prior to such consultation.

                                      -26-                      Merger Agreement

<PAGE>


         7.7 Federal Tax Cooperation.  At all times before and after the Closing
Date,  the Acquiror and Newco shall treat the Merger as a  reorganization  under
Section 368(a) of the Internal  Revenue Code and shall prepare,  sign,  file and
prepare  returns and other  documents,  and take other  actions and refrain from
taking other actions, so that the Merger will qualify as a reorganization  under
Section 368(a) of the Internal  Revenue Code and comparable  provisions of state
or local law.  Neither the  Acquiror  nor Newco,  nor the Company or any Company
Shareholder,  however,  is making any  representation  as to, or undertaking any
liability on account of, the  characterization  or treatment of the transactions
contemplated hereby for the purpose of United States federal income taxes or any
other Tax  measured  by the net or gross  income of any  party,  other than as a
result of a failure to comply with this Section 7.7 or Section 7.9.

         7.8 Transfer Taxes.  The Acquiror shall pay when due all Transfer Taxes
imposed  as a result  of any  transfer  of  Acquiror  Shares or  Acquiror  Notes
pursuant to the Merger,  and the Acquiror  agrees to indemnify and hold harmless
the Company Shareholders from and against any such Transfer Taxes.

         7.9 Certain Tax Matters.

         (a) Prior to and at the  Merger  Time,  Acquiror  will be in control of
Newco  within  the  meaning  of  Section  368(c) of the  Internal  Revenue  Code
("Control"),  and  Acquiror  has no plan or intention to cause or allow Newco to
issue  additional  shares of its stock  that  would  result in  Acquiror  losing
Control of Newco.

         (b)  Following  the Merger,  Acquiror  (or  members of its  "affiliated
group," as defined in Section 1.368-1(d)(4)(ii) of the Treasury Regulations,  or
a  partnership   described  in  Section   1.368-1(d)(4)(iii)   of  the  Treasury
Regulations) will cause Newco to continue the Company's  historic business or to
use a significant  portion of its historic  business assets in a business within
the meaning of Section 1.368-1(d) of the Treasury Regulations.

         (c) Acquiror has no plan or intention to do any of the  following:  (a)
liquidate Newco; (b) merge Newco with and into another corporation;  (c) sell or
otherwise dispose of the stock of Newco; or (d) cause Newco to sell or otherwise
dispose  of any of its assets or any of the assets  acquired  from the  Company,
except for (A)  dispositions  of assets made in the ordinary course of business,
or (B) transfers  expressly  permitted by Section  368(a)(2)(C)  of the Internal
Revenue Code.

         (d) Neither Acquiror nor Newco is (a) an investment  company as defined
in  Section  368(a)(2)(F)  of  the  Internal  Revenue  Code,  or (b)  under  the
jurisdiction  of a court in a case under Title 11 of the United States Code or a
similar case within the meaning of Section  368(a)(3)(A) of the Internal Revenue
Code.

         (e) The payment of cash in lieu of fractional  shares of Acquiror stock
is solely for the purpose of avoiding the expense and  inconvenience to Acquiror
of issuing  fractional  shares and does not represent  separately  bargained for
consideration.

         7.10 1934 Act Filings.  With a view to making  available to the Company
shareholders  the benefits of Rule 144 and any other rule or  regulation  of the
SEC that may at any time permit

                                      -27-                      Merger Agreement

<PAGE>


a Company shareholder to sell securities of the Acquiror to  the  public without
registration, the Acquiror agrees to:

(a) make and keep public  information  available,  as those terms are understood
and  defined in Rule 144;

  (b) file with the SEC in a timely  manner all reports
and other  documents  required of the  Acquiror  under the 1933 Act and the 1934
Act;  and

 (c)  furnish  to any  Company  shareholders,  so  long as the  Company
shareholders  owns any  Acquiror  Shares,  promptly  upon  request (i) a written
statement by the Acquiror that it has complied  with the reporting  requirements
of Rule 144, the 1933 Act, and the 1934 Act; and (ii) such other  information as
may be reasonably  requested in availing any Company  shareholder of any rule or
regulation of the SEC which permits the selling of any such  securities  without
registration.

                               8. Investor Matters

         8.1  Representations  and Warranties.  Each Company  Shareholder hereby
represents and warrants as to itself that:

         (a) Such Company Shareholder is an "accredited  investor" as defined in
Rule 501 of Regulation D issued under the 1933 Act.

         (b) Such Company  Shareholder,  either alone or with the  assistance of
such  Company  Shareholder's  professional  advisors,  has  such  knowledge  and
experience  in financial  and business  matters that it is capable of evaluating
the merits and risks of such Company Shareholder's investment in the Acquiror.

         (c) Such Company  Shareholder  has either  spoken or met with,  or been
given reasonable opportunity to speak with or meet with,  representatives of the
Acquiror  for the  purpose of asking  questions  of, and  receiving  answers and
information  from, such  representatives  concerning such Company  Shareholder's
investment in the Acquiror.

         (d) Such Company  Shareholder has sufficient  financial resources to be
able to bear the risk of such Company Shareholder's investment in the Acquiror.

         (e) Such Company  Shareholder  will acquire the Acquiror Shares for its
own  account  for  investment  purposes  and not with a view  toward the sale or
distribution of all or any part of the Acquiror  Shares.  No one other than such
Company  Shareholder  will have any beneficial  interest in the Acquiror  Shares
acquired by such Company Shareholder.

         8.2 Securities  Legended and Not Registered.  Each Company  Shareholder
understands and agrees that, because the Acquiror Shares will not be Registered,
(i) the  Acquiror  Shares  will have the  status  of  securities  acquired  in a
transaction  under  Section 4(2) of the 1933 Act;  and (ii) the Acquiror  Shares
cannot  be  sold  unless  it  or  they  are  Registered  or  an  exemption  from
Registration is available.  Each Company  Shareholder  agrees that it will in no
event sell or distribute all or any part of the Acquiror Shares unless (a) there
is an effective  registration

                                      -28-                      Merger Agreement

<PAGE>


statement under the 1933 Act and applicable  state  securities laws covering any
such transaction  involving the Acquiror Shares or (b) the Acquiror  receives an
opinion of counsel for such  Company  Shareholder  of  recognized  expertise  in
securities  regulation,  in form  and  substance  reasonably  acceptable  to the
Acquiror, stating that such transaction is exempt from Registration,  or (3) the
Acquiror  otherwise  satisfies  itself  that such  transaction  is  exempt  from
Registration.

         Such Company Shareholder consents to (A) the placing of a legend to the
foregoing effect on all certificates  representing the Acquiror Shares,  stating
that such  securities have not been Registered and setting forth the restriction
on transfer  contemplated hereby and (B) the placing of a stop transfer order on
the books of the  Acquiror  and with any  transfer  agents  against the Acquiror
Shares,  as deemed  necessary by the Acquiror to comply with such  restrictions.
Each Company  Shareholder  understands that, except pursuant to the Registration
Rights Agreement,  the Acquiror has no obligation to such Company Shareholder to
Register  the  Acquiror  Shares,   and  has  not  represented  to  such  Company
Shareholder that it will Register the Acquiror Shares.

                          9. Survival; Indemnification

         9.1 Survival. The covenants, agreements, representations and warranties
of the Acquiror and each Company  Shareholder (but not the Company) contained in
this Agreement or in any certificate or other writing delivered  pursuant hereto
or in connection  herewith shall survive until eighteen months after the Closing
Date or, in the case of the representations and warranties contained in Sections
4.2, 4.5, 4.15, 4.17, 4.18, 4.19, 5.2, 5.5, and 5.10 and the covenant  contained
in Section 6.8 (p. 24), until  expiration of the applicable  statutory period of
limitations (giving effect to any waiver,  mitigation or extension thereof),  if
later.   Notwithstanding  the  preceding  sentence,  any  covenant,   agreement,
representation  or warranty in respect of which  indemnity  may be sought  under
Section  9.2  shall  survive  the time at which  it  would  otherwise  terminate
pursuant to the preceding  sentence,  if written notice in reasonable  detail of
the inaccuracy or breach  thereof  giving rise to such right to indemnity  shall
have been given to the party against whom such  indemnity may be sought prior to
such time.  The  covenants,  agreements,  representations  and warranties of the
Company contained in this Agreement shall expire upon the closing of the Merger.

         9.2 Indemnification.

         (a) The Company  Shareholders shall jointly and severally indemnify the
Acquiror  (and,  effective at the Closing Date, the Company)  against,  and hold
them  harmless  from,  any and all  damages,  losses,  liabilities  and expenses
(including   without  limitation   reasonable   expenses  of  investigation  and
reasonable  attorneys' fees and expenses in connection with any action,  suit or
proceeding) (other than Company Closing Liabilities, to the extent the principal
amount of the Acquiror  Notes and the number of Acquiror  Shares  delivered  are
reduced on account thereof pursuant to Section 2.5 (p. 9)) ("Damages")  incurred
or suffered by the Acquiror or the Company arising out of any  misrepresentation
or breach of  warranty,  covenant or  agreement  made or to be  performed by any
Company Shareholder pursuant to this Agreement,  provided in the case of Damages
arising  out of any  Company  Shareholder's  misrepresentation  or  breach  of a

                                      -29-                      Merger Agreement

<PAGE>


provision of Article 8, each Company  Shareholder's  indemnity shall extend only
to Damages arising out of its own  misrepresentation  or breach, and not that of
other Company Shareholders.

         (b) The  Company  Shareholders  shall have no  obligation  pursuant  to
subsection  (a) unless  the total  amount  that would be payable by the  Company
Shareholders  to the  Acquiror  pursuant  to such  subsection  for  all  Damages
indemnified  hereunder  (without  regard to the  limitation in this  subsection)
exceeds $200,000.  After the Merger Time, no Company  Shareholder shall have any
obligation   to  the  Acquiror  on  account  of  Damages   arising  out  of  any
misrepresentation  or breach of warranty,  covenant or  agreement  made or to be
performed  by any Company  Shareholder  pursuant to this  Agreement  (other than
those in Articles 2, 6 and 8), except pursuant to subsection (a). The Acquiror's
recourse for the obligations of the Company Shareholders  pursuant to subsection
(a)  shall be  limited  to the  remedies  set  forth in the  Shareholder  Pledge
Agreement.

         (c) The Acquiror hereby  indemnifies each Company  Shareholder  against
and agrees to hold them harmless  from any and all Damages  incurred or suffered
arising  out of  any  misrepresentation  or  breach  of  warranty,  covenant  or
agreement  made or to be  performed  by the  Acquiror or Newco  pursuant to this
Agreement.

         (d) After the Merger Time,  neither the Acquiror nor the Company  shall
have any obligation to the Company  Shareholders  on account of Damages  arising
out of any  misrepresentation or breach of warranty,  covenant or agreement made
or to be performed by the Acquiror  pursuant to this Agreement (other than those
in Articles 2 and 7), except pursuant to subsection (c).

         9.3 Procedures.

         (a)  The  party   seeking   indemnification   under  Section  9.2  (the
"Indemnified  Party")  agrees to give prompt  notice to the party  against  whom
indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought.  The  Indemnifying  Party may at the  request of the  Indemnified
Party  participate  in and  control  the  defense  of any such  suit,  action or
proceeding at its own expense,  provided that failure by the Indemnifying  Party
to notify the  Indemnified  Party of its  election to control the defense of any
such suit,  action or proceeding within 30 days after notice thereof is given to
the Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its
right  to  control  the  defense  of  such  suit,  action  or  proceeding.   The
Indemnifying  Party  shall  not,  in the  defense  of any such  suit,  action or
proceeding,  consent to the entry of any  judgment or enter into any  settlement
(except,  in each case, with the written consent of the Indemnified Party, which
consent shall not  unreasonably be withheld)  which does not include,  as to the
Indemnified  Party, an unconditional  release of the Indemnified  Party from any
and all liability in respect of such suit, claim or proceeding.  The Indemnified
Party shall  cooperate  reasonably  in the  defense of any such suit,  action or
proceeding.

         (b) If the Indemnifying  Party does not assume the defense of any suit,
action or  proceeding,  the  Indemnified  Party may  defend,  but shall  have no
obligation to defend, against such suit, action or proceeding in any manner that
it may deem  appropriate  and, unless the

                                      -30-                      Merger Agreement

<PAGE>


Indemnifying  Party deposits with the Indemnified  Party a sum equivalent to the
total amount  demanded in such suit,  claim or proceeding  plus the  Indemnified
Party's  estimate of the cost of defending the same, the  Indemnified  Party may
settle such claim or litigation on such terms as it may deem appropriate and the
Indemnifying Party shall promptly reimburse the Indemnified Party for the amount
of such settlement and for all losses and expenses, legal or otherwise, incurred
by the Indemnified Party in connection with the defense against or settlement of
such claim or litigation.

                                10. Termination

         10.1 Grounds for  Termination.  This Agreement may be terminated at any
time prior to  satisfaction  of the conditions  precedent to be satisfied on the
Closing Date:

              (i)  by  mutual   written   agreement  of  the  Majority   Company
         Shareholders and the Acquiror;

              (ii) by the Majority Company  Shareholders upon (x) the failure on
         the Closing Date of a condition to the Company Shareholders' obligation
         to consummate  the Merger set forth in Section 3.3 (p. 11), but only if
         the  conditions  set forth in Sections  3.1 and 3.2 are  satisfied  (or
         satisfaction  of such  conditions  is  tendered  by the Company and the
         Company  Shareholders)  on or before the  Closing  Deadline  or (y) the
         repudiation  by the  Acquiror  of  this  Agreement  or its  obligations
         hereunder in writing or breach by the Acquiror of its obligations under
         Article 7 (p. 25),  if the  Acquiror  fails to cure such breach  within
         five  Business  Days after  written  notice from the  Majority  Company
         Shareholders specifying such breach and referring to this Section;

              (iii) by the Acquiror  upon (x) the failure on the Closing Date of
         a condition to the  Acquiror's  obligation to consummate the Merger set
         forth in Section 3.2 (p. 10), but only if the  conditions  set forth in
         Sections 3.1 and 3.3 are satisfied (or  satisfaction of such conditions
         is tendered by the  Acquiror) on or before the Closing  Deadline or (y)
         the  repudiation  by the  Company or any  Company  Shareholder  of this
         Agreement  or its  obligations  hereunder  in  writing or breach by the
         Company or any Company  Shareholder of its obligations  under Article 6
         (p. 22), if the Company or such Company  Shareholder fails to cure such
         breach within five Business Days after written notice from the Acquiror
         to the Company  Shareholders  specifying  such breach and  referring to
         this Section;

              (iv) by either the Acquiror or the Majority Company  Shareholders,
         upon the failure on the Closing  Date of a  condition  to all  parties'
         obligations  set forth in Section  3.1 (p. 10), or if the Merger is not
         consummated in circumstances other than those described in clauses (ii)
         and (iii) above.

The party or parties  desiring to terminate this Agreement  shall give notice of
such termination to the other party or parties.

         10.2 Effect of Termination. If this Agreement is terminated, each party
shall remain  fully  liable for any and all Damages  incurred or suffered by the
another party as a result of such party's breach of this Agreement.

                                      -31-                      Merger Agreement

<PAGE>


                                11. Miscellaneous

         11.1 Notices. All notices and other  communications  hereunder shall be
in writing (including facsimile transmission),  and shall be given to each party
at the address or  telecopier  number set forth under its name on the  signature
page  hereof,  or such  other  address  or  telecopier  number as such party may
hereafter  specify for the  purpose by notice to the other.  Each such notice or
other communication shall be effective (a) if given by mail, 72 hours after such
communication  is  deposited  in the mails with  first  class  postage  prepaid,
addressed  as  aforesaid  or (b)  otherwise,  when  delivered  at the address or
received at the telecopier number specified in this Section.

         11.2  Amendment;  No  Waivers;   Integration.  Any  provision  of  this
Agreement may be amended or waived if, and only if, such  amendment or waiver is
in writing and signed, in the case of an amendment, by the Acquiror, the Company
and the Majority Company  Shareholders or, in the case of a waiver, by the party
against whom the waiver is to be effective (or, in the case of waiver that is to
be  effective  against  any  Company   Shareholder,   by  the  Majority  Company
Shareholders).  No failure or delay by any party in exercising any right,  power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided by law.  This  Agreement,  together  with the  exhibits  and  schedules
hereto,  constitutes the entire  agreement among the parties with respect to the
subject  matter  hereof  and  supersedes  all  prior  agreements,  term  sheets,
understandings and negotiations, both written and oral, among any of the parties
with respect to the subject matter of this Agreement.

11.3     Expenses.

         All costs and expenses incurred in connection with this Agreement shall
be paid by the  party  incurring  such  cost or  expense,  except  as  otherwise
expressly agreed in this Agreement, including without limitation in Sections 2.4
(p. 8). Without limiting the generality of the foregoing, the Company shall bear
all expenses incurred by the Company through the Closing Date, including without
limitation  all fees and  expenses of Stoel Rives LLP,  counsel to the  Company,
Balukoff   Lindstrom  &  Co.,  the  Company's   auditors,   and  any  "purchaser
representative"  (as  defined  in Rule 502 of  Regulation  D under the 1933 Act)
which  may  be  retained  by the  Company  to  represent  one  or  more  Company
shareholders,  but  shall  not  bear  the  costs  and  expenses  of the  Company
Shareholders (or their counsel,  to the extent they are separately  represented)
in  negotiating  and  entering  into this  Agreement,  providing  due  diligence
information to the Acquiror, or complying with their obligations hereunder.

         11.4 Continuation of  Attorney-Client  Privilege.  The Company has been
represented by counsel in connection with the transactions  contemplated by this
Agreement and  representatives  of the Company,  including  Company officers and
directors and direct or indirect Company shareholders,  have had and through the
Closing will have  communications with such counsel concerning or related to the
transactions  contemplated by this Agreement,  the reasons for the  transactions
contemplated by this Agreement, alternatives available to the Company, and

                                      -32-                      Merger Agreement

<PAGE>


other similar dissimilar or related or unrelated matters that are entitled to be
treated as confidential attorney-client  communications under the Idaho Rules of
Professional   Conduct   and   Idaho   law   (collectively,   the   "Transaction
Communications").   Subsequent   to  the   consummation   of  the   transactions
contemplated  by this  Agreement,  the  confidential  nature of the  Transaction
Communications shall be preserved and, therefore, the Transaction Communications
shall be  treated as  confidential  by the  Acquiror  and Newco and shall not be
directly  or  indirectly  disclosed  to or used by the  Acquiror or Newco or any
representative of the Acquiror or Newco,  notwithstanding  that the Company will
be merged into Newco on the  Closing  Date and  thereafter  will be owned by the
Acquiror.

         11.5  Assignment.  No party  hereto may assign,  delegate or  otherwise
transfer any of its obligations or rights under this Agreement.

         11.6 Governing Law;  Jurisdiction.  This Agreement shall be governed by
and construed in accordance with the laws of the State of California. Each party
submits to the nonexclusive jurisdiction of the United States District Court for
the Northern District of California and of any California state court sitting in
the City and  County of San  Francisco  for  purposes  of all legal  proceedings
arising out of or relating to this  Agreement or the  transactions  contemplated
hereby. Each party irrevocably waives any objection that it may now or hereafter
have to the laying of venue in any proceeding  brought in such a court,  and any
claim that any such proceeding was brought in an inconvenient forum.

         11.7 Headings. The headings and captions in this Agreement are included
for  convenience of reference only and shall be ignored in the  construction  or
interpretation hereof.

         11.8  Counterparts.  This  Agreement  may be  signed  in any  number of
counterparts, each of which shall be an original, with the same effect as if the
signatures  thereto and hereto  were upon the same  instrument.  This  Agreement
shall  become  effective  only  when  each  party  hereto  shall  have  received
(including  without  limitation by facsimile  transmission) a counterpart hereof
signed by each other party hereto.

                                      -33-                      Merger Agreement

<PAGE>


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


                                 By
                                   ---------------------------------------------
                                    President and Chief Executive Officer

                                 Address for Notices:
                                 185 Berry Street, Suite 3515
                                 San Francisco, CA  94107
                                 Facsimile: (415) 371-9801

                                 Xpit.com, Inc.


                                 By
                                   ---------------------------------------------
                                    Title: President

                                 Address for Notices:
                                 815 Park Boulevard, Suite 302
                                 Boise, Idaho 83712
                                 Facsimile: (208) 343-2244

                                 Sockeye Trading, LLC


                                 By
                                   ---------------------------------------------
                                    Title: Managing Member

                                 Address for Notices:
                                 815 Park Boulevard, Suite 302
                                 Boise, Idaho 83712
                                 Facsimile: (208) 343-2244

                                      -34-                      Merger Agreement

<PAGE>

                                 Ramsey Financial, Inc.


                                 By
                                   ---------------------------------------------
                                    Title: President

                                 Address for Notices:
                                 108 S Madison Avenue
                                 Louisville, Kentucky  40243
                                 Facsimile:

                                      -35-                      Merger Agreement

<PAGE>


                                                            Schedule 2.3(b)(vii)
                                                                       Employees

         1. Joe Coffland

         2. Michael Shelton

         3. James Price

         4. Shane Pielli

         5. Kelly Beale

         6. Paul Price

         7. Matthew Cooley

         8. Paxton Powers

         9. Troy Wood

                                      -36-                      Merger Agreement

<PAGE>


                                                                    Schedule 4.9
                                                      Absence of Certain Changes

1. On or about March 1, 2001,  the Company  issued a warrant to acquire  360,000
shares of  Company  common  stock at an  exercise  price of $40.00  per share to
Sisbro Private Equity,  L.P.  ("Sisbro"),  pursuant to Section 5 of that certain
Mutual Release and Agreement, dated as of July 24, 2000, between the Company and
Sisbro.  Sisbro's  rights to exercise  the warrant  will expire at or before the
Closing.

2.  Please see March 6, 2001 email from Doug Bates to Mike Cairns  describing  a
change in the Company's method for accruing receivables.

                                      -37-                      Merger Agreement

<PAGE>


                                                                   Schedule 4.13
                                                              Material Contracts

         1. The Company has trading relationships with approximately 40 clients.
The contracts  relating to such relationships are terminable at will by clients.
Clients pay $.75 to $1.00 per side per  contract.  The Company  also has monthly
income from Allied Irish for use of the Value At Risk simulator.

         2. Vendor / other expenses:

              A. Telephone service with Qwest (joint service with Sawtooth, with
approximately $750 per month allocated to Xpit)

              B. Tuition payments for Paul Price, $8400/ year

              C. Host Pro internet hosting services and rack: $1100/mo

              D. Futures Source data fee: $1809/mo

              E. Five year lease for new office space at CW Moore Plaza. Approx.
2402 useable square feet at $4520.42 per month for 5 years. Sawtooth will occupy
645 square feet and the Company  will occupy  1757 square  feet.  The  Company's
portion of the lease expense is $3306.57 per month for five years.

              F. CME: $1,000 per month

              G. Interactive Brokers:  communications  expense of $400 per month
and minimum usage of $1,600 per month. Cancelable on 30 days' notice.

                                      -38-                      Merger Agreement

<PAGE>


                                                                   Schedule 4.16
                                                           Intellectual Property

1. The following is a brief description of the Company's Intellectual Property:

         A.   Method for analyzing risk of current working orders to verify they
              do not exceed pre-set risk parameters

         B.   Optimized   algorithm  for  calculating   risk  charge  rates  for
              inter-commodity spreads

         C.   Method for efficiently maintaining a multi-language website

         D.   Method for calculating  aggregate net position of multiple orders,
              for use in risk analysis

         E.   Method for improving the update and polling functions required for
              an internet-based application

         F.   Method  for  optimally   routing   trading  orders  among  various
              worldwide exchanges to achieve prompt order execution

         G.   Caching  mechanism to provide  scalability  and improved speed for
              quote information

         H.   Caching  mechanism to increase  efficiency  in responding to quote
              requests generated by web servers

         I.   Value-at-risk algorithm for real and simulated portfolios

2.  The  Company  does  not  have  any  patents,  trademarks,  registrations  or
copyrights  for any of its  Intellectual  Property.  All  Intellectual  Property
described  in Item #1  above  is owned by the  Company  and not  subject  to any
license agreement.

                                      -39-                      Merger Agreement

<PAGE>


                                                                   Schedule 4.19
                                                                     Tax Matters

1. Tax Affiliates:

   None.

2. Jurisdictions:

   State of Idaho.

                                      -40-                      Merger Agreement


<PAGE>


                                                                   Schedule 4.20
                                                    Transactions with Affiliates

1.  The  Company  leases  office  space  from  Sawtooth  Investment   Management
("Sawtooth"),  an  Affiliate  of the  Company,  pursuant to a five-year  written
lease, a copy of which has been provided to Acquiror.

2. The Company  currently has no employees.  The following persons are employees
of Sawtooth,  and have provided  services to the Company pursuant to an employee
leasing arrangement between Sawtooth and the Company:

         1. Joe Coffland

         2. Michael Shelton

         3. James Price

         4. Shane Pielli

         5. Kelly Beale

         6. Paul Price

         7. Matthew Cooley

         8. Paxton Powers

         9. Troy Wood

         10. David Dunn

         11. Timothy Dunn

         The Company  expects  that,  as of the Closing,  the  employee  leasing
arrangement  with  Sawtooth  will  terminate,  the  employment  of the preceding
persons by Sawtooth will be terminated, and each of the preceding persons except
David Dunn and Timothy Dunn will be offered employment by Acquiror or Newco.

                                      -41-                      Merger Agreement

<PAGE>


                            Acquiror Pledge Agreement

              PLEDGE  AGREEMENT  dated as of March 12, 2001 made by  RateXchange
Corporation,  a Delaware corporation (the "Grantor"), for the ratable benefit of
Sockeye Trading  Company,  LLC, Ramsey  Financial,  Inc.,  Courtlandt  Gates and
Timothy Meckel (each, a "Secured Party").

              WHEREAS,  the Grantor has entered  into an  Agreement  and Plan of
Merger (as the same may be amended  from time to time,  the "Merger  Agreement")
dated as of March 12, 2001 among the Grantor, Xpit Corporation, Inc., a Delaware
corporation (the "Subsidiary"),  Xpit.com,  Inc., an Idaho corporation,  and the
Secured Parties;

              WHEREAS,  in the Merger Agreement the parties have agreed to cause
the Grantor to acquire the stock of Xpit.com,  Inc. from the Secured  Parties by
having  Xpit.com,  Inc. merge with and into the Subsidiary,  with the Subsidiary
being the surviving company of such merger;

              WHEREAS,  pursuant  to  the  Merger  Agreement,  the  Grantor  has
delivered to each of the Secured Parties a promissory note dated the date hereof
(each, a "Note");

              WHEREAS,  pursuant to the Merger Agreement, the Grantor has agreed
to secure its  obligations  under the Notes with a pledge of the shares of stock
of the Subsidiary held by the Grantor; and

              WHEREAS,  pursuant to Section 12 below,  the  Secured  Parties are
appointing Michael Boren as their agent (the "Security Agent"), for the purposes
and with the powers described herein;

              NOW THEREFORE the parties hereto agree as follows:

              1. Definitions.

              (a) Each of the following terms, when capitalized,  is used herein
with the meaning set forth in the Merger Agreement or the Notes:

              "Lien"

              (b) Each of the following terms, when capitalized,  is used herein
with the meaning set forth in Section 2(a):

              "Collateral"

              "Pledged Stock"

              "Proceeds"

              "Secured Obligations"

              "Security Interest"

              "UCC"

              (c) The term "Event of Default"  means a failure to pay any amount
due under the Notes within five business days after the due date.

              (d) The term "Majority Secured Parties," when capitalized, is used
herein to mean Secured  Parties to whom are owed, at the time of  determination,
in the  aggregate,  not  less  than  51%  of the  total  amount  of the  Secured
Obligations.

<PAGE>


              2. The Pledge and Security Interest.

              (a) In  order to  secure  the full  and  punctual  payment  of all
amounts payable pursuant to, and the full and punctual  performance of all other
obligations  of the  Grantor  under,  the  Notes and this  Agreement  (including
without limitation any obligation which accrues or arises after the commencement
of any case,  proceeding or other action relating to the bankruptcy,  insolvency
or  reorganization  of the Grantor) (the "Secured  Obligations"),  in accordance
with the terms thereof,  effective at the Merger Time the Grantor hereby assigns
and pledges to the Secured  Parties,  and hereby grants to the Secured Parties a
security  interest (the  "Security  Interest")  in, all of the Grantor's  right,
title and interest in and to the following (the "Collateral"):

              (i) 500 shares of common  stock of the  Subsidiary  and all of the
         Grantor's  rights  and  privileges  with  respect  to such  stock  (the
         "Pledged  Stock"),  which shares  represent  fifty percent (50%) of the
         issued and outstanding capital stock of the Subsidiary; and

              (ii) all direct and  indirect  proceeds (as defined in the Uniform
         Commercial  Code as in effect in New York  State  (the  "UCC"))  of the
         Pledged   Stock,   and  also  all  dividends  and  other  payments  and
         distributions  with respect  thereto,  all other  profits,  rentals and
         receipts with respect thereto,  and all payments,  rights and property,
         in whatever form,  arising from the  disposition in whole or in part of
         the Pledged Stock or any option or other  interest  therein,  except to
         the extent such amount are properly  paid to the  Acquiror  pursuant to
         Section 5(a) hereof (the "Proceeds").

              (b) The  Collateral is granted as security  only,  and the Secured
Parties  shall  not  have  any  obligation  or  liability  with  respect  to the
Collateral by reason of this Agreement, nor shall any Secured Party be obligated
to perform any of the obligations or duties of the Grantor related to any of the
Collateral.

              3.  Representations  and  Warranties.  The Grantor  represents and
warrants to the Secured Parties:

              (a) The Grantor has delivered to the Security  Agent a certificate
or certificates registered in the Grantor's name representing all of the Pledged
Stock, together with an endorsement in blank duly executed by the Grantor.

              (b) The Grantor has not performed any acts which might prevent the
Secured Parties from enforcing any of the terms of this Agreement or which would
limit the Secured Parties in any such enforcement.

              4. Further Assurances;  Covenants.  Until all principal,  interest
and other amounts  payable under the Notes and this  Agreement have been paid in
full:

              (a) The Grantor  agrees that it shall,  at its expense and in such
manner and form as the Majority Secured Parties may reasonably require,  execute
and deliver any  instrument  and  document,  and take any other  action that the
Majority Secured Parties may reasonably request,  in order to create,  preserve,
perfect or validate the Security  Interest,  or to enable the Secured Parties

                                      -2-              Acquiror Pledge Agreement

<PAGE>


to exercise  and  enforce  their  rights  hereunder  with  respect to any of the
Collateral.  Without limiting the generality of the foregoing, the Grantor shall
execute  and file such  financing  or  continuation  statements,  or  amendments
thereto,  and such other  instruments or notices as the Majority Secured Parties
may reasonably request.

              (b) To the extent  permitted by applicable law, the Grantor hereby
authorizes the Security Agent, at the direction of the Majority Secured Parties,
to execute and file,  in the name of the  Grantor or  otherwise,  UCC  financing
statements  and  similar  documents  and  instruments   (which  may  be  carbon,
photographic,  photostatic  or other  reproductions  of this  Agreement  or of a
financing  statement  relating to this  Agreement)  which the  Majority  Secured
Parties in their sole  discretion  may deem  necessary or appropriate to further
perfect the Security Interest.

              (c) The Grantor shall not,  without the prior written  approval of
the Majority  Secured Parties (which shall not unreasonably be withheld) sell or
dispose  of,  or  create  or  suffer  to exist  any Lien on,  the  shares of the
Subsidiary's  common  stock that in any manner could  reasonably  be expected to
impair the Lien created by this Agreement.

              5. Right to Receive Distributions on, and To Vote, Collateral.

              (a) So long as no Event of Default has occurred and is continuing,
the Grantor  shall have the right (i) to receive  all  dividends,  interest  and
other payments and distributions made upon or with respect to the Collateral and
(ii) to vote and to give consents, ratifications and waivers with respect to the
Pledged Stock.

              (b) Upon the occurrence and during the  continuance of an Event of
Default,  (i) the Secured Parties shall have the right to receive  (ratably,  in
accordance with the amount of Secured  Obligations  payable to each) and, during
the continuance of such Event of Default, to retain as Collateral  hereunder all
dividends,  interest  and other  payments  and  distributions  made upon or with
respect to the Collateral and (ii) the Majority  Secured  Parties shall have the
right to vote and to give  consents,  ratifications  and waivers with respect to
the Pledged Stock, and to cause the Pledged Stock to be transferred of record to
the Security  Agent,  and the Grantor shall take all such action as the Majority
Secured Parties may deem necessary or appropriate to give effect to such right.

              6. General Authority.  The Grantor hereby irrevocably appoints the
Security Agent its true and lawful attorney, with full power of substitution, in
the name of the Grantor, the Secured Parties or otherwise,  for the sole use and
benefit of the Secured Parties, but at the expense of the Grantor, to the extent
permitted by law to exercise at the direction of the Majority  Secured  Parties,
at any time and from time to time while an Event of Default has  occurred and is
continuing, all or any of the following powers with respect to all or any of the
Collateral:

              (i) to ask, demand,  sue for, collect,  recover,  receive and give
         acquittance  for any and all  monies  due or to become due upon or with
         respect to any of the Collateral;

              (ii) to  settle,  compromise,  compound,  prosecute  or defend any
         action or proceeding with respect to any Collateral;

                                      -3-              Acquiror Pledge Agreement

<PAGE>


              (iii) to sell,  transfer,  assign or otherwise deal in or with the
         Collateral or the proceeds or avails thereof,  as fully and effectually
         as if the Secured Parties were the absolute owner thereof; and

              (iv) to take any action and to execute  any  instrument  which the
         Majority  Secured Parties may deem necessary or advisable to accomplish
         the purposes of this Agreement,

provided that the Majority  Secured Parties shall give the Grantor not less than
ten  days'  prior  written  notice  of the time  and  place of any sale or other
intended  disposition  of any of the  Collateral.  The  Secured  Parties and the
Grantor agree that such notice constitutes "reasonable  notification" within the
meaning of Section 9-504(3) of the UCC.

              7.  Remedies  upon Event of  Default.  If an Event of Default  has
occurred and is continuing, the Security Agent may exercise, at the direction of
the Majority Secured Parties and for the benefit of the Secured Parties, all the
rights  of a  secured  party  under  the UCC  (whether  or not in  effect in the
jurisdiction  where such rights are  exercised)  and, in addition,  the Security
Agent may, without being required to give any notice,  except as herein provided
or as may be required by mandatory provisions of law, sell the Collateral or any
part  thereof  at  public or  private  sale or at any  broker's  board or on any
securities exchange,  for cash, upon credit or for future delivery,  and at such
price or prices as the Majority Secured Parties may deem satisfactory, and apply
the proceeds  thereof as  specified in Section 10. Any Secured  Party may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if the
Collateral is of a type customarily sold in a recognized  market or is of a type
which is the subject of widely  distributed  standard price  quotations,  at any
private sale).  The Security Agent is  authorized,  in connection  with any such
sale,  if the  Majority  Secured  Parties  deem it  advisable  to do so,  (a) to
restrict the prospective bidders on or purchasers of any of the Pledged Stock to
a limited  number of  sophisticated  investors who will represent and agree that
they are  purchasing for their own account for investment and not with a view to
the distribution or sale of any of such Pledged Stock, (b) to cause to be placed
on certificates  for any or all of the Pledged Stock or on any other  securities
pledged  hereunder  a legend  to the  effect  that  such  security  has not been
registered  under  the  Securities  Act of 1933  and may not be  disposed  of in
violation of the provision of said Act and (c) to impose such other  limitations
or conditions in connection  with any such sale as the Majority  Secured Parties
deem  necessary  or advisable in order to comply with said Act or any other law.
The  Grantor  covenants  and  agrees  that it shall  execute  and  deliver  such
documents  and take such  other  action as the  Majority  Secured  Parties  deem
necessary  or  advisable  in order that any such sale may be made in  compliance
with law. Upon any such sale the Security Agent shall have the right to deliver,
assign and  transfer to the  purchaser  thereof  the  Collateral  so sold.  Each
purchaser at any such sale shall hold the Collateral so sold absolutely and free
from any claim or right of  whatsoever  kind,  including  any equity or right of
redemption  of the Grantor which may be waived,  and the Grantor,  to the extent
permitted by law, hereby specifically  waives all rights of redemption,  stay or
appraisal  which it has or may have  under  any law now  existing  or  hereafter
adopted.  The  notice (if any) of such sale  required  by Section 6 shall (A) in
case of a public sale, state the time and place fixed for such sale, (B) in case
of sale at a  broker's  board or on a  securities  exchange,  state the board or
exchange  at which such sale is to be made and the

                                      -4-              Acquiror Pledge Agreement

<PAGE>


day on which the Collateral,  or the portion thereof so being sold,  shall first
be offered for sale at such board or exchange,  and (C) in the case of a private
sale,  state the day after which such sale may be  consummated.  Any such public
sale shall be held at such time or times within  ordinary  business hours and at
such place or places as the  Security  Agent may fix in the notice of such sale.
At any such  sale the  Collateral  may be sold in one lot as an  entirety  or in
separate parcels, as the Security Agent may determine.  The Security Agent shall
not be obligated to make any such sale pursuant to any such notice. The Security
Agent may, without notice or publication,  adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place  fixed  for the  sale,  and such  sale may be made at any time or place to
which  the same may be so  adjourned.  In case of any sale of all or any part of
the Collateral on credit or for future  delivery,  the Collateral so sold may be
retained by the Security Agent,  for the account of Secured  Parties,  until the
selling price is paid by the purchaser  thereof,  but the Secured  Parties shall
not incur any liability in case of the failure of such  purchaser to take up and
pay for the Collateral so sold and, in case of any such failure, such Collateral
may again be sold upon like notice.  The Majority  Secured  Parties,  instead of
exercising the power of sale herein conferred, may proceed by a suit or suits at
law or in equity to foreclose the Security Interest and sell the Collateral,  or
any  portion  thereof,  under a  judgment  or  decree  of a court or  courts  of
competent   jurisdiction.   Despite  the   consummation  of  any  such  sale  or
foreclosure,  the Grantor shall remain liable for any deficiency with respect to
the Secured Obligations which remain outstanding following any such sale.

              For the purpose of enforcing any and all rights and remedies under
this Agreement the Majority  Secured Parties may (i) require the Grantor to, and
the  Grantor  agrees  that it shall,  at its expense and upon the request of the
Majority Secured Parties,  forthwith  assemble all or any part of the Collateral
as directed by the  Majority  Secured  Parties and make it  available at a place
designated by the Majority Secured Parties which is, in its opinion,  reasonably
convenient  to the Secured  Parties and the Grantor,  whether at the premises of
the Grantor or otherwise, (ii) to the extent permitted by applicable law, enter,
with or without  process of law and  without  breach of the peace,  any  premise
where  any of  the  Collateral  is or may be  located,  and  without  charge  or
liability to it seize and remove such Collateral from such premises,  (iii) have
access to and use the Grantor's books and records relating to the Collateral and
(iv) prior to the  disposition of the  Collateral,  store or transfer it without
charge in or by means of any storage or transportation  facility owned or leased
by the Grantor,  process,  repair or recondition it or otherwise  prepare it for
disposition  in any manner and to the extent the Majority  Secured  Parties deem
appropriate  and, in  connection  with such  preparation  and  disposition,  use
without charge any trademark, trade name, copyright, patent or technical process
used by the Grantor.

              8.  Expenses.  The  Grantor  agrees that it shall  forthwith  upon
demand  pay to the  Security  Agent  the  amount  of any and  all  out-of-pocket
expenses,  including  the fees and  disbursements  of  counsel  and of any other
experts,  which the  Security  Agent may incur in  connection  with any Event of
Default or event that with notice, the passage of time or both would be an Event
of Default.

              Any such  amount not paid when due shall bear  interest  at 8% per
annum.

                                      -5-              Acquiror Pledge Agreement

<PAGE>


              9. Limitation on Duty of Secured Parties in Respect of Collateral.
The powers conferred on the Security Agent and the Secured Parties hereunder are
solely to protect their interest in the Collateral and shall not impose any duty
upon them to exercise any such powers. Beyond the exercise of reasonable care in
the custody  thereof,  the Security Agent and the Secured  Parties shall have no
duty as to any Collateral in their possession or control.

              10.  Application  of Proceeds.  Upon the occurrence and during the
continuance  of an Event  of  Default,  the  proceeds  of any sale of,  or other
realization  upon,  all or any part of the Collateral and any cash held shall be
applied by the Security Agent in the following order of priorities:

              first,   to  payment  of  the  expenses  of  such  sale  or  other
realization,  including  reasonable  compensation  to agents and counsel for the
Security Agent, and all expenses,  liabilities and advances  incurred or made by
the Security Agent in connection therewith;

              second, to payment of all Secured  Obligations,  ratably among the
various  Secured  Parties in proportion to the amount of the Secured  Obligation
payable to each of them,  until all Secured  Obligations have been paid in full;
and

              finally,  to payment to the Grantor or its  successors or assigns,
or as a  court  of  competent  jurisdiction  may  direct,  of any  surplus  then
remaining from such proceeds.

              11.  Termination.  When all principal,  interest and other amounts
payable under the Notes and this  Agreement have been paid in full, the Security
Interest shall  terminate and all rights to the  Collateral  shall revert to the
Grantor.  Upon any such termination of the Security Interest the Secured Parties
shall  execute  and  deliver to the Grantor  such  documents  as the Grantor may
reasonably request to evidence the termination of the Security Interest.

              12. The Security Agent.

              (a) Each Secured Party  irrevocably  appoints and  authorizes  the
Security  Agent to take such action as agent on its behalf and to exercise  such
powers under this Agreement and the Notes as are delegated to the Security Agent
by the terms hereof or thereof,  together with all such powers as are reasonably
incidental  thereto.  The  obligations of the Security Agent  hereunder are only
those  expressly  set forth  herein.  Without  limiting  the  generality  of the
foregoing,  the  Security  Agent  shall not be  required to take any action with
respect to any Event  Default,  except at the direction of the Majority  Secured
Parties.

              (b) The Security Agent shall not be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Majority  Secured Parties or (ii) in the absence of its own gross negligence
or willful  misconduct.  The  Security  Agent shall not be  responsible  for the
existence,  genuineness  or value of any of the  Collateral or for the validity,
perfection,  priority or enforceability of the Security  Interests in any of the
Collateral,  whether  impaired by operation of law or by reason of any action or
omission to act on its part hereunder.  The Security Agent shall have no duty to
ascertain or inquire as to the  performance or observance of any of the terms of
this Agreement by the Grantor.

                                      -6-              Acquiror Pledge Agreement

<PAGE>


              (c) The  Security  Agent may resign at any time by giving  written
notice  thereof to the Secured  Parties and the Grantor,  provided  that no such
resignation  shall  be  effective  until a  successor  Security  Agent  has been
appointed and accepted such appointment. Upon any such resignation, the Majority
Secured Parties shall appoint a successor  Security  Agent,  who shall be one of
the Secured Parties.  Upon a successor  Security Agent accepting its appointment
as Security  Agent  hereunder,  such successor  Security  Agent shall  thereupon
succeed to and  become  vested  with all the  rights and duties of the  retiring
Security  Agent,  and the retiring  Security Agent shall be discharged  from its
duties and obligations hereunder.

              13. Miscellaneous.

              (a) Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given, and shall be effective, as set forth in the Merger Agreement.

              (b) Amendments; No Waivers. Any provision of this Agreement may be
amended or waived if, and only if,  such  amendment  or waiver is in writing and
signed,  in the case of an  amendment,  by the Grantor and the Majority  Secured
Parties or, in the case of a waiver,  by the party against whom the waiver is to
be  effective  (or,  in the case of waiver that is to be  effective  against any
Secured  Party,  by the Majority  Secured  Parties).  No failure or delay by the
Secured  Parties in exercising  any right,  power or privilege  hereunder  shall
operate as a waiver  thereof  nor shall any single or partial  exercise  thereof
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or privilege.  The rights and remedies  provided herein and in the
Notes shall be cumulative  and not exclusive of any rights or remedies  provided
by law.

              (c)  Successors  and Assigns.  This  Agreement  shall inure to the
benefit of and be binding upon each of the parties  hereto and their  respective
successors,  but no party hereto may assign,  delegate or otherwise transfer any
of its obligations or rights under this Agreement.

              (d) Governing Law. This Agreement shall be construed in accordance
with and  governed by the laws of the State of  California,  except as otherwise
required by mandatory  provisions  of law and except to the extent that remedies
provided by the laws of any  jurisdiction  other than California are governed by
the laws of such jurisdiction.

              (e)  Headings.  The headings and  captions in this  Agreement  are
included  for  convenience  of  reference  only  and  shall  be  ignored  in the
construction or interpretation hereof.

              (f)   Severability.   If  any  provision   hereof  is  invalid  or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other  provisions  hereof  shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Secured Parties in
order to carry  out the  intentions  of the  parties  hereto as nearly as may be
possible; and (ii) the invalidity or unenforceability of any provision hereof in
any  jurisdiction  shall not  affect  the  validity  or  enforceability  of such
provision in any other jurisdiction.

                                      -7-              Acquiror Pledge Agreement

<PAGE>


              IN WITNESS  WHEREOF,  the Grantor has caused this  Agreement to be
duly executed as of the day and year first above written.

                                     RATEXCHANGE CORPORATION


                                     By
                                       -----------------------------------------
                                        Name: D. Jonathan Merriman


                                     Sockeye Trading, LLC


                                     By
                                       -----------------------------------------
                                     Title: Managing Member

                                     Address for Notices:
                                     --------------------
                                     815 Park Boulevard, Suite 302
                                     Boise, Idaho 83712
                                     Facsimile: (208) 343-2244

                                     Ramsey Financial, Inc.


                                     By
                                       -----------------------------------------
                                     Title: President

                                     Address for Notices:
                                     --------------------
                                     108 S Madison Avenue
                                     Louisville, Kentucky  40243
                                     Facsimile:

                                      -8-              Acquiror Pledge Agreement

<PAGE>


                                     -------------------------------------------
                                     Courtlandt Gates

                                     Address for Notices:
                                     --------------------
                                     PO Box 1821
                                     Ross, California 94957


                                     -------------------------------------------
                                     Timothy Meckel

                                     Address for Notices:
                                     --------------------
                                     56 Ledgeways
                                     Wellesley, Massachusetts 02481
                                     Owner of 5,305 Covered Shares

                                      -9-              Acquiror Pledge Agreement

<PAGE>


                          Shareholder Pledge Agreement

              PLEDGE AGREEMENT dated as of March 12, 2001 made by each person or
entity named on the signature pages hereof (each, a "Grantor"),  for the benefit
of RateXchange Corporation, a Delaware corporation (the "Secured Party").

              WHEREAS,  the Grantors  have entered into an Agreement and Plan of
Merger (as the same may be amended  from time to time,  the "Merger  Agreement")
dated as of March  12,  2001  among  the  Secured  Party,  Xpit  Corporation,  a
subsidiary  of the Secured  Party,  Xpit.com,  Inc., an Idaho  corporation  (the
"Company"), and the Grantors;

              WHEREAS,  in the Merger Agreement the parties have agreed to cause
Xpit.com,  Inc.  to merge  with  and  into  Xpit  Corporation,  with the  latter
corporation being the surviving company of such merger;

              WHEREAS,  pursuant to such merger,  the Company  Shareholders  are
receiving shares of preferred stock of the Secured Party;

              WHEREAS,  the Company Shareholders have certain obligations to the
Secured Party that survive such merger; and

              WHEREAS,  pursuant  to the Merger  Agreement,  the  Grantors  have
agreed to secure their  obligations  under the Merger Agreement with a pledge of
the shares of preferred stock of the Secured Party held by the Grantors;

              NOW THEREFORE the parties hereto agree as follows:

              1. Definitions.

              (a) The term  "Lien,"  when  capitalized,  is used herein with the
meaning set forth in the Merger Agreement.

              (b) Each of the following terms, when capitalized,  is used herein
with the meaning set forth in Section 2(a):

              "Collateral"

              "Pledged Stock"

              "Proceeds"

              "Secured Obligations"

              "Security Interest"

              "UCC"

and the term  "Event of  Default,"  when  capitalized,  is used  herein with the
meaning  set forth in Section 7.

              2. The Pledge and Security Interest.

              (a) In  order to  secure  the full  and  punctual  payment  of all
amounts payable pursuant to, and the full and punctual  performance of all other
obligations  of the Grantors  under,  the Merger  Agreement  and this  Agreement
(including  without  limitation any obligation which accrues or arises after the
commencement of any case, proceeding or other action relating to the bankruptcy,
insolvency or  reorganization  of any Grantor) (the "Secured  Obligations"),  in
accordance  with the terms  thereof,  effective  at the Merger Time each Grantor
hereby assigns and

<PAGE>


pledges to the Secured Party,  and hereby grants to the Secured Party a security
interest (the "Security  Interest") in, all of such Grantor's  right,  title and
interest in and to the following (the "Collateral"):

              (i) the number of shares of preferred  stock of the Secured  Party
         set forth  under such  Grantor's  name on the  signature  pages of this
         Agreement,  any other  capital  stock  required  to be  pledged  to the
         Secured Party by subsection  (b), and all of such Grantor's  rights and
         privileges with respect to such stock (the "Pledged Stock"); and

              (ii) all direct and  indirect  proceeds (as defined in the Uniform
         Commercial  Code as in effect in New York  State  (the  "UCC"))  of the
         Pledged   Stock,   and  also  all  dividends  and  other  payments  and
         distributions  with respect  thereto,  all other  profits,  rentals and
         receipts with respect thereto,  and all payments,  rights and property,
         in whatever form,  arising from the  disposition in whole or in part of
         the Pledged Stock or any option or other interest  therein,  other than
         the regular six percent  stock  dividend  provided  for pursuant to the
         rights and preferences of the Pledged Stock (the "Proceeds").

              (b) If the  Secured  Party at any time  issues to any  Grantor any
shares  of  capital  stock  of any  class  or  series  as a  dividend  on (or in
substitution  for) the Pledged  Stock,  other than the regular six percent stock
dividend  provided  for  pursuant to the rights and  preferences  of the Pledged
Stock, such Grantor shall immediately  pledge and deposit with the Secured Party
certificates representing all such shares as additional security for the Secured
Obligations,  as described in Section 3(a). All such shares constitute  "Pledged
Stock" and are subject to all provisions of this Agreement.

              (c) The  Collateral  is granted as  security  only,  and except as
expressly  set forth herein the Secured  Party shall not have any  obligation or
liability with respect to the Collateral by reason of this Agreement,  nor shall
the Secured  Party be obligated to perform any of the  obligations  or duties of
the Grantors related to any of the Collateral.

              3.  Representations  and Warranties.  Each Grantor  represents and
warrants to the Secured Party:

              (a) Such Grantor has  delivered to the Secured Party a certificate
or  certificates  registered  in such  Grantor's  name  representing  all of the
Pledged  Stock of such  Grantor,  together  with an  endorsement  in blank  duly
executed by such Grantor.

              (b) Such Grantor has not  performed  any acts which might  prevent
the Secured  Party from  enforcing  any of the terms of this  Agreement or which
would limit the Secured Party in any such enforcement.

              4. Further Assurances;  Covenants.  Until the Security Interest is
terminated pursuant to Section 11:

              (a) Each Grantor agrees that it shall,  at its expense and in such
manner and form as the Secured Party may reasonably require, execute and deliver
any instrument and document,  and take any other action,  that the Secured Party
may reasonably  request, in order to create,  preserve,  perfect or validate the
Security  Interest,  or to enable the Secured  Party to exercise and enforce its

                                      -2-           Shareholder Pledge Agreement

<PAGE>


rights  hereunder with respect to any of the  Collateral.  Without  limiting the
generality  of the  foregoing,  each Grantor  shall  execute  such  financing or
continuation  statements,  or amendments thereto,  and such other instruments or
notices, as the Secured Party may reasonably request.

              (b) To the extent permitted by applicable law, each Grantor hereby
authorizes the Secured Party to execute and file, in the name of such Grantor or
otherwise, UCC financing statements and similar documents and instruments (which
may  be  carbon,  photographic,  photostatic  or  other  reproductions  of  this
Agreement  or of a financing  statement  relating to this  Agreement)  which the
Secured  Party in its sole  discretion  may deem  necessary  or  appropriate  to
further perfect the Security Interest.

              (c) No Grantor  shall,  without the prior written  approval of the
Secured Party, sell or dispose of, or create or suffer to exist any Lien on, the
Pledged Stock that in any manner could reasonably be expected to impair the Lien
created by this Agreement.

              5. Right to Receive Distributions on, and To Vote, Collateral.

              (a) So long as no Event of Default has occurred and is continuing,
each  Grantor  shall have the right (i) to receive all  dividends,  interest and
other payments and distributions made upon or with respect to the Collateral and
(ii) to vote and to give consents, ratifications and waivers with respect to the
Pledged Stock.

              (b) Upon the occurrence and during the  continuance of an Event of
Default,  (i) the Secured Party shall have the right to receive and,  during the
continuance  of such Event of Default,  to retain as  Collateral  hereunder  all
dividends,  interest  and other  payments  and  distributions  made upon or with
respect to the  Collateral  and (ii) the  Secured  Party shall have the right to
vote and to give consents, ratifications and waivers with respect to the Pledged
Stock, and to cause the Pledged Stock to be transferred of record to the Secured
Party, and each Grantor shall take all such action as the Secured Party may deem
necessary or appropriate to give effect to such right.

              6. General Authority. Each Grantor hereby irrevocably appoints the
Secured Party its true and lawful attorney, with full power of substitution,  in
the name of such Grantor,  the Secured Party or otherwise,  for the sole use and
benefit of the Secured Party, but at the expense of such Grantor,  to the extent
permitted by law to exercise at any time and from time to time while an Event of
Default has occurred and is continuing,  all or any of the following powers with
respect to all or any of the Collateral:

              (i) to ask, demand,  sue for, collect,  recover,  receive and give
         acquittance  for any and all  monies  due or to become due upon or with
         respect to any of the Collateral;

              (ii) to  settle,  compromise,  compound,  prosecute  or defend any
         action or proceeding with respect to any Collateral;

              (iii) to sell,  transfer,  assign or otherwise deal in or with the
         Collateral or the proceeds or avails thereof,  as fully and effectually
         as if the Secured Party were the absolute owner thereof; and

                                      -3-           Shareholder Pledge Agreement

<PAGE>


              (iv) to take any action and to execute  any  instrument  which the
         Secured  Party  may deem  necessary  or  advisable  to  accomplish  the
         purposes of this Agreement,

provided  that the Secured Party shall give such Grantor not less than ten days'
prior  written  notice  of the time and  place of any  exercise  of the power of
attorney granted under this Section 6 or any sale or other intended  disposition
of any of the  Collateral.  The Secured  Party and each Grantor  agree that such
notice  constitutes  "reasonable  notification"  within  the  meaning of Section
9-504(3) of the UCC.

              7. Remedies upon Event of Default.  If any of the following events
with  respect to a Grantor  (each,  an "Event of Default" by such  Grantor)  has
occurred  and is  continuing:  (a) a  Grantor  shall  fail to make  any  payment
required  under the Merger  Agreement  when due; or (b) a Grantor  shall fail to
perform any  obligation to the Secured Party under the Merger  Agreement or this
Agreement and such failure shall  continue for 30 days after written notice from
the Secured Party to such Grantor  identifying  such failure and stating that it
will constitute an Event of Default hereunder if not cured; then, in either such
case, the Secured Party may exercise all the rights of a secured party under the
UCC  (whether  or not in  effect  in the  jurisdiction  where  such  rights  are
exercised)  and, in addition,  the Secured Party may,  without being required to
give any notice,  except as herein  provided or as may be required by  mandatory
provisions of law, sell the  Collateral or any part thereof at public or private
sale or at any broker's  board or on any  securities  exchange,  for cash,  upon
credit or for future delivery,  and at such price or prices as the Secured Party
may deem satisfactory, and apply the proceeds thereof as specified in Section 9.
The Secured Party may be the  purchaser of any or all of the  Collateral so sold
at any public sale (or, if the  Collateral  is of a type  customarily  sold in a
recognized  market or is of a type which is the  subject  of widely  distributed
standard  price  quotations,   at  any  private  sale).  The  Secured  Party  is
authorized,  in  connection  with any such sale,  if the Secured  Party deems it
advisable to do so, (a) to restrict the prospective  bidders on or purchasers of
any of the Pledged Stock to a limited number of sophisticated investors who will
represent  and  agree  that  they are  purchasing  for  their  own  account  for
investment  and  not  with a view  to the  distribution  or  sale of any of such
Pledged Stock,  (b) to cause to be placed on certificates  for any or all of the
Pledged  Stock or on any  other  securities  pledged  hereunder  a legend to the
effect that such security has not been  registered  under the  Securities Act of
1933 and may not be disposed of in  violation  of the  provision of said Act and
(c) to impose such other  limitations or conditions in connection  with any such
sale as the Secured  Party deems  necessary or advisable in order to comply with
said Act or any other law.  Each  Grantor  covenants  and  agrees  that it shall
execute and deliver  such  documents  and take such other  action as the Secured
Party deems  necessary  or  advisable in order that any such sale may be made in
compliance  with law.  Upon any such sale the Secured Party shall have the right
to deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely and
free from any claim or right of whatsoever  kind,  including any equity or right
of  redemption  of any Grantor  which may be waived,  and each  Grantor,  to the
extent  permitted by law, hereby  specifically  waives all rights of redemption,
stay or  appraisal  which  it has or may  have  under  any law now  existing  or
hereafter adopted.  The notice (if any) of such sale required by Section 6 shall
(A) in case of a public sale,  state the time and place fixed for such sale, (B)
in case of sale at a broker's

                                      -4-           Shareholder Pledge Agreement

<PAGE>


board or on a  securities  exchange,  state the board or  exchange at which such
sale is to be made and the day on which the  Collateral,  or the portion thereof
so being sold,  shall first be offered for sale at such board or  exchange,  and
(C) in the case of a private  sale,  state the day after  which such sale may be
consummated.  Any such  public  sale shall be held at such time or times  within
ordinary business hours and at such place or places as the Secured Party may fix
in the notice of such sale. At any such sale the  Collateral  may be sold in one
lot as an entirety or in separate  parcels,  as the Secured Party may determine.
The Secured  Party shall not be obligated to make any such sale  pursuant to any
such notice.  The Secured Party may, without notice or publication,  adjourn any
public or private  sale or cause the same to be  adjourned  from time to time by
announcement at the time and place fixed for the sale, and such sale may be made
at any time or place to which the same may be so adjourned.  In case of any sale
of all or any part of the  Collateral  on credit  or for  future  delivery,  the
Collateral  so sold may be retained by the Secured Party until the selling price
is paid by the  purchaser  thereof,  but the  Secured  Party shall not incur any
liability  in case of the failure of such  purchaser  to take up and pay for the
Collateral so sold and, in case of any such failure,  such  Collateral may again
be sold upon like notice. The Secured Party,  instead of exercising the power of
sale  herein  conferred,  may  proceed by a suit or suits at law or in equity to
foreclose the Security Interest and sell the Collateral, or any portion thereof,
under a judgment or decree of a court or courts of competent jurisdiction.

              8.  Expenses.  Each Grantor  jointly and severally  agrees that it
shall  forthwith  upon demand pay to the Secured Party the amount of any and all
out-of-pocket  expenses,  including the fees and disbursements of counsel and of
any other  experts,  which the Secured  Party may incur in  connection  with any
Event of Default or event that with notice, the passage of time or both would be
an Event of Default.

              Any such amount not paid on demand  shall bear  interest at 8% per
annum.

              9.  Limitation on Duty of Secured Party in Respect of  Collateral.
The powers  conferred on the Secured  Party  hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers.  Beyond the exercise of reasonable care in the custody thereof, the
Secured  Party  shall have no duty as to any  Collateral  in its  possession  or
control.

              10.  Application  of Proceeds.  Upon the occurrence and during the
continuance  of an Event  of  Default,  the  proceeds  of any sale of,  or other
realization  upon,  all or any part of the Collateral and any cash held shall be
applied by the Secured Party in the following order of priorities:

              first,   to  payment  of  the  expenses  of  such  sale  or  other
realization,  including  reasonable  compensation  to agents and counsel for the
Secured Party,  and all expenses,  liabilities and advances  incurred or made by
the Secured Party in connection therewith;

              second,  to payment of all Secured  Obligations  until all Secured
Obligations have been paid in full; and

              finally,  to  payment  to the  Grantors  or  their  successors  or
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.

                                      -5-           Shareholder Pledge Agreement

<PAGE>


              11. Termination. On the latest of:

              (i) twelve months after the date hereof; or

              (ii) the first day on which the Grantor has paid and performed all
         of its  obligations  under the Merger  Agreement  that either (i) arise
         under any covenant, agreement, representation or warranty in respect of
         which indemnity may be sought under Article 9 of the Merger  Agreement,
         if notice of the inaccuracy or breach thereof giving rise to such right
         to indemnity  shall have been given within twelve months after the date
         hereof,  or (ii) are due and payable,  or due for  performance,  within
         twelve  months  after the date  hereof;  the  Security  Interest  shall
         terminate  and all rights to the  Collateral  shall revert to Grantors;
         provided that the Security Interest shall terminate in any event on the
         fifth anniversary of the date hereof.  Upon any such termination of the
         Security  Interest the Secured  Party shall execute and deliver to each
         Grantor  such  documents  as such  Grantor  may  reasonably  request to
         evidence the termination of the Security Interest.

              12. Miscellaneous.

              (a) Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given, and shall be effective, as set forth in the Merger Agreement.

              (b) Amendments; No Waivers. Any provision of this Agreement may be
amended or waived if, and only if,  such  amendment  or waiver is in writing and
signed,  in  the  case  of an  amendment,  by the  Secured  Party  and  Grantors
constituting  the  "Majority  Company  Shareholders"  as  defined  in the Merger
Agreement  or, in the case of a waiver,  by the party against whom the waiver is
to be effective  (or, in the case of waiver that is to be effective  against any
Grantor, by Grantors constituting the Majority Company Shareholders). No failure
or delay by the  Secured  Party in  exercising  any  right,  power or  privilege
hereunder  shall  operate  as a waiver  thereof  nor shall any single or partial
exercise  thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.  The rights and remedies provided herein
and in the Merger  Agreement shall be cumulative and not exclusive of any rights
or remedies provided by law.

              (c)  Successors  and Assigns.  This  Agreement  shall inure to the
benefit of and be binding upon each of the parties  hereto and their  respective
successors,  but no party hereto may assign,  delegate or otherwise transfer any
of its obligations or rights under this Agreement.

              (d) Governing Law. This Agreement shall be construed in accordance
with and  governed by the laws of the State of  California,  except as otherwise
required by mandatory  provisions  of law and except to the extent that remedies
provided by the laws of any  jurisdiction  other than California are governed by
the laws of such jurisdiction.

              (e)  Headings.  The headings and  captions in this  Agreement  are
included  for  convenience  of  reference  only  and  shall  be  ignored  in the
construction or interpretation hereof.

              (f)   Severability.   If  any  provision   hereof  is  invalid  or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other  provisions  hereof  shall remain in full

                                      -6-           Shareholder Pledge Agreement

<PAGE>

force and effect in such jurisdiction and shall be liberally  construed in favor
of the Secured Party in order to carry out the  intentions of the parties hereto
as nearly as may be possible; and (ii) the invalidity or unenforceability of any
provision  hereof  in  any  jurisdiction   shall  not  affect  the  validity  or
enforceability of such provision in any other jurisdiction.

                                      -7-           Shareholder Pledge Agreement

<PAGE>


              IN WITNESS  WHEREOF,  each Grantor has caused this Agreement to be
duly executed as of the day and year first above written.

                                    Sockeye Trading, LLC


                                    By
                                      ------------------------------------------
                                    Title: Managing Member

                                    Address for Notices:
                                     --------------------
                                    815 Park Boulevard, Suite 302
                                    Boise, Idaho 83712
                                    Facsimile: (208) 343-2244
                                    Owner of 1,591,512 Covered Shares


                                    Ramsey Financial, Inc.


                                    By
                                      ------------------------------------------
                                    Title: President

                                    Address for Notices:
                                     --------------------
                                    108 S Madison Avenue
                                    Louisville, Kentucky  40243
                                    Facsimile:
                                    Owner of 397,878 Covered Shares

                                      -8-           Shareholder Pledge Agreement

<PAGE>


                                    --------------------------------------------
                                    Courtlandt Gates

                                    Address for Notices:
                                    --------------------
                                    PO Box 1821
                                    Ross, California 94957
                                    Owner of 5,305 Covered Shares


                                    --------------------------------------------
                                    Timothy Meckel

                                    Address for Notices:
                                     --------------------
                                    56 Ledgeways
                                    Wellesley, Massachusetts 02481
                                    Owner of 5,305 Covered Shares

                                      -9-           Shareholder Pledge Agreement

<PAGE>


                                 PROMISSORY NOTE

$1,326.26                                                      San Francisco, CA
                                                                  March 12, 2001

FOR  VALUE   RECEIVED,   RateXchange   Corporation,   a   Delaware   corporation
("RateXchange"),  promises to pay to Courtlandt  Gates  ("Shareholder"),  within
five business days after the Maturity  Date (as defined  below),  the sum of one
thousand three hundred twenty six dollars and twenty six cents  ($1,326.26),  at
Shareholder's  address at P.O Box 1821, Ross, Ca 94957 or at such other place as
Shareholder  may from time to time designate in writing,  together with interest
on the  unpaid  balance  hereof  as  hereinafter  described,  upon the terms and
conditions set forth herein.

         Reference is made to that certain Agreement and Plan of Merger ("Merger
Agreement"), dated as of the date hereof, among RateXchange, Xpit Corporation, a
Delaware  corporation and a wholly owned  subsidiary of  RateXchange,  Xpit.com,
Inc., an Idaho  corporation  (the  "Company"),  and certain  shareholders of the
Company.  Capitalized terms used and not otherwise defined in this note ("Note")
shall have their respective meanings set forth in the Merger Agreement.

         1.  Interest.  Sums owing under this Note shall bear interest at a rate
of seven percent (7%) per annum, compounded annually.

         2.  Maturity  Date.  This  Note  shall  mature  on the  first  to occur
("Maturity  Date") of (a) the second  anniversary  of the date of this Note, (b)
the date on which  RateXchange  closes a debt or  equity  financing  with  gross
proceeds to RateXchange of at least Five Million Dollars,  or (c) the occurrence
of a Change of Control. For purposes of this Note, "Change of Control" means (i)
the acquisition of ownership by any Person, directly or indirectly, beneficially
or of record,  of shares  representing  more than 50% of the aggregate  ordinary
voting  power  represented  by the  issued  and  outstanding  capital  stock  of
RateXchange,  or (ii)  occupation  of a  majority  of the  seats on the board of
directors of  RateXchange by Persons who were neither (A) nominated by the board
of directors of RateXchange nor (B) appointed by directors so nominated.

         3. Adjustment.  Amounts owing under this Note are subject to adjustment
as set forth in Section 2.5 of the Merger Agreement.

         4. Security. This Note is secured by the Acquiror Pledge Agreement.

         5. Enforcement Costs. If either party is required to employ an attorney
to enforce its rights under this Note, the prevailing party in such action shall
be entitled to receive from the non-prevailing party all of its reasonable costs
of  enforcement,  including,  but not  limited  to, all court costs and fees and
reasonable attorneys' fees.

<PAGE>


         6. Applicable  Law. The  obligations of the parties  hereunder shall be
interpreted,  construed and enforced in accordance with the laws of the State of
California and the United States of America.

         IN WITNESS  WHEREOF,  RateXchange  has executed this Note as of the day
and year first above written.

                                    RATEXCHANGE CORPORATION,
                                      a Delaware corporation


                                    By:
                                       -----------------------------------------
                                    Name:  D. Jonathan Merriman
                                    Title: President and Chief Executive Officer

<PAGE>


                                 PROMISSORY NOTE

$1,326.26                                                      San Francisco, CA
                                                                  March 12, 2001

FOR  VALUE   RECEIVED,   RateXchange   Corporation,   a   Delaware   corporation
("RateXchange"),  promises to pay to Timothy Meckel ("Shareholder"), within five
business  days  after  the  Maturity  Date (as  defined  below),  the sum of one
thousand three hundred twenty six dollars and twenty six cents  ($1,326.26),  at
Shareholder's  address  at 56  Ledgeways,  Wellesley,  MA 02481 or at such other
place as Shareholder  may from time to time designate in writing,  together with
interest on the unpaid balance hereof as hereinafter  described,  upon the terms
and conditions set forth herein.

         Reference is made to that certain Agreement and Plan of Merger ("Merger
Agreement"), dated as of the date hereof, among RateXchange, Xpit Corporation, a
Delaware  corporation and a wholly owned  subsidiary of  RateXchange,  Xpit.com,
Inc., an Idaho  corporation  (the  "Company"),  and certain  shareholders of the
Company.  Capitalized terms used and not otherwise defined in this note ("Note")
shall have their respective meanings set forth in the Merger Agreement.

         1.  Interest.  Sums owing under this Note shall bear interest at a rate
of seven percent (7%) per annum, compounded annually.

         2.  Maturity  Date.  This  Note  shall  mature  on the  first  to occur
("Maturity  Date") of (a) the second  anniversary  of the date of this Note, (b)
the date on which  RateXchange  closes a debt or  equity  financing  with  gross
proceeds to RateXchange of at least Five Million Dollars,  or (c) the occurrence
of a Change of Control. For purposes of this Note, "Change of Control" means (i)
the acquisition of ownership by any Person, directly or indirectly, beneficially
or of record,  of shares  representing  more than 50% of the aggregate  ordinary
voting  power  represented  by the  issued  and  outstanding  capital  stock  of
RateXchange,  or (ii)  occupation  of a  majority  of the  seats on the board of
directors of  RateXchange by Persons who were neither (A) nominated by the board
of directors of RateXchange nor (B) appointed by directors so nominated.

         3. Adjustment.  Amounts owing under this Note are subject to adjustment
as set forth in Section 2.5 of the Merger Agreement.

         4. Security. This Note is secured by the Acquiror Pledge Agreement.

         5. Enforcement Costs. If either party is required to employ an attorney
to enforce its rights under this Note, the prevailing party in such action shall
be entitled to receive from the non-prevailing party all of its reasonable costs
of  enforcement,  including,  but not  limited  to, all court costs and fees and
reasonable attorneys' fees.

<PAGE>


         6. Applicable  Law. The  obligations of the parties  hereunder shall be
interpreted,  construed and enforced in accordance with the laws of the State of
California and the United States of America.

         IN WITNESS  WHEREOF,  RateXchange  has executed this Note as of the day
and year first above written.

                                    RATEXCHANGE CORPORATION,
                                      a Delaware corporation


                                    By:
                                       -----------------------------------------
                                    Name:  D. Jonathan Merriman
                                    Title: President and Chief Executive Officer

<PAGE>


                                 PROMISSORY NOTE

$99,469.50                                                     San Francisco, CA
                                                                  March 12, 2001

         FOR VALUE RECEIVED,  RateXchange  Corporation,  a Delaware  corporation
("RateXchange"),  promises  to pay to Ramsey  Financial,  Inc.  ("Shareholder"),
within five business days after the Maturity Date (as defined below), the sum of
ninety  nine  thousand,   four  hundred  sixty  nine  dollars  and  fifty  cents
($99,469.50),  at  Shareholder's  address at 108 S Madison  Avenue,  Louisville,
Kentucky  40243 or at such  other  place as  Shareholder  may from  time to time
designate in writing,  together  with interest on the unpaid  balance  hereof as
hereinafter described, upon the terms and conditions set forth herein.

         Reference is made to that certain Agreement and Plan of Merger ("Merger
Agreement"), dated as of the date hereof, among RateXchange, Xpit Corporation, a
Delaware  corporation and a wholly owned  subsidiary of  RateXchange,  Xpit.com,
Inc., an Idaho  corporation  (the  "Company"),  and certain  shareholders of the
Company.  Capitalized terms used and not otherwise defined in this note ("Note")
shall have their respective meanings set forth in the Merger Agreement.

         1.  Interest.  Sums owing under this Note shall bear interest at a rate
of seven percent (7%) per annum, compounded annually.

         2.  Maturity  Date.  This  Note  shall  mature  on the  first  to occur
("Maturity  Date") of (a) the second  anniversary  of the date of this Note, (b)
the date on which  RateXchange  closes a debt or  equity  financing  with  gross
proceeds to RateXchange of at least Five Million Dollars,  or (c) the occurrence
of a Change of Control. For purposes of this Note, "Change of Control" means (i)
the acquisition of ownership by any Person, directly or indirectly, beneficially
or of record,  of shares  representing  more than 50% of the aggregate  ordinary
voting  power  represented  by the  issued  and  outstanding  capital  stock  of
RateXchange,  or (ii)  occupation  of a  majority  of the  seats on the board of
directors of  RateXchange by Persons who were neither (A) nominated by the board
of directors of RateXchange nor (B) appointed by directors so nominated.

         3. Adjustment.  Amounts owing under this Note are subject to adjustment
as set forth in Section 2.5 of the Merger Agreement.

         4. Security. This Note is secured by the Acquiror Pledge Agreement.

         5. Enforcement Costs. If either party is required to employ an attorney
to enforce its rights under this Note, the prevailing party in such action shall
be entitled to receive from the non-prevailing party all of its reasonable costs
of  enforcement,  including,  but not  limited  to, all court costs and fees and
reasonable attorneys' fees.

<PAGE>


         6. Applicable  Law. The  obligations of the parties  hereunder shall be
interpreted,  construed and enforced in accordance with the laws of the State of
California and the United States of America.

         IN WITNESS  WHEREOF,  RateXchange  has executed this Note as of the day
and year first above written.

                                    RATEXCHANGE CORPORATION,
                                      a Delaware corporation


                                    By:
                                       -----------------------------------------
                                    Name:  D. Jonathan Merriman
                                    Title: President and Chief Executive Officer

<PAGE>


                                 PROMISSORY NOTE

$397,877.98                                                    San Francisco, CA
                                                                  March 12, 2001

         FOR VALUE RECEIVED,  RateXchange  Corporation,  a Delaware  corporation
("RateXchange"), promises to pay to Sockeye Trading, LLC ("Shareholder"), within
five business days after the Maturity Date (as defined below),  the sum of three
hundred ninety seven  thousand,  eight hundred  seventy seven dollars and ninety
eight cents ($397,877.98), at Shareholder's address at 815 Park Blvd, Suite 302,
Boise,  Idaho 83712 or at such other place as Shareholder  may from time to time
designate in writing,  together  with interest on the unpaid  balance  hereof as
hereinafter described, upon the terms and conditions set forth herein.

         Reference is made to that certain Agreement and Plan of Merger ("Merger
Agreement"), dated as of the date hereof, among RateXchange, Xpit Corporation, a
Delaware  corporation and a wholly owned  subsidiary of  RateXchange,  Xpit.com,
Inc., an Idaho  corporation  (the  "Company"),  and certain  shareholders of the
Company.  Capitalized terms used and not otherwise defined in this note ("Note")
shall have their respective meanings set forth in the Merger Agreement.

         1.  Interest.  Sums owing under this Note shall bear interest at a rate
of seven percent (7%) per annum, compounded annually.

         2.  Maturity  Date.  This  Note  shall  mature  on the  first  to occur
("Maturity  Date") of (a) the second  anniversary  of the date of this Note, (b)
the date on which  RateXchange  closes a debt or  equity  financing  with  gross
proceeds to RateXchange of at least Five Million Dollars,  or (c) the occurrence
of a Change of Control. For purposes of this Note, "Change of Control" means (i)
the acquisition of ownership by any Person, directly or indirectly, beneficially
or of record,  of shares  representing  more than 50% of the aggregate  ordinary
voting  power  represented  by the  issued  and  outstanding  capital  stock  of
RateXchange,  or (ii)  occupation  of a  majority  of the  seats on the board of
directors of  RateXchange by Persons who were neither (A) nominated by the board
of directors of RateXchange nor (B) appointed by directors so nominated.

         3. Adjustment.  Amounts owing under this Note are subject to adjustment
as set forth in Section 2.5 of the Merger Agreement.

         4. Security. This Note is secured by the Acquiror Pledge Agreement.

         5. Enforcement Costs. If either party is required to employ an attorney
to enforce its rights under this Note, the prevailing party in such action shall
be entitled to receive from the non-prevailing party all of its reasonable costs
of  enforcement,  including,  but not  limited  to, all court costs and fees and
reasonable attorneys' fees.


<PAGE>

         6. Applicable  Law. The  obligations of the parties  hereunder shall be
interpreted,  construed and enforced in accordance with the laws of the State of
California and the United States of America.

         IN WITNESS  WHEREOF,  RateXchange  has executed this Note as of the day
and year first above written.

                                    RATEXCHANGE CORPORATION,
                                      a Delaware corporation


                                    By:
                                       -----------------------------------------
                                    Name:  D. Jonathan Merriman
                                    Title: President and Chief Executive Officer