================================================================================

                                UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                            ------------------------

                                   FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

               For the Quarterly Period Ended September 30, 1998
                           -------------------------------

                          Commission File Number 0-26816

                            IDX SYSTEMS CORPORATION
              (Exact name of registrant as specified in its charter)

         VERMONT                                       03-0222230
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                     Identification No.)

                                 1400 SHELBURNE ROAD
                            SOUTH BURLINGTON, VT  05403
                   (Address of principal executive offices)

          Registrant's telephone number, including area code:  (802-862-1022)

         Indicate  by check mark  whether the  registrant  has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports).

                           Yes   X           No           
                               ----             ----
         Indicate by check mark whether the registrant has been subject to 
such filing requirements for the past 90 days.

                           Yes   X           No          
                               ----            ----
        The number of shares outstanding of the registrant's common stock
as of November 6, 1998 was 26,492,555.

================================================================================
                   [Exhibit index begins on Page 21]


<PAGE>


             

                            IDX SYSTEMS CORPORATION
                                   FORM 10-Q
               For the Quarterly Period Ended September 30, 1998

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                           Page
PART I.  FINANCIAL INFORMATION                                             ----
<S>      <C>                                                               <C>


ITEM 1.  Interim Financial Statements:

        a) Condensed consolidated balance sheets as of
           September 30, 1998 and December 31, 1997 (unaudited)............3

        b) Condensed consolidated statements of operations and
           comprehensive income (loss) for the three and nine months ended
           September 30, 1998 and 1997 (unaudited) ........................4

        c) Condensed consolidated statements of cash flows for the 
           nine months ended September 30, 1998  and 1997 (unaudited)......5

        d) Notes to condensed consolidated financial statements............6

ITEM 2.  Management's discussion and analysis of financial
         condition and results of operations...............................8

PART II. OTHER INFORMATION

ITEM 1.  Legal proceedings.................................................23

ITEM 2.  Changes in securities.............................................23

ITEM 3.  Defaults upon senior securities...................................23

ITEM 4.  Submission of matters to a vote of security holders...............23

ITEM 5.  Other information.................................................23

ITEM 6.  Exhibits and reports on Form 8-K..................................23

SIGNATURES.................................................................24

EXHIBIT INDEX..............................................................25

</TABLE>

                                  Page 2 of 25

<PAGE>


PART I.   FINANCIAL INFORMATION

Item 1.   Interim Financial Statements

                             IDX SYSTEMS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                         SEPTEMBER 30            DECEMBER 31
                                              1998                   1997
                                              ----                   ----
<S>                                      <C>                     <C>

ASSETS
Cash and securities                      $ 128,463               $ 115,887
Accounts receivable, net                    80,873                  66,587
Other current assets                        12,414                  14,719
                                         ---------               ---------
Total current assets                       221,750                 197,193

Property and equipment, net                 30,559                  28,277
Capitalized software costs, net                738                     368
Other assets                                15,325                  11,480
                                         ---------               ---------
                                            46,622                  40,125
                                         ---------               ---------

Total assets                             $ 268,372               $ 237,318
                                         =========               =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
   and other liabilities                 $  34,266               $  34,749
Deferred revenue                            17,884                  21,538
                                         ---------               ---------
Total current liabilities                   52,150                  56,287

Long-term debt                                   -                   2,508
Minority interest                            8,720                   1,919
Stockholders' equity                       207,502                 176,604
                                         ---------               ---------
                                           216,222                 181,031
                                         ---------               ---------

Total liabilities and stockholders' 
   equity                                $ 268,372               $ 237,318
                                         =========               =========

</TABLE>


          See Notes to the Condensed Consolidated Financial Statements

NOTE: The balance sheet at December 31, 1997 has been derived from the 
audited financial statements at that date.

                                  Page 3 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Interim Financial Statements

                             IDX SYSTEMS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                 THREE MONTHS ENDED       NINE MONTHS ENDED
                                   SEPTEMBER 30              SEPTEMBER 30
                                 1998         1997        1998         1997
                                 ----         ----        ----         ----
<S>                              <C>          <C>         <C>          <C>

REVENUES
Systems sales                    $46,678      $34,703     $129,363     $ 98,029
Maintenance and service fees      36,680       29,895      106,096       83,560
                                 -------      -------     --------     --------
Total revenues                    83,358       64,598      235,459      181,589

OPERATING EXPENSES
Cost of sales                     42,404       33,612      120,060       94,637
Selling, general and 
   administrative                 16,038       12,541       44,737       37,847
Research and development          12,420        9,271       34,498       26,356
Merger and related charges             -       20,030        3,201       22,320
                                 -------      -------      -------     --------
Total operating expenses          70,862       75,454      202,496      181,160

Operating income (loss)           12,496      (10,856)      32,963          429
Interest and other income, net    (1,619)      (1,480       (4,000)      (4,154)
                                 -------      -------      -------     --------
Income (loss) before income taxes 14,115       (9,376)      36,963        4,583
Income tax provision (benefit)     5,650       (2,021)      15,990        3,566
                                 -------      -------      -------     --------
Net income (loss)                $ 8,465      $(7,355)     $20,973      $ 1,017
                                 =======      ========     =======      =======

Unrealized gain on securities
   available-for-sale                  4           45           46           68
                                 -------      -------      -------      -------
Comprehensive income (loss)      $ 8,469      $(7,310)     $21,019      $ 1,085
                                 =======      ========     =======      =======

Basic earnings (loss) per share  $  0.32      $ (0.29)     $  0.80      $  0.04
                                 =======      ========     =======      =======
Basic weighted average shares 
    outstanding                   26,427       25,735       26,292       25,607
                                 =======      =======      =======      =======

Diluted earnings (loss) per 
   share                         $  0.31      $ (0.29)     $  0.77      $  0.04
                                 =======      ========     =======      =======
Diluted weighted average shares 
   outstanding                    27,279       25,735       27,155       26,407
                                 =======      =======      =======      =======

</TABLE>


          See Notes to the Condensed Consolidated Financial Statements

                                  Page 4 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Interim Financial Statements

                             IDX SYSTEMS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                       NINE MONTHS ENDED
                                                         SEPTEMBER 30
                                                    1998                1997
                                                    ----                ----
<S>                                                 <C>                 <C>


NET CASH PROVIDED BY OPERATING ACTIVITIES           $20,045             $19,023

INVESTING ACTIVITIES
Purchase of property and equipment, net             (10,239)            (10,524)
Purchase of securities available-for-sale, net      (83,216)            (76,111)
Sale of securities available-for-sale                75,133              76,226
Purchase of certain net assets                       (7,545)             (4,933)
                                                    --------            --------
   Net cash used in investing activities            (25,867)            (15,342)

FINANCING ACTIVITIES
Proceeds from sale of common stock                    9,879               4,073
Increase in minority interest                         6,500
Principal repayments of long-term debt               (6,109)               (151)
                                                    --------            --------
   Net cash provided by financing activities         10,270               3,922
                                                    --------            --------
Decrease in cash and cash equivalents                 4,448               7,603
Cash and cash equivalents at beginning of period     14,061              12,326
                                                    --------            -------
Cash and cash equivalents at end of period          $18,509             $19,929
                                                    ========            =======
</TABLE>


          See Notes to the Condensed Consolidated Financial Statements

                                  Page 5 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

Notes to Condensed Consolidated Financial Statements


Note 1 - Basis of Presentation

The interim unaudited  consolidated  financial  statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance  with  generally  accepted  accounting  principles.
Accordingly,  certain information and footnote  disclosures normally included in
annual  financial  statements have been omitted or condensed.  In the opinion of
management,  all  necessary  adjustments  have  been  made  to  provide  a  fair
presentation.  The  operating  results  for the  three  and  nine  months  ended
September  30, 1998 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 1998. For further  information,  refer
to the consolidated financial statements and footnotes included in the Company's
latest annual report on Form 10-K.

Note 2 - New Accounting Standards

In October,  1997, the American Institute of Certified Public Accountants issued
Statement of Position  ("SOP")  97-2,  Software  Revenue  Recognition,  revising
certain  aspects of SOP 91-1,  which the Company adopted on January 1, 1998. SOP
97-2 did not materially affect the Company's revenue  recognition  policies with
respect to software license fees which are based upon vendor-specific  objective
information  and relate  principally to its proprietary  systems  software which
generally  requires no significant  production,  modification or  customization.
License revenue,  accordingly,  is deferred and recognized as customer  payments
become due based upon  specified  milestones and due dates  including  delivery,
installation and final systems acceptance.

Note 3 - Business Acquisitions

On February 23, 1998, the Company  recorded  charges of $3.2 million  related to
the  acquisition of contract  management  system  technology from Trego Systems,
Inc. for cash of $4.0  million.  The  acquisition  was  accounted  for under the
purchase  method.   The  charges  were  expensed  as  in-process   research  and
development  in  connection  with  the  Company's  development  of a  healthcare
contract management system.

On  September  11, 1998,  the Company  entered into an agreement to acquire EDiX
Corporation ("EDiX"), a provider of medical  transcription  outsourcing services
to hospitals and large physician group  practices.  The  acquisition,  which has
been  approved  by the  Boards of  Directors  of each  company,  is  subject  to
regulatory and shareholder approval.  The terms of the agreement provide for the
shareholders and optionholders of EDiX to receive between  approximately 400,000
and 480,000  shares of IDX common stock,  based on an average  closing price per
share of IDX stock,  subject to a downward  adjustment under certain conditions.
Based on the closing  price of the IDX common stock on September  10, 1998,  the
transaction is valued at  approximately  $20.0  million,  plus the assumption of
EDiX debt. In addition, IDX has agreed to loan EDiX up to $5.0 million,  subject
to certain conditions,  to provide working capital to EDiX prior to the closing.
The transaction is not expected to dilute earnings per share in 1999 compared to
1998.  After  the  transaction  is  complete,  it is  anticipated  that the EDiX
organization will operate as EDiX, a division of IDX Systems Corporation.

                                  Page 6 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

Note 4 - Income Taxes

Income taxes for the quarter ended September 30, 1998 were provided at 40% which
approximates  the Company's  statutory tax rate.  The provision for income taxes
for the nine months ended September 30, 1998 was provided at  approximately  43%
which is more than the Company's  historical  statutory rate of 40%. This higher
rate is due to a portion of the  charges  incurred  in the first  quarter  ended
March 31, 1998  related to the  acquisition  of Trego  Systems,  Inc.  which are
non-deductible for income tax purposes.


Note 5 - Earnings Per Share Information

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128, Earnings Per Share, which the Company adopted on December 31, 1997. At that
time,  the Company  changed the method  used to compute  earnings  per share and
restated all prior periods.  Under the new  requirements  for calculating  basic
earnings  per share,  the  dilutive  effect of stock  options is  excluded.  The
following sets forth the computation of basic and diluted earnings per share:

<TABLE>
<CAPTION>

                                       Three Months Ended    Nine Months Ended
                                           September 30        September 30
                                       1998       1997       1998        1997
                                       ----       ----       ----        ----
<S>                                    <C>        <C>        <C>         <C>

Numerator:
   Net income (loss)                   $8,465     $(7,355)   $ 20,973    $1,017
                                       ------     --------   --------    ------
    Numerator for basic and diluted 
      earnings (loss) per share        $8,465     $(7,355)   $ 20,973    $1,017

Denominator:
   Denominator for basic earnings 
     (loss) per share--
     weighted-average shares           26,427      25,735      26,292    25,607
   Effect of employee stock options       852           -         863       800
                                       ------     -------    --------   -------
     Denominator for diluted earnings 
       (loss) per sha                  27,279      25,735      27,155    26,407
                                       ------     -------     -------   -------
Basic earnings (loss) per share        $ 0.32     $ (0.29)    $  0.80   $  0.04
                                       ======     ========    =======   =======
Diluted earnings (loss) per share      $ 0.31     $ (0.29)    $  0.77   $  0.04
                                       ======     ========    =======   =======

</TABLE>

Note 6 - Reclassifications

Certain  prior  period  amounts have been  reclassified  to conform with current
period presentations.

                                  Page 7 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

Item 2.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company  reported net income of $8.5  million,  or $0.31 per share,  for the
third quarter of 1998 as compared to net income, excluding nonrecurring expenses
for costs  associated with the merger of PHAMIS,  Inc., of $6.4 million or $0.24
per share,  for the third  quarter  of 1997.  Including  the merger and  related
charges,  the net loss for the third quarter  ended  September 30, 1997 was $7.4
million,  or $(0.29) per share. For the nine months ended September 30, 1998 the
Company reported net income of $21.0 million, or $0.77 per share, as compared to
net income of $1.0 million,  or $0.04 per share,  for the  comparable  period in
1997. Net income,  excluding  nonrecurring  expenses,  for the nine month period
ended  September 30, 1998 was $24.1  million,  or $0.89 per share as compared to
net income,  exclusive of nonrecurring  expenses, of $16.1 million, or $0.61 per
share, for the nine months ended September 30, 1997.

This Management's Discussion and Analysis of Financial Conditions and Results of
Operations  includes a number of  forward-looking  statements  which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking  statements are subject to certain risks and uncertainties
including  those  discussed  below that  could  cause  actual  results to differ
materially  from  historical  results  or  those  anticipated.   Words  such  as
"believes,"  "may," "plans,"  "anticipates,"  "expects,"  "intends," and similar
expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements.  In addition, the disclosures in
the  section on page 14 under the caption  "Factors  Affecting  Future  Results"
consists  principally  of a discussion of risks which may affect future  results
and, are thus, in their entirety forward-looking in nature. Readers are urged to
carefully  review and  consider the various  disclosures  made by the Company in
this report and in the Company's  other reports  filed with the  Securities  and
Exchange  Commission that attempt to advise interested  parties of the risks and
factors that may affect the Company's business.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.

REVENUES
The Company's total revenues  increased to $83.4 million during the three months
ended September 30, 1998 from $64.6 million in the corresponding period in 1997,
an increase of $18.8 million or 29.0%.  Revenues from systems sales increased to
$46.7 million  during the three months ended  September 30, 1998 (56.0% of total
revenues)  from $34.7  million  (53.7% of total  revenues) in the  corresponding
period in 1997,  an  increase  of $12.0  million  or  34.5%.  The  increase  was
primarily  due to an  increase  in  installations  of certain  of the  Company's
IDXtend,  Radiology and  GPMS/Zanzibar  systems.  Revenues from  maintenance and
service fees increased to $36.7 million during the three months ended  September
30, 1998 (44.0% of total  revenues) from $29.9 million (46.3% of total revenues)
in the  corresponding  period in 1997, an increase of 

                                  Page 8 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION

$6.8 million or 22.7%.  The increase in revenues  from  maintenance  and service
fees was due principally to additional  maintenance  revenues resulting from the
continued growth in the Company's installed client base.


COST OF SALES
The cost of sales and  services  increased  to $42.4  million  during  the three
months ended September 30, 1998 from $33.6 million in the  corresponding  period
in 1997,  an  increase  of $8.8  million or 26.2%.  The gross  profit  margin on
systems  sales and  services  increased  to 49.1%  during the three months ended
September 30, 1998 from 48.0% in the corresponding  period in 1997. The increase
in gross profit was  primarily due to increased  installations  of the Company's
IDXtend,  Radiology and GPMS/Zanzibar  systems which typically include a greater
percentage  of software and less services  than  installations  of the Company's
earlier systems sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling,  general and administrative  expenses increased to $16.0 million during
the  three  months  ended   September   30,  1998  from  $12.6  million  in  the
corresponding  period in 1997,  an  increase  of $3.4  million  or  27.9%.  As a
percentage  of total  revenues,  selling,  general and  administrative  expenses
decreased to 19.2% during the three months ended  September  30, 1998 from 19.4%
in 1997.  The increase in total  selling,  general and  administrative  expenses
during the three  months  ended  September  30, 1998 was  principally  due to an
increase in the Company's sales and marketing staff which management believes is
necessary to support the continued growth of the Company.

RESEARCH AND DEVELOPMENT
Research and  development  expenses  increased to $12.5 million during the three
months ended September 30, 1998 from $9.3 million in the corresponding period in
1997,  an increase of $3.2 million or 34.0%.  The increase is  attributed  to an
increase  in  personnel   expenses  and  outside   consultants  to  support  the
development  of  additional  products for the Company.  As a percentage of total
revenues,  research and development expenses increased to 14.9% during the three
months ended  September 30, 1998 from 14.4% for the three months ended September
30, 1997. Software development costs incurred subsequent to the establishment of
technological  feasibility  until  general  release of the related  products are
capitalized.  Historically costs incurred during beta site testing have not been
material.  Although the Company  presently  expects  costs to complete beta site
testing in the future to be  insignificant,  as the Company develops products to
operate using other technologies as well as more comprehensive clinical systems,
the time and effort required to complete beta site testing may be  significantly
more extensive. Consequently,  capitalized software development costs may become
material in future reporting periods.

MERGER AND RELATED COSTS
During the third quarter of 1997, the Company  recorded charges of $20.0 million
related to the merger with  PHAMIS.  The charges were  comprised of  transaction
costs of $5.1 million,  write-offs and adjustments of $7.4 million of long-lived
assets,  principally  capitalized  software  development  costs  and  equipment,
attributable to the elimination of overlapping products and operations, employee
termination and related costs of $2.7 million, and other merger related costs of
$4.8 million,  principally related to integration costs incurred during the year
and the termination of leases and other contractual obligations.

                                  Page 9 of 25
<PAGE>
PART I.  FINANCIAL INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997

REVENUES
The Company's total revenues  increased to $235.5 million during the nine months
ended  September  30, 1998 from $181.6  million in the  corresponding  period in
1997,  an  increase  of $53.9  million or 29.7%.  Revenues  from  systems  sales
increased  to $129.4  million  during the nine months ended  September  30, 1998
(54.9% of total  revenues) from $98.0 million  (54.0% of total  revenues) in the
corresponding  period in 1997,  an  increase  of $31.4  million  or  32.0%.  The
increase was  primarily  due to an increase in  installations  of certain of the
Company's   IDXtend,   Radiology  and  GPMS/Zanzibar   systems.   Revenues  from
maintenance  and service fees increased to $106.1 million during the nine months
ended  September 30, 1998 (45.1% of total revenues) from $83.6 million (46.0% of
total  revenues)  in the  corresponding  period in 1997,  an  increase  of $22.5
million or 27.0%. The increase in revenues from maintenance and service fees was
due principally to additional  maintenance revenues resulting from the continued
growth in the Company's installed client base.

COST OF SALES
The cost of sales and  services  increased  to $120.1  million  during  the nine
months ended September 30, 1998 from $94.6 million in the  corresponding  period
in 1997,  an  increase of $25.5  million or 26.9%.  The gross  profit  margin on
systems  sales and  services  increased  to 49.0%  during the nine months  ended
September 30, 1998 from 47.9% in the corresponding  period in 1997. The increase
in gross profit was  primarily due to increased  installations  of the Company's
IDXtend,  Radiology and GPMS/Zanzibar  systems which typically include a greater
percentage  of software and less services  than  installations  of the Company's
earlier systems sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling,  general and administrative  expenses increased to $44.7 million during
the nine months ended September 30, 1998 from $37.8 million in the corresponding
period in 1997,  an increase of $6.9 million or 18.2%.  As a percentage of total
revenues, selling, general and administrative expenses decreased to 19.0% during
the nine months ended September 30, 1998 from 20.8% in the corresponding  period
in 1997.  The increase in total  selling,  general and  administrative  expenses
during the nine  months  ended  September  30,  1998 was  principally  due to an
increase in the Company's sales and marketing staff which management believes is
necessary to support the continued growth of the Company.

RESEARCH AND DEVELOPMENT
Research and  development  expenses  increased to $34.5 million  during the nine
months ended September 30, 1998 from $26.4 million in the  corresponding  period
in 1997, an increase of $8.1 million or 30.9%.  The increase is attributed to an
increase  in  personnel   expenses  and  outside   consultants  to  support  the
development  of  additional  products for the Company.  As a percentage of total
revenues,  research and development  expenses increased to 14.7% during the nine
months ended September 30, 1998 from 14.5% in the corresponding  period in 1997.
Software   development  costs  incurred   subsequent  to  the  establishment  of
technological  feasibility  until  general  release of the related  products are
capitalized.

                                 Page 10 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION

MERGER AND RELATED COSTS
During the third quarter of 1997, the Company  recorded charges of $20.0 million
related to the merger with  PHAMIS.  The charges were  comprised of  transaction
costs of $5.1 million,  write-offs and adjustments of $7.4 million of long-lived
assets,  principally  capitalized  software  development  costs  and  equipment,
attributable to the elimination of overlapping products and operations, employee
termination and related costs of $2.7 million, and other merger related costs of
$4.8 million,  principally related to integration costs incurred during the year
and the termination of leases and other contractual obligations.

WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
On February 23, 1998, the Company  recorded  charges of $3.2 million  related to
the acquisition of contract management  technology from Trego Systems,  Inc. for
cash of $4.0  million.  The  acquisition  was  accounted  for under the purchase
method.  The charges were expensed as  in-process  research and  development  in
connection with the Company's  development of a healthcare  contract  management
system.

On February 26, 1997, the Company  recorded  charges of $2.3 million  related to
the  acquisition  of certain  data model  technology  from  Medaphis  Healthcare
Information  Technology  Company for cash of $2.5 million.  The  acquisition was
accounted for under the purchase method. The charges were expensed as in-process
research and  development  in  connection  with the Company's  development  of a
healthcare data model.

SIGNIFICANT AGREEMENT
On  September  11, 1998,  the Company  entered into an agreement to acquire EDiX
Corporation ("EDiX"), a provider of medical  transcription  outsourcing services
to hospitals and large physician group  practices.  The  acquisition,  which has
been  approved  by the  Boards of  Directors  of each  company,  is  subject  to
regulatory and shareholder approval.  The terms of the agreement provide for the
shareholders and optionholders of EDiX to receive between  approximately 400,000
and 480,000  shares of IDX common stock,  based on an average  closing price per
share of IDX stock,  subject to a downward  adjustment under certain conditions.
Based on the closing  price of the IDX common stock on September  10, 1998,  the
transaction is valued at  approximately  $20.0  million,  plus the assumption of
EDiX debt. In addition, IDX has agreed to loan EDiX up to $5.0 million,  subject
to certain conditions,  to provide working capital to EDiX prior to the closing.
The transaction is not expected to dilute earnings per share in 1999 compared to
1998.  After  the  transaction  is  complete,  it is  anticipated  that the EDiX
organization will operate as EDiX, a division of IDX Systems Corporation.

LIQUIDITY AND CAPITAL RESOURCES
Since its  inception  in 1969,  the Company has funded its  operations,  working
capital needs and capital  expenditures  primarily from  operations,  except for
real estate owned by certain partnerships and trusts financed through industrial
development  bonds.  The proceeds from its initial public  offering in 1995 were
(i)  distributed to stockholders of the Company in connection with the Company's
prior status as an S  corporation  under the Internal  Revenue Code of 1986,  as
amended, and (ii) used for general corporate purposes, including working capital
purposes,  payment of current  expenses and  strategic  transactions,  including
acquisitions of businesses, products and technologies.

                                 Page 11 of 25

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PART I.  FINANCIAL INFORMATION

Cash  flows  from  operations  are  principally  comprised  of  net  income  and
depreciation  and are  primarily  affected  by the net  effect of the  change in
accounts receivable, accounts payable and accrued expenses. Due to the nature of
the  Company's  business,  accounts  receivable,  deferred  revenue and accounts
payable  fluctuate  considerably  due to, among other things,  the length of the
sales cycle and  installation  efforts which are dependent  upon the size of the
transaction,  the changing business plans of the customer,  the effectiveness of
customers'  management  and general  economic  conditions.  In general  accounts
receivable from customers have been collected consistently within 90 days.

Cash flows related to investing  activities have principally been related to the
purchase of  computer  and office  equipment,  leasehold  improvements,  and the
purchase and sale of investment grade marketable securities. The Company expects
these activities to continue. Investing activities may also include purchases of
interests  in and  acquisitions  of  complementary  products,  technologies  and
businesses.  There  can be no  assurance  that  the  Company  will  be  able  to
successfully complete any such purchases or acquisitions in the future.

Cash flows from financing activities  historically relate to purchases of common
stock through the exercise of employee stock options and in connection  with the
employee stock purchase plan. During 1998 other financing  activities related to
the recapitalization of the real estate affiliate from debt to equity.

Cash,  cash  equivalents  and  marketable  securities at September 30, 1998 were
$128.5  million,  an  increase  from the  December  31,  1997  balance of $115.9
million.  The Company has a revolving  line of credit with a bank  allowing  the
Company to borrow up to $5.0 million bearing  interest at the prime rate.  There
were no borrowings as of September 30, 1998 or 1997.

The Company expects that its requirements for office facilities and other office
equipment will grow as staffing  requirements  dictate.  The Company's operating
lease  commitments  consist  primarily  of  office  leasing  for  the  Company's
operating facilities. The Company plans to continue increasing the number of its
professional  staff during 1998 to meet anticipated  sales volume and to support
research and development  efforts.  To the extent necessary to support increases
in staffing, the Company intends to obtain additional office space.

The Company believes that current  operating funds will be sufficient to finance
its operating  requirements  at least through the next twelve  months.  To date,
inflation has not had a material impact on the Company's revenues or income.


INCOME TAXES
Income taxes for the quarter ended September 30, 1998 were provided at 40% which
approximates  the Company's  statutory tax rate.  The provision for income taxes
for the nine months ended September 30, 1998 was provided at  approximately  43%
which is more than the Company's  historical  statutory rate of 40%. This higher
rate is due to a portion of the  charges  incurred  in the first  quarter  ended
March 31, 1998  related to the  acquisition  of Trego  Systems,  Inc.  which are
non-deductible for income tax purposes. The Company anticipates an effective tax
rate of approximately 43% for the year ending December 31, 1998.

                                 Page 12 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION

NEW ACCOUNTING STANDARDS
In October,  1997, the American Institute of Certified Public Accountants issued
Statement of Position  ("SOP")  97-2,  Software  Revenue  Recognition,  revising
certain  aspects of SOP 91-1,  which the Company adopted on January 1, 1998. SOP
97-2 did not materially affect the Company's revenue  recognition  policies with
respect to software license fees which are based upon vendor-specific  objective
information  and relate  principally to its proprietary  systems  software which
generally  requires no significant  production,  modification or  customization.
License revenue,  accordingly,  is deferred and recognized as customer  payments
become due based upon  specified  milestones and due dates  including  delivery,
installation and final systems acceptance.

In June 1997, the Financial  Accounting  Standards Board issued SFAS No. 130 and
No. 131, "Reporting  Comprehensive Income" and "Disclosures About Segments of an
Enterprise  and Related  Information,"  which the Company  adopted on January 1,
1998.  The adoption of these new  accounting  standards  did not have a material
impact on the Company's financial statements.

In February 1997, the Financial  Accounting Standards Board issued SFAS No. 128,
Earnings per Share, which the Company adopted on December 31, 1997. SFAS No. 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  basic
earnings  per share  excludes  any  dilutive  effects of options,  warrants  and
convertible  securities.  Diluted earnings per share is not materially different
from the previously reported fully diluted earnings per share.

YEAR 2000
Software  applications  that use only two digits to  identify a year in the date
field may fail or  create  errors in the year 2000  ("Year  2000  Issues").  
The Company believes that Year 2000 Issues will not pose significant operational
problems for the Company, and the Company has taken significant steps to 
address Year 2000 Issues.

The  Company's  internally-used  computer  equipment,  software and devices with
embedded  technology--including  both  information  systems and  non-information
systems (together,  "Internal Use Systems")--may  fail to operate properly or as
expected  due to Year 2000  Issues.  This  could  result in a system  failure or
miscalculations causing disruption of the Company's operations,  including among
other things,  a temporary  inability to process  transactions,  send  invoices,
conduct  communications,  or engage in similar normal  business  activities.  In
addition,  computer  software  products  sold,  marketed,  and  supported by the
Company ("Company Software Products") and the products of third parties that are
distributed  by the Company or others and are necessary for operation of Company
Software Products ("Third Party  Products"),  may fail to operate properly or as
expected  due to Year 2000  Issues.  This  could  result in system  failures  or
miscalculations  causing  disruption of customers'  operations,  including among
other things,  a temporary  inability to process  transactions,  send  invoices,
conduct  communications,  treat  patients,  or engage in similar normal business
activities.  Further, products and services used by the Company's customers, but
not supplied by the Company,  could fail to operate  properly or as expected due
to Year 2000 Issues.  Customers' efforts to plan for such events could result in
the  deferral by  customers  of current  installations  of and plans to purchase
Company  Software  Products.  The Company  has  undertaken  various  initiatives
intended  to address  Year 2000 Issues with  respect to  Internal  Use  Systems,
Company Software Products, and Third Party Products. The Company has established
working  groups whose  primary  functions  are to (i) develop and  implement the
Company's definition of Year 2000 readiness,  (ii) assess  Internal Use Systems,

                                 Page 13 of 25

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PART I.  FINANCIAL INFORMATION


Third Party Products and Company Software  Products for Year 2000 Issues,  (iii)
monitor  development,  testing and  remediation  efforts with respect to Company
Software  Products,  (iv) monitor testing of Company Software Products and Third
Party Products, (v) review customer preparations to implement Year 2000 releases
of  Company  Software  Products,  (vi)  monitor  and  coordinate  the  Company's
deployment  plans and  results  with  respect to Year 2000  releases  of Company
Software Products,  (vii) monitor and coordinate  contingency plans with respect
to Internal Use Systems, Company Software Products and Third Party Products, and
(viii)  provide  centralization,  accuracy  and  consistency  of  the  Company's
communications regarding Year 2000 Issues.

The Company has engaged independent experts to assist in all of its efforts with
respect to Year 2000  Issues.  The  Company  has not  employed  such  experts to
independently evaluate and validate such efforts as of this time.

Based upon the Company's  assessment  efforts to date, the Company believes that
certain  Internal Use Systems  will  require  replacement  or  modification.  In
addition,  in the  ordinary  course of  replacing  and  upgrading  Internal  Use
Systems,  the Company attempts to obtain  replacements that it believes will not
fail or  operate  unexpectedly  as a result of Year 2000  Issues or be Year 2000
compliant. The Company is currently engaged in but has not completed contingency
planning to address personnel,  resource and technical Year 2000 Issues relating
to  foreseeable   scenarios  that  develop   despite  its  current  and  planned
remediation  efforts.  The Company  expects  that its  assessment,  remediation,
testing,  deployment,  and contingency planning efforts with respect to Internal
Use Systems  will be  completed  by December  31, 1998 and that actual  testing,
remediation  and deployment will be completed by September 30, 1999. The Company
estimates  that as of September  30, 1998 it had completed 40% of its efforts in
connection  with Year 2000 Issues  relating to its  Internal  Use  Systems.  The
projects  comprising  the  remaining  60% of such efforts are in process and are
expected to be substantially completed on or about September 30, 1999.

The  Company  has mailed  letters  or  otherwise  communicated  with many of its
significant  vendors of Internal  Use Systems and related  service  providers to
determine the extent to which Year 2000 Issues  affect  products and services of
such vendors and  providers.  As of September 30, 1998, the Company had received
responses  from  approximately  30% of such  third  parties,  and  75% of  these
companies have provided written assurances that they expect to address all their
significant  Year 2000 Issues on a timely  basis.  The Company is engaged in but
has not  completed  efforts  to  communicate  with  other  vendors  and  service
providers  involved in its Internal Use Systems to request more responses to its
communications  and to  verify  the  responses  received.  Due to  uncertainties
associated with vendors and service providers,  the Company is unable to predict
whether  Year 2000 Issues  involved  in its  Internal  Use  Systems  will have a
material  adverse effect on the Company's  business,  results of operations,  or
financial condition, despite the Company's current assessment to the contrary.

                                 Page 14 of 25
<PAGE>
PART I.  FINANCIAL INFORMATION


The  Company  works  closely  with  vendors  of  Third  Party  Products  and has
communicated  with them to  determine  the extent to which  their  products  and
services are or will be Year 2000 compliant. In addition, the Company is testing
or plans to test Year 2000 releases of certain Third Party Products.  Based upon
its current assessment, the Company believes it has received adequate assurances
that Third Party Product  vendors expect to address all their  significant  Year
2000 Issues on a timely basis. Due to uncertainties  associated with Third Party
Product  vendors,  the Company is unable to predict  whether a material  adverse
effect on business,  results of  operations,  or financial  condition may result
from Year 2000 Issues  related to Third Party  Products,  despite the  Company's
current assessment to the contrary.

The Company began  development  of Year 2000  versions of some Company  Software
Products in 1997 and  continues  to  progress  through  development  cycles with
respect to some Company Software Products. The Company began deploying Year 2000
releases of Company Software Products in 1998 and expects to complete deployment
of such releases  during the second half of 1999. The Company  continues to test
and monitor  performance of Year 2000 releases of Company  Software  Products in
customer  environments.  The Company  expects to deliver and deploy  maintenance
releases  of Company  Software  Products in the  ordinary  course of business to
remediate any Year 2000 Issues as identified during and after deployment of Year
2000 releases of Company Software Products.  Based on the Company's  assessment,
the Company believes  continuing efforts will be required to assist customers in
deploying and testing Year 2000 releases of Company  Software  Products in their
unique  environments.  The  Company  expects an  increase in service and support
effort levels as the Year 2000 approaches.

The Company  develops,  markets and supports many  different  products,  and the
amount of effort applied with respect to individual products varies from product
to product.  The Company  estimates that as of October 31, 1998 it had completed
approximately  80% of the development  efforts relating to Year 2000 versions of
all of the Company Software Products.  The projects comprising the remaining 20%
of these  efforts are in process and expected to be  substantially  completed in
the first half of 1999. The Company estimates that as of October 31, 1998 it had
completed  approximately  26% of the  deployment  efforts  relating to Year 2000
versions of all Company Software Products. The projects comprising the remaining
74% of  these  efforts  are in  process  and are  expected  to be  substantially
completed in the first half of 1999, but the Company expects to continue efforts
to remediate  and maintain Year 2000  versions of Company  Software  Products in
customer  environments and to support  customers'  efforts relating to Year 2000
Issues through the early part of 2000.

The Company is currently engaged in but has not completed  contingency  planning
to address personnel,  resource,  technical and communication issues relating to
its service and remediation  efforts.  The Company expects that its development,
remediation,  testing,  deployment and contingency planning efforts with respect
to Company  Software  Products will continue up to and beyond December 31, 1999,
but expects the level of  development,  testing and deployment  will decrease in
the second half of 1999.


                                 Page 15 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION


The Company has begun,  but not yet completed,  a comprehensive  analysis of the
operational,  business  and  financial  problems  (including  possible  loss  of
revenue),  if any, that would be reasonably  likely to result from the impact of
unresolved Year 2000 Issues,  including  possible (i) failure by the Company and
vendors of Third Party  Products to complete  efforts to avoid or minimize  Year
2000  Issues on a timely  basis,  (ii)  failure of  Customers  to be ready to or
cooperate in the deployment of Year 2000 versions of Company  Software  Products
and Third Party  Products on a timely basis,  and (iii) deferral by customers of
current installations and prospective purchase decisions with respect to Company
Software  Products.  The Company has not yet  completed  its  contingency  plans
relating  to Year  2000  scenarios  it  deems  sufficiently  probable  to  merit
contingency planning.  The Company currently plans to complete the initial phase
of such  analysis  and  contingency  planning by December  31,  1998,  with more
detailed planning expected to be completed during the first half of 1999.

The  Company  believes  that  the cost of its Year  2000  Issue  identification,
assessment,  remediation,  testing,  and  contingency  planning  efforts will be
approximately  $19.6 million,  of which  approximately  $6.1 million  relates to
Internal Use Systems and $13.5  million  relates to Company  Software  Products.
Because the Company develops, markets, and supports many different products, and
the amount of effort  applied with respect to  individual  products  varies from
product to product.  All  expenditures to fund Year 2000 Issue efforts have been
and will continue to be funded from operating  expenditures for fiscal years1997
through early 2000, except for $.7 million, which is expected to be incurred and
capitalized  in 1999.  As of  September  30,  1998,  the  Company  had  incurred
approximately $7 million related to its Year 2000 Issue assessment, remediation,
testing, and contingency planning efforts identification, which is approximately
36% of the  total  projected  costs  of such  efforts.  Of the  amount  of costs
incurred to date,  approximately  $.9 million  relates to Internal  Use Systems,
which is approximately 14% of the total of estimated costs for such efforts, and
$6.1 million relates to Company Software Products, which is approximately 45% of
the total of estimated costs for such efforts.

The Company  presently  believes that Year 2000 Issues will not pose significant
operational  problems for the Company.  However,  unless all material  Year 2000
Issues are timely and properly identified,  assessed, and remediated, and unless
adequate  contingency  plans are properly  formulated  with respect to Year 2000
Issues,  the Year 2000  Issue may  materially  adversely  impact  the  Company's
business, financial condition and results of operations, or adversely affect the
Company's relationships with customers, vendors or others.

The costs,  timing and  scheduling of deployment and  installation  of Year 2000
versions of Company Software  Products and Third Party Products,  as well as the
ability  of the  Company  to assist  customers  in the  installation  of Company
Software Products, will depend in part on the readiness, ability and cooperation
of  customers  and  their  suppliers.   Due  to  uncertainties  associated  with
customers'  readiness,  cooperation and sources of products and services,  there
can be no assurance that Year 2000 Issues will not materially  adversely  effect
the  Company's  business,  results of  operations,  or financial  condition,  or
adversely affect the Company's relationships with customers, vendors or others.


                                 Page 16 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION


Some  customers  and  prospects  of the  Company  operate in  complex  computing
environments that include products and services not supplied by the Company. The
costs,  timing and  scheduling  by customers of work related to Year 2000 Issues
involving  such products and services may cause some  customers and prospects to
defer current  projects or  prospective  purchase  decisions  regarding  Company
Software  Products.  If Year 2000 Issues cause  customers and prospects to defer
current projects or prospective  purchase  decisions,  the Company's  financial,
business  and  operational  goals may be deferred or may not be realized at all,
with the result that the Company's business, results of operations, or financial
condition  could  be  materially   adversely  affected.   Due  to  uncertainties
associated  with  customers and  prospects,  there can be no assurance that Year
2000 Issues will not materially adversely effect the Company's business, results
of  operations,  or  financial  condition  or  adversely  affect  the  Company's
relationships with customers, vendors or others.

The costs of the Company's Year 2000  identification,  assessment,  remediation,
testing, deployment and contingency planning efforts, and the dates on which the
Company  believes it will  complete such  efforts,  are based upon  management's
current best estimates,  which were derived using numerous assumptions regarding
future  events,  including  the  continued  availability  of certain  resources,
third-party remediation plans, and other factors. There can be no assurance that
these  estimates  will prove to be  accurate,  and actual  results  could differ
materially from those currently  anticipated.  Specific factors that could cause
such material  differences  include, but are not limited to, the availability of
and cost of personnel trained in Year 2000 Issues,  the ability to correctly and
effectively identify,  assess,  remediate, and test all relevant computer codes,
equipment,  and embedded technology,  and similar uncertainties,  the ability of
the Company to timely install and deploy Year 2000 releases of Company  Software
Products, a failure of the Company to provide, obtain or make available adequate
resources  to assist  customers  in  installing  Year 2000  releases  of Company
Software  Products and Third Party Products.  As a result of any of such factors
alone or in combination,  the Company may experience an increase in warranty and
other claims. In addition,  since there is no uniform  definition of "compliance
with Year 2000," and since the Company sells a myriad of different  combinations
of products and services  under varying  contractual  terms,  the Company is not
able to assess or estimate  the  possible  impact of such  possible  claims.  No
assurance can be given that the aggregate  cost of defending and resolving  such
claims,  if any, will not materially  adversely affect the Company's  results of
operations.  Although some of the Company's  agreements with  manufacturers  and
others from whom it purchases products for resale contain  provisions  requiring
such parties to indemnify the Company under some circumstances,  there can be no
assurance that such indemnification arrangements will cover all of the Company's
liabilities  and costs  relate to claims by third  parties  related to Year 2000
Issues.

                                 Page 17 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION



FACTORS AFFECTING FUTURE RESULTS
The Company's revenues and operating results can vary significantly from quarter
to quarter as a result of a number of factors,  including  the volume and timing
of systems sales and installations,  and length of sales cycles and installation
efforts.  The timing of revenues  from  systems  sales is  difficult to forecast
because the Company's  sales cycle can vary  depending  upon factors such as the
size of the  transaction,  the  changing  business  plans of the  customer,  the
effectiveness  of customer's  management  and general  economic  conditions.  In
addition,   because   revenue  is  recognized  at  various   points  during  the
installation  process,  the timing of revenue  recognition  varies  considerably
based on a number of factors, including availability of personnel,  availability
of the  customer's  resources  and  complexity  of the  needs of the  customer's
organization. The Company's initial contact with a potential customer depends in
significant part on the customer's decision to replace, expand, or substantially
modify its existing  information systems, or modify or add business processes or
lines of business. How and when to implement,  replace,  expand or substantially
modify an  information  system or modify or add  business  processes or lines of
business,  are major decisions for healthcare  organizations.  Accordingly,  the
sales cycle for the Company's  systems is typically  three to eighteen months or
more from contract  execution to completion  of  installation.  During the sales
cycle and the installation  cycle, the Company expends  substantial time, effort
and  funds   preparing   contract   proposals,   negotiating  the  contract  and
implementing  the system.  Because a  significant  percentage  of the  Company's
expenses are  relatively  fixed,  a variation in the timing of systems sales and
installation can cause significant  variations in operating results from quarter
to quarter.  The Company's future operating results may fluctuate as a result of
these and other factors, such as customer purchasing patterns, and the timing of
new product and service introductions and product upgrade releases.  The Company
believes that  quarterly  results of  operations  will continue to be subject to
significant  fluctuations  and that its results of operations for any particular
quarter or fiscal year may not be indicative of results of operations for future
periods.  There can be no assurance  that future  period to period  fluctuations
will  continue  and will not have a  material  adverse  effect on the  Company's
results of operations, financial condition or business.

The Company is engaged in the business of  developing,  marketing and supporting
computer software to its customers  ("Company Software  Products").  The Company
also distributes  products  necessary for operation of Company Software Products
and such products are sometimes  obtained by customers of the Company from other
sources ("Third Party Products"). Software that uses only two digits to identify
a year in the date field may fail or create  errors in the year 2000 ("Year 2000
Issues").  The impact of  unresolved  Year 2000 Issues,  including  possible (i)
failure by the Company and vendors of Third Party  Products to complete  efforts
to avoid or  minimize  Year  2000  Issues on a timely  basis,  (ii)  failure  of
Customers to be ready to or cooperate in the deployment of Year 2000 versions of
Company Software  Products and Third Party Products on a timely basis, and (iii)
deferral  by  customers  of  current   installations  and  prospective  purchase
decisions with respect to Company  Software  Products may  materially  adversely
impact the Company's business, financial condition and results of operations, or
adversely affect the Company's relationships with customers,  vendors or others.
Unless all material Year 2000 Issues involving the company's  computer  software
products are timely and  properly  identified,  assessed,  and  remediated,  and
unless adequate  contingency plans are properly  formulated with respect to Year
2000 Issues,  the Year 2000 Issue may materially  adversely impact the Company's
business, financial condition and results of operations, or adversely affect the
Company's relationships with customers, vendors or others.

                                 Page 18 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION

The costs,  timing and  scheduling of deployment and  installation  of Year 2000
versions of Company Software  Products and Third Party Products,  as well as the
ability  of the  Company  to assist  customers  in the  installation  of Company
Software Products, will depend in part on the readiness, ability and cooperation
of  customers  and  their  suppliers.   Due  to  uncertainties  associated  with
customers'  readiness,  cooperation and sources of products and services,  there
can be no assurance that Year 2000 Issues will not materially  adversely  effect
the  Company's  business,  results of  operations,  or financial  condition,  or
adversely affect the Company's relationships with customers, vendors or others.

Some  customers  and  prospects  of the  Company  operate in  complex  computing
environments that include products and services not supplied by the Company. The
costs,  timing and  scheduling  by customers of work related to Year 2000 Issues
involving  such products and services may cause some  customers and prospects to
defer current  projects or  prospective  purchase  decisions  regarding  Company
Software  Products.  If Year 2000 Issues cause  customers and prospects to defer
current projects or prospective  purchase  decisions,  the Company's  financial,
business  and  operational  goals may be deferred or may not be realized at all,
with the result that the Company's business, results of operations, or financial
condition  could  be  materially   adversely  affected.   Due  to  uncertainties
associated  with  customers and  prospects,  there can be no assurance that Year
2000 Issues will not materially adversely effect the Company's business, results
of  operations,  or  financial  condition  or  adversely  affect  the  Company's
relationships with customers, vendors or others.

The costs of the Company's Year 2000  identification,  assessment,  remediation,
testing, deployment and contingency planning efforts, and the dates on which the
Company  believes it will  complete such  efforts,  are based upon  management's
current best estimates,  which were derived using numerous assumptions regarding
future  events,  including  the  continued  availability  of certain  resources,
third-party remediation plans, and other factors. There can be no assurance that
these  estimates  will prove to be  accurate,  and actual  results  could differ
materially from those currently  anticipated.  Specific factors that could cause
such material  differences  include, but are not limited to, the availability of
and cost of personnel trained in Year 2000 Issues,  the ability to correctly and
effectively identify,  assess,  remediate, and test all relevant computer codes,
equipment,  and embedded technology,  and similar uncertainties,  the ability of
the Company to timely install and deploy Year 2000 releases of Company  Software
Products, a failure of the Company to provide, obtain or make available adequate
resources  to assist  customers  in  installing  Year 2000  releases  of Company
Software  Products and Third Party Products.  As a result of any of such factors
alone or in combination,  the Company may experience an increase in warranty and
other claims. In addition,  since there is no uniform  definition of "compliance
with Year 2000," and since the Company sells a myriad of different  combinations
of products and services  under varying  contractual  terms,  the Company is not
able to assess or estimate  the  possible  impact of such  possible  claims.  No
assurance can be given that the aggregate  cost of defending and resolving  such
claims,  if any, will not materially  adversely affect the Company's  results of
operations.  Although some of the Company's  agreements with  manufacturers  and
others from whom it purchases products for resale contain  provisions  requiring
such parties to indemnify the Company under some circumstances,  there can be no
assurance that such indemnification arrangements will cover all of the Company's
liabilities  and costs  relate to claims by third  parties  related to Year 2000
Issues.

                                 Page 19 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION

The  Company  intends  to  continue  to  grow in part  through  acquisitions  of
complementary   products,   technologies   and   businesses  or  alliances  with
complementary  businesses.  The Company's ability to expand successfully through
acquisitions  or alliances  depends on many factors,  including  the  successful
identification  and  acquisition  of products,  technologies  or businesses  and
management's  ability to  effectively  integrate  and  operate  the  acquired or
aligned products,  technologies or businesses.  There is significant competition
for acquisition and alliance opportunities in the healthcare information systems
industry,  which may intensify  due to  consolidation  in the industry,  thereby
increasing the costs of capitalizing on such opportunities. The Company competes
for  acquisition  and  alliance  opportunities  with other  companies  that have
significantly  greater  financial  and  management  resources.  There  can be no
assurance  that the Company will be successful in acquiring or aligning with any
complementary products,  technologies or businesses;  or, if acquired or aligned
with, that the Company will be able to successfully integrate any such products,
technologies or businesses into its current business and operations. The failure
to successfully  integrate any significant products,  technologies or businesses
could have a material  adverse  effect on the Company's  results of  operations,
financial condition or business.
 
Integrating  the  operations and management of the Company and PHAMIS has been a
time-consuming process, and will require the dedication of management resources,
which has and may continue to temporarily distract attention from the day-to-day
business  of  the  combined  Company.  There  can  be  no  assurance  that  this
integration  will be completed  smoothly or  successfully,  and the inability of
management to  successfully  integrate  the  operations or management of the two
companies  could  have a material  adverse  effect on the  business,  results of
operations  or  financial  condition  of the  combined  Company.  As  previously
discussed  in the section  "Merger and Related  Costs" the Company has  incurred
significant merger and related costs.  Additional  unanticipated expenses may be
incurred in  connection  with the continued  integration  of the business of the
Company and PHAMIS.

The stock market has,  from time to time,  experienced  extreme price and volume
fluctuations,  particularly  in the high  technology and healthcare  information
technology sectors, which have often been unrelated to the operating performance
of particular companies. The Company experiences fluctuations in its stock price
related to these general market swings as well as announcements of technological
innovations, new product introductions by the Company or its competitors, market
conditions in the computer software or hardware industries and healthcare reform
measures.  These  fluctuations  could  have a  significant  impact on the future
market price of the Company's Common Stock.

As a developer of information  systems, the Company must anticipate and adapt to
evolving industry standards and new technological  developments.  The market for
the Company's  products is  characterized  by continued and rapid  technological
advances  in  both  hardware  and  software   development,   requiring   ongoing
expenditures  for research and  development  and the timely  introduction of new
products and enhancements to existing  products.  The establishment of standards
is largely a function of user acceptance.  Therefore, such standards are subject
to change.  The Company's future success will depend in part upon its ability to
enhance its existing products,  to respond effectively to technology changes, to
migrate  its clients to new  technologies,  to sell  additional  products to its
existing client base and to introduce new products and  technologies to meet the
evolving needs of its clients in the healthcare  information systems market. The

                                 Page 20 of 25

<PAGE>

PART I.  FINANCIAL INFORMATION


Company is currently  devoting  significant  resources toward the development of
enhancements to its existing  products and the migration of existing products to
new hardware and software platforms.  There can be no assurance that the Company
will  successfully  complete the development of these products or this migration
in a timely  fashion  or that the  Company's  current  or future  products  will
satisfy the needs of the healthcare  information systems market.  Further, there
can be no assurance that products or  technologies  developed by others will not
adversely  affect the Company's  competitive  position or render its products or
technologies noncompetitive or obsolete.
                  
The Company  currently  derives a  significant  percentage  of its revenues from
sales of financial and administrative healthcare information systems and related
services.  As a result,  any factor adversely  affecting sales of these products
and services could have a material  adverse  effect on the Company's  results of
operations,   financial   condition  or  business.   Although  the  Company  has
experienced  increasing annual sales, revenues associated with existing products
may decline as a result of several factors,  including price competition.  There
can be no assurance that the Company will continue to be successful in marketing
its current products or any new or enhanced  products or maintaining the current
pricing for its existing products.

Certain of the Company's  products provide  applications  that relate to patient
medical histories and treatment plans. Any failure by the Company's  products to
provide  accurate,  secure  and  timely  information  could  result  in  product
liability  claims  against  the Company by its  clients or their  affiliates  or
patients.  The  Company  maintains  insurance  that it  believes  is adequate to
protect against claims associated with the use of its products, but there can be
no  assurance  that its  insurance  coverage  would  adequately  cover any claim
asserted against the Company.  A successful claim brought against the Company in
excess of its insurance  coverage  could have a material  adverse  effect on the
Company's  results  of  operations,   financial  condition  or  business.   Even
unsuccessful  claims could result in the expenditure of funds in litigation,  as
well as diversion of management  time and  resources.  There can be no assurance
that the  Company  will not be subject to product  liability  claims,  that such
claims will not result in liability in excess of its insurance  coverage or that
the Company's  insurance  will cover such claims or that  appropriate  insurance
will  continue  to be  available  to the  Company in the future at  commercially
reasonable rates.

The  success of the  Company is  dependent  to a  significant  degree on its key
management,  sales and marketing,  and technical personnel. The Company believes
that its continued  future success will also depend upon its ability to attract,
motivate  and  retain  highly  skilled,  managerial,  sales and  marketing,  and
technical  personnel,  including  software  programmers  and systems  architects
skilled in the  computer  languages  in which the  Company's  products  operate.
Competition  for  such  personnel  in  the  software  and  information  services
industries is intense.  The loss of key  personnel,  or the inability to hire or
retain  qualified  personnel,  could  have  a  material  adverse  effect  on the
Company's results of operations,  financial condition or business.  Although the
Company  has  been  successful  to  date in  attracting  and  retaining  skilled
personnel,  there can be no  assurance  that the  Company  will  continue  to be
successful in attracting and retaining the personnel it requires to successfully
develop  new  and  enhanced  products  and  to  continue  to  grow  and  operate
profitably.


                                 Page 21 of 25

<PAGE>
PART I.  FINANCIAL INFORMATION


The healthcare  industry in the United States is subject to changing  political,
economic and regulatory influences that may affect the procurement practices and
operations of healthcare  organizations.  The Company's products are designed to
function  within the structure of the  healthcare  financing  and  reimbursement
system currently being used in the United States. During the past several years,
the healthcare  industry has been subject to increasing  levels of  governmental
regulation  of,  among other  things,  reimbursement  rates and certain  capital
expenditures.  From time to time,  certain  proposals  to reform the  healthcare
system have been  considered  by  Congress.  These  proposals,  if enacted,  may
increase  government  involvement in healthcare,  lower  reimbursement rates and
otherwise change the operating environment for the Company's clients. Healthcare
organizations may react to these proposals and the uncertainty  surrounding such
proposals  by  curtailing  or  deferring  investments,  including  those for the
Company's  products and services.  The Company cannot predict with any certainty
what impact,  if any,  such  proposals or  healthcare  reforms might have on its
results of operations, financial condition or business.

The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the  regulation of certain  computer  software  products as medical  devices
under the 1976 Medical Device  Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has  recently  indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under  the  policy,  the  manufacturers  of such  products  could  be  required,
depending on the product,  to (i) register and list their products with the FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products on
the market  before  marketing  such  products,  or (iii)  obtain FDA approval by
demonstrating  safety and  effectiveness  before marketing a product.  Depending
upon the  intended  use of a device,  IDX could be required by the FDA to obtain
extensive data from clinical studies to demonstrate safety or effectiveness,  or
substantial equivalence. If the FDA requires such data, IDX would be required to
obtain  approval  of an  investigational  device  exemption  before  undertaking
clinical  trials.  Clinical trials can take extended periods of time to complete
and there can be no assurance  that the FDA will approve or clear a device after
the  completion of such trials.  In addition,  such products would be subject to
FDC Act's  general  controls,  including  those  relating to good  
manufacturing  practices and adverse  experience  reporting.  Although it is not
possible  to  anticipate  the final  form of the  FDA's  policy  with  regard to
computer  software,  the  Company  expects  that,  whether  or not the  draft is
finalized  or  changed,  the FDA is  likely  to  become  increasingly  active in
regulating  computer  software that is intended for use in healthcare  settings.
The FDA  can  impose  extensive  requirements  governing  pre-  and  post-market
conditions such as service investigation,  approval, labeling and manufacturing.
In addition,  the FDA can impose extensive  requirements  governing  development
controls and quality assurance processes. There can be no assurance that actions
taken by the FDA to regulate computer software products will not have a material
adverse effect on the Company's  results of operations,  financial  condition or
business.

Because of these and other  factors,  past financial  performance  should not be
considered  an  indicator  of  future  performance.  Investors  should  not  use
historical trends to anticipate future results.

                                 Page 22 of 25

<PAGE>

PART II. OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS

                  None.


Item 2.  CHANGES IN SECURITIES

                  None.


Item 3.  DEFAULTS UPON SENIOR SECURITIES

                  Not applicable.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                  None.

Item 5.  OTHER INFORMATION

                  None.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) The exhibits filed as part of this Form 10-Q are listed on the Exhibit Index
immediately preceding such exhibits,  which Exhibit Index is incorporated herein
by reference.

(b) On September 16, 1998, the Company filed a report on Form 8-K,  reporting an
Agreement  and  Plan  of  Merger  dated  as of  September  11,  1998  with  EDiX
Corporation.

No financial statements were filed with such report.


                                 Page 23 of 25

<PAGE>


                                      
SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                 IDX SYSTEMS CORPORATION


Date: November 13, 1998                          By: /s/ John A. Kane
                                                -------------------------------
                                                 John A. Kane,
                                                 Vice President, Finance and
                                                 Administration, Chief Financial
                                                 Officer and Treasurer
                                                 (Principal Financial and
                                                 Accounting Officer)


                                 Page 24 of 25


<PAGE>


                                  Exhibit Index
                                  -------------

         The following  exhibits are filed as part of this  Quarterly  Report on
Form 10-Q:

<TABLE>
<CAPTION>


Exhibit No.       Description                                             Page
-----------       -----------                                             ----
<S>               <C>                                                     <C>

10A               Agreement and Plan of Merger among IDX Systems
                  Corporation, Underwood Acquisition Corporation
                  and EDiX Corporation dated September 11, 1998.           26

27                Financial Data Schedule                                  94

</TABLE>

                                 Page 25 of 25


  
<PAGE>





                                                                   EXHIBIT 10A



                          AGREEMENT AND PLAN OF MERGER



                                      AMONG



                            IDX SYSTEMS CORPORATION,


                           UNDERWOOD ACQUISITION CORP.



                                       AND



                                EDiX CORPORATION







                               September 11, 1998

<PAGE>
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                           Page
                                                                           ----
<S><C>                                                                     <C>

ARTICLE I - THE MERGER....................................................... 1
   1.1. The Merger........................................................... 1
   1.2. The Closing.......................................................... 1
   1.3. Actions at the Closing............................................... 2
   1.4. Additional Action.................................................... 2
   1.5. Conversion of Shares................................................. 2
   1.6. Dissenting Shares.................................................... 5
   1.7. Fractional Shares.................................................... 6
   1.8. Escrow............................................................... 6
   1.9. Post-Closing Balance Sheet........................................... 7
   1.10. Options and Warrants................................................ 7
   1.11. Indemnification Representative...................................... 8
   1.12. Certificate of Incorporation........................................10
   1.13. By-laws.............................................................10
   1.14. Directors and Officers..............................................10
   1.15. No Further Rights...................................................10
   1.16. Closing of Transfer Books...........................................10
   1.17. Tax-Free Reorganization.............................................10
   1.18. Accounting Treatment................................................11

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................11
   2.1. Organization, Qualification and Corporate Power......................11
   2.2. Capitalization.......................................................11
   2.3. Authorization of Transaction.........................................12
   2.4. Noncontravention.....................................................12
   2.5. Subsidiaries.........................................................13
   2.6. Financial Statements.................................................15
   2.7. Absence of Certain Changes...........................................15
   2.8. Undisclosed Liabilities..............................................15
   2.9. Tax Matters..........................................................16
   2.10. Assets..............................................................18
   2.11. Owned Real Property.................................................18
   2.12. Intellectual Property...............................................18
   2.13. Inventory...........................................................21
   2.14. Real Property Leases................................................21
   2.15. Contracts...........................................................22
   2.16. Accounts Receivable.................................................25
   2.17. Powers of Attorney..................................................25
   
                                      -i-

<PAGE>
                                                                           Page
                                                                           ----
   2.18. Insurance...........................................................25
   2.19. Litigation..........................................................26
   2.20. Warranty............................................................26
   2.21. Employees...........................................................26
   2.22. Employee Benefits...................................................27
   2.23. Environmental Matters...............................................29
   2.24. Legal Compliance....................................................31
   2.25. Permits.............................................................31
   2.26. Certain Business Relationships With Affiliates......................31
   2.27. Brokers' Fees.......................................................31
   2.28. Books and Records...................................................32
   2.29. Customers and Suppliers.............................................32
   2.30. Pooling.............................................................32
   2.31. Company Action......................................................32
   2.32. Prepayments, Prebilled Invoices and Deposits........................33
   2.33. Banking Facilities. ................................................33
   2.34. Year 2000...........................................................34
   2.35. Disclosure..........................................................34
   2.36. Information in Registration Statement...............................34

ARTICLE III -  REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY 
               SUBSIDIARY....................................................35
   3.1. Organization.........................................................35
   3.2. Capitalization.......................................................35
   3.3. Authorization of Transaction.........................................35
   3.4. Noncontravention.....................................................36
   3.5. Reports and Financial Statements.....................................36
   3.6. Brokers' Fees........................................................37
   3.7. Legality of Merger Shares............................................37
   3.8. Disclosure...........................................................37

ARTICLE IV - COVENANTS.......................................................37
   4.1. Best Efforts.........................................................37
   4.2. Notices and Consents.................................................37
   4.3. Registration; Special Meeting; Other Actions.........................38
   4.4. Operation of Business................................................39
   4.5. Full Access..........................................................41
   4.6. Notice of Breaches...................................................41
   4.7. Exclusivity..........................................................42
   4.8. Agreements from Certain Affiliates of the Company....................42
   4.9. Monthly Financial Statements.........................................42
   4.10. Nasdaq National Market..............................................42

                                      -ii-

<PAGE>
                                                                           Page
                                                                           ----
   4.11. Blue Sky Approvals..................................................43
   4.12. Hart-Scott-Rodino Act...............................................43
   4.13. Pooling Accounting..................................................43
   4.14. Indemnification of Company Officers and Directors...................43
   4.15. Resolution of Computer Issue........................................43

ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER.............................44
   5.1. Conditions to Each Party's Obligations...............................44
   5.2. Conditions to Obligations of the Buyer and the Transitory Subsidiary.45
   5.3. Conditions to Obligations of the Company.............................47

ARTICLE VI - INDEMNIFICATION.................................................48
   6.1. Indemnification......................................................48
   6.2. Method of Asserting Claims...........................................49
   6.3. Survival.............................................................50
   6.4. Limitations..........................................................51

ARTICLE VII - TAX MATTERS....................................................52
   7.1. Preparation and Filing of Tax Returns................................52
   7.2. Tax Indemnification by the Company Stockholders......................52
   7.3. Allocation of Certain Taxes..........................................53
   7.4. [Intentionally omitted]..............................................53
   7.5. Cooperation on Tax Matters...........................................53
   7.6. Termination of Tax-Sharing Agreements................................53

ARTICLE VIII - TERMINATION...................................................54
   8.1. Termination of Agreement.............................................54
   8.2. Effect of Termination................................................55
   8.3. Termination Fees.....................................................55

ARTICLE IX - DEFINITIONS.....................................................56

ARTICLE X - MISCELLANEOUS....................................................58
   10.1. Press Releases and Announcements....................................59
   10.2. No Third Party Beneficiaries........................................59
   10.3. Entire Agreement....................................................59
   10.4. Succession and Assignment...........................................59
   10.5. Counterparts........................................................59
   10.6. Headings............................................................60
   10.7. Notices.............................................................60
   10.8. Governing Law.......................................................61

                                     -iii-

<PAGE>
                                                                           Page
                                                                           ----
   10.9. Amendments and Waivers..............................................61
   10.10. Severability.......................................................61
   10.11. Expenses...........................................................61
   10.12. Specific Performance...............................................62
   10.13. Submission to Jurisdiction.........................................62
   10.14. Construction.......................................................62
   10.15. Incorporation of Exhibits and Schedules............................62

</TABLE>



Exhibits

Exhibit A - Escrow Agreement
Exhibit B - Affiliate's Agreement
Exhibit C - Form of  Opinion  of  Counsel  to the  Company  
Exhibit D - Form of Opinion of General Counsel to the Buyer
Exhibit E - Form of Closing Certificate of the Buyer and the Transitory 
            Subsidiary

                                      -iv-

<PAGE>


                          AGREEMENT AND PLAN OF MERGER


         Agreement  and Plan of Merger  entered into as of September 11, 1998 by
and  among  IDX  Systems  Corporation,  a  Vermont  corporation  (the  "Buyer"),
Underwood   Acquisition  Corp.,  a  Delaware   corporation  and  a  wholly-owned
subsidiary of the Buyer (the "Transitory Subsidiary"),  and EDiX Corporation,  a
Delaware corporation (the "Company").  The Buyer, the Transitory  Subsidiary and
the Company are referred to collectively herein as the "Parties."

         This Agreement  contemplates a merger of the Transitory Subsidiary into
the  Company.  In such  merger,  the  stockholders  of the Company  will receive
capital  stock of the Buyer in exchange for their  capital stock of the Company.
This Agreement  contemplates a tax-free  reorganization  under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").  It is intended that
the merger shall be accounted for on a pooling of interests basis.

         Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.


                                   Article I


                                   THE MERGER

1.1. THE MERGER. Upon and subject to the terms and conditions of this Agreement,
the  Transitory  Subsidiary  shall  merge with and into the  Company  (with such
merger  referred to herein as the  "Merger") at the  Effective  Time (as defined
below).  From and after the Effective Time, the separate corporate  existence of
the  Transitory  Subsidiary  shall cease and the Company  shall  continue as the
surviving  corporation  in  the  Merger  (the  "Surviving   Corporation").   The
"Effective  Time"  shall be the time at which  the  Company  and the  Transitory
Subsidiary  file  the  certificate  of  merger  or other  appropriate  documents
prepared and executed in accordance with the relevant provisions of the Delaware
General  Corporation  Law (the  "Certificate  of Merger")  with the Secretary of
State.  The  Merger  shall  have the  effects  set forth in  Section  251 of the
Delaware General Corporation Law.

1.2. THE CLOSING. The closing of the transactions contemplated by this Agreement
(the  "Closing")  shall take place at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, commencing at 9:00 a.m. local time on January 30,
1999,  or,  if all of  the  conditions  to the  obligations  of the  Parties  to
consummate  the  transactions  contemplated  hereby have not been  satisfied  or
waived  by  such  date,  on  such  mutually  agreeable  later  date  as  soon as
practicable   after  the  satisfaction  or  waiver  of  all  conditions  to  the
obligations of the Parties to consummate the  transactions  contemplated  hereby
(the "Closing Date").

<PAGE>

1.3.  ACTIONS AT THE CLOSING.  At the Closing,  (a) the Company shall deliver to
the Buyer and the Transitory  Subsidiary the various  certificates,  instruments
and  documents  referred  to in Section  5.2,  (b) the Buyer and the  Transitory
Subsidiary  shall deliver to the Company the various  certificates,  instruments
and  documents  referred to in Section 5.3,  (c) the Company and the  Transitory
Subsidiary  shall file with the  Secretary of State of the State of Delaware the
Certificate of Merger,  (d) each of the Company  Stockholders (as defined below)
shall deliver to the Buyer the certificates  ("Certificates")  representing his,
her or its Company Shares (as defined below), (e) the Buyer shall deliver to the
Indemnification  Representative  (as defined  below),  for  distribution  to the
Company Stockholders,  certificates for the Initial Shares (as defined below) in
accordance   with   Section   1.5  and  (f)  the  Buyer,   the   Indemnification
Representative  and the Escrow  Agent (as  defined  therein)  shall  execute and
deliver  the  Escrow  Agreement  attached  hereto  as  EXHIBIT  A  (the  "Escrow
Agreement")  and the Buyer shall deliver to the Escrow Agent a  certificate  for
the Escrow Shares (as defined  below) being placed in escrow on the Closing Date
pursuant to Section 1.8.

1.4.  ADDITIONAL  ACTION.  The Surviving  Corporation may, at any time after the
Effective  Time,  take  any  action,  including  executing  and  delivering  any
document,  in the name and on behalf of either  the  Company  or the  Transitory
Subsidiary,  in  order  to  consummate  the  transactions  contemplated  by this
Agreement.

1.5.  CONVERSION OF SHARES.

(a) Immediately  prior to the Effective Times each issued and outstanding  share
of Series A-1 Preferred  Stock of the Company shall be converted  into one share
of Common  Stock of the Company.  The Common Stock and the Series A-1  Preferred
Stock are collectively referred to herein as the ("Company Shares").

(b) At the Effective Time, by virtue of the Merger and without any action on the
part of any Party or the  holder of any of the  following  securities  (each,  a
"Company Stockholder"):

(i)Each  share of Common Stock of the Company  (other than Company  Shares owned
beneficially by the Buyer or the Transitory  Subsidiary,  Dissenting  Shares (as
defined  below) and Company  Shares  held in the  Company's  treasury)  shall be
converted into and represent the right to receive  (subject to the provisions of
Section 1.8) such number of shares of common stock, $.01 par value per share, of
the Buyer  ("Buyer  Common  Stock")  as is equal to the  Conversion  Ratio.  The
"Conversion Ratio" shall be the result obtained by (A) dividing  $19,930,000 (as
such amount may be adjusted  pursuant to subparagraph  vii below,  the "Purchase
Price"),  by the  average of the closing  sale prices per share of Buyer  Common
Stock on the five consecutive trading days ending three business days before the
Closing (the "Buyer Stock  Price"),  (B) then  multiplying  such  quotient  (the
"Clause A Quotient") by 

                                      -2-

<PAGE>


(i) the number of Company Shares issued and outstanding immediately prior to the
Closing  divided by (ii) the sum of (x) the number of Company  Shares issued and
outstanding  immediately prior to the Closing,  (y) the number of Company Shares
issuable upon the exercise of Options (as defined below),  and (z) the number of
Company  Shares  issuable  upon the  exercise  of Warrants  (as defined  below),
whether  vested or unvested or subject to  repurchase  by the Company  following
such exercise,  and (C) then dividing such quotient (the "Clause B Quotient") by
the number of Company  Shares issued and  outstanding  immediately  prior to the
Closing.  For  example,  if the  Buyer  Stock  Price is  $48.00,  the  number of
outstanding  Company Shares is 150, the number of shares  issuable upon exercise
of outstanding Options is 30, the number of shares issuable upon the exercise of
outstanding  Warrants  is 20,  then the  Conversion  Ratio  would be computed as
follows: (A) $19,930,000 / $48.00 = 415,208; (B) 415,208 x 150/[150 + 30 + 20] =
311,406;  (C) 311,406 / 150 = 2,076  shares of Buyer  Common  Stock for each one
Company Share. The Conversion Ratio shall be subject to equitable  adjustment in
the event of any stock split,  stock  dividend,  reverse  stock split or similar
event (each, a "Recapitalization")  affecting the Buyer Common Stock between the
date of this Agreement and the Effective Time.

(ii) Each  outstanding  grant of Options,  whether vested or unvested,  shall be
exchanged into and  collectively  represent the right to receive (subject to the
provisions  of Section  1.8) such number of shares of Buyer  Common  Stock as is
equal to the number  obtained by (A)  subtracting the Clause B Quotient from the
Clause A Quotient,  (B) multiplying the resulting number by (X) the total number
of  Options  divided  by (Y) the  total  number of  Options  and  Warrants,  (C)
multiplying  the  resulting  number by (X) the number of Options in such  Option
grant  divided  by (Y) the total  number of  Options,  and (D)  multiplying  the
resulting  number by the number that is determined to represent the  appropriate
adjustment to reflect the present fair market value of such Option grant, taking
into  consideration  the exercise price,  vesting schedule and other appropriate
factors  (it being  understood  that  certain  grants of Options may have a fair
market value of zero and accordingly shall not be entitled to receive any Merger
Shares (as defined  below)) (such number of shares,  the "Option  Shares").  For
purposes of  determining  the pro rata  allocation  of the Option Shares to each
holder of a Option that is part of an Option grant,  the numerator  shall be the
number of Options  held by such  holder and the  denominator  shall be the total
number of Options in such  Option  grant as set forth on Section  1.10(a) of the
Disclosure Schedule. For example, if the Buyer Stock Price is $48.00, the number
of outstanding Company Shares is 150, the number of Company Shares issuable upon
outstanding  Options is 30, the number of shares  issuable  upon the exercise of
outstanding  Warrants  is 20, and the  appropriate  present  fair  market  value
adjustment  discount for the Options to acquire two Company  Shares granted on a
particular  date is 60% (.6),  then the number of shares of Buyer  Common  Stock
would be  computed as  follows:  (A) 415,208 - 311,406 = 103,802;  (B) 103,802 x
30/30 + 20 = 62,281; (C) 62,281 x 2/30 = 4,152; (D) 4,152 x .6 = 2,491 shares of
Buyer Common 

                                      -3-

<PAGE>

Stock would be given in exchange for all of the  outstanding  Options granted on
such date to acquire two Company Shares.
 
(iii) Holders of the Company Shares shall be entitled to receive immediately 90%
of the shares of Buyer  Common  Stock  into  which  their  Company  Shares  were
converted pursuant to Section 1.5(b)(i) (the "Stockholder Initial Shares"),  and
the remaining 10% of the shares of Buyer Common Stock into which Company  Shares
were converted  pursuant to Section 1.5(b)(i) (the "Stockholder  Escrow Shares")
shall be  deposited  in escrow  pursuant to Section 1.8 hereof and shall be held
and disposed of in accordance with the terms of the Escrow Agreement. Holders of
Options shall be entitled to receive  immediately  90% of the Option Shares (the
"Optionholder Initial Shares"),  and the remaining 10% of the Option Shares (the
"Optionholder Escrow Shares") shall be deposited into escrow pursuant to Section
1.8 hereof and shall be held and disposed of in accordance with the terms of the
Escrow Agreement.  The Stockholder  Initial Shares and the Optionholder  Initial
Shares  shall  together  be  referred  to herein as the  "Initial  Shares."  The
Stockholder  Escrow Shares and the Optionholder  Escrow Shares shall together be
referred to herein as the  "Escrow  Shares."  The Initial  Shares and the Escrow
Shares shall together be referred to as the "Merger Shares."

(iv)  Notwithstanding  the  foregoing,  if the Buyer Stock Price is greater than
$48.00  per  share  (subject  to  equitable  adjustment  in  the  event  of  any
Recapitalization) the Buyer shall issue such number of Merger Shares as is equal
to the Purchase Price divided by $48.00 (subject to adjustment in the event of a
Recapitalization)  which amount of Merger  Shares shall be used for  calculating
the  respective  amounts  due the  holders of Company  Shares and the holders of
Options  for the  purpose  of  determining  the  Clause A  Quotient  in  Section
1.5(b)(i) and Section 1.5(b)(ii) above.

(v) Further  notwithstanding  the foregoing,  to the extent that the Buyer Stock
Price is between $35.00 and $40.00 per share (subject to equitable adjustment in
the event of any  Recapitalization)  the  Buyer  shall  issue a maximum  of such
number of Merger  Shares as is equal to the  Purchase  Price  divided  by $40.00
(subject  to  adjustment  in the event of a  Recapitalization)  which  amount of
Merger Shares shall be used for  calculating  the respective  amounts due to the
holders  of  Company  Shares  and the  holders  of  Options  for the  purpose of
determining  the Clause A Quotient in Section  1.5(b)(i) and Section  1.5(b)(ii)
above.

(vi) Further  notwithstanding  the foregoing,  the Buyer shall have the right to
terminate  this  Agreement  pursuant  to Section 8.1 if the Buyer Stock Price is
less than $35.00 per share (subject to equitable  adjustment in the event of any
Recapitalization).

                                      -4-

<PAGE>

(vii) Further notwithstanding the foregoing,  the Purchase Price to be delivered
at the Closing shall be reduced dollar for dollar by the aggregate amount of any
and  all  expenses,  liabilities  or  damages  incurred  by the  Company  or any
Subsidiary in connection  with the  resolution of, or in any way related to, the
Computer  Issue (as such  term is  defined  in  Section  2.12 of the  Disclosure
Schedule) on or prior to the Closing Date (such amount the "Computer  Expenses")
as evidenced by the Computer  Certificate  (as defined below) to be delivered by
the Company to the Buyer at least three days before the Closing  (the  "Purchase
Price Adjustment Closing  Certificate").  The Company and the Subsidiaries shall
not incur  Computer  Expenses in excess of the amount set forth in the  Purchase
Price Adjustment Closing Certificate,  and any Computer Expenses incurred by the
Company and the Subsidiaries in excess of such amounts shall be recovered by the
Buyer pursuant to the Escrow  Agreement  without regard to the provisions of the
first sentence of Section 6.4(a).

(c) Each Company Share held in the Company's  treasury  immediately prior to the
Effective  Time and each Company  Share owned  beneficially  by the Buyer or the
Transitory  Subsidiary  shall be cancelled  and retired  without  payment of any
consideration therefor.

(d) Each  share of common  stock,  $.01 par value per share,  of the  Transitory
Subsidiary issued and outstanding  immediately prior to the Effective Time shall
be converted  into and thereafter  evidence one share of common stock,  $.01 par
value per share, of the Surviving Corporation.

1.6. DISSENTING SHARES.


(a) For purposes of this  Agreement,  "Dissenting  Shares" means Company  Shares
held as of the Effective  Time by a Company  Stockholder  who has not voted such
Company  Shares in favor of the  adoption of this  Agreement  and the Merger and
with respect to which  appraisal  shall have been duly demanded and perfected in
accordance  with Section 262 of the  Delaware  General  Corporation  Law and not
effectively  withdrawn  or forfeited  prior to the  Effective  Time.  Dissenting
Shares shall not be  converted  into or  represent  the right to receive  Merger
Shares, unless such Company Stockholder shall have forfeited his or her right to
appraisal  under the Delaware  General  Corporation  Law or withdrawn,  with the
consent  of the  Company,  his or her  demand  for  appraisal.  If such  Company
Stockholder  has so  forfeited  or  withdrawn  his or her right to  appraisal of
Dissenting  Shares,  then (i) as of the occurrence of such event,  such holder's
Dissenting  Shares  shall cease to be  Dissenting  Shares and shall be converted
into and represent the right to receive the Merger Shares issuable in respect of
such Company Shares pursuant to Section 1.5(b),  and (ii) promptly following the
occurrence of such event, the Buyer shall deliver to such Company  Stockholder a
certificate  representing  90% of the  Merger  Shares  to which  such  holder is
entitled  pursuant to Section  1.5(b) (which shares shall be 

                                      -5-

<PAGE>


considered  Initial Shares for all purposes of this Agreement) and shall deliver
to the Escrow Agent a certificate representing 10% of the Merger Shares to which
such  holder is entitled  pursuant  to Section  1.5(b)  (which  shares  shall be
considered Escrow Shares for all purposes of this Agreement).

(b) The Company  shall give the Buyer (i) prompt  notice of any written  demands
for appraisal of any Company Shares,  withdrawals of such demands, and any other
instruments  that  relate to such  demands  received by the Company and (ii) the
opportunity to direct all  negotiations  and proceedings with respect to demands
for appraisal under the Delaware General Corporation Law. The Company shall not,
except  with the prior  written  consent of the  Buyer,  make any  payment  with
respect to any demands  for  appraisal  of Company  Shares or offer to settle or
settle any such demands.

1.7. FRACTIONAL SHARES. No certificates or scrip representing fractional Initial
Shares shall be issued to former  Company  Stockholders  upon the  surrender for
exchange of  Certificates,  and such former  Company  Stockholders  shall not be
entitled to any voting rights,  rights to receive any dividends or distributions
or other rights as a  stockholder  of the Buyer with  respect to any  fractional
Initial   Shares  that  would   otherwise  be  issued  to  such  former  Company
Stockholders.  In lieu of any fractional  Initial Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to receive
a  fractional  Initial  Share  shall,  upon proper  surrender  of such  person's
Certificates,  receive  such whole  number of Initial  Shares as is equal to the
precise number of Initial Shares to which such person would be entitled, rounded
down to the nearest whole number.

1.8. ESCROW.

(a) On the  Closing  Date,  the  Buyer  shall  deliver  to the  Escrow  Agent  a
certificate (issued in the name of the Escrow Agent or its nominee) representing
the Escrow Shares,  as described in Section 1.5(b),  for the purpose of securing
the  indemnification  obligations of the Company  Stockholders set forth in this
Agreement.  The Escrow Shares shall be held by the Escrow Agent under the Escrow
Agreement  pursuant to the terms  thereof.  The Escrow Shares shall be held as a
trust fund and shall not be subject to any lien, attachment,  trustee process or
any other judicial  process of any creditor of any party,  and shall be held and
disbursed solely for the purposes and in accordance with the terms of the Escrow
Agreement.

(b) The adoption of this Agreement and the approval of the Merger by the Company
Stockholders shall constitute approval of the Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement of the
Escrow   Shares  in  escrow   and  the   appointment   of  the   Indemnification
Representative.

                                      -6-

<PAGE>

1.9.  POST-CLOSING  BALANCE  SHEET.  Not later than 30  calendar  days after the
Closing Date, the  Indemnification  Representative  shall deliver to the Buyer a
balance  sheet of the  Company  as of the  Closing  Date (the  "Closing  Balance
Sheet").  The Closing  Balance Sheet shall be prepared in accordance with United
States generally accepted accounting  principles  ("GAAP") applied  consistently
with the  Company's  past  practices  (to the  extent  such past  practices  are
consistent  with GAAP), as the case may be, subject to the adjustments set forth
in this  Section  1.9 (which  shall be in  addition  to and not in lieu of those
required  by GAAP) and  shall be  certified  by the  Company's  Chief  Financial
Officer.

1.10. OPTIONS AND WARRANTS.

(a) (i) As of the Effective Time, all options to purchase  Company Shares issued
by the Company  pursuant  to the stock  option  agreements  set forth on Section
1.10(a) of the  Disclosure  Schedule  (as defined  below)  ("Options"),  whether
vested or unvested,  shall be exchanged  into and represent the right to receive
(subject to the provisions of Section 1.8) such number of shares of Buyer Common
Stock  as is  equal  to the  holder  of such  Option's  pro  rata  share  of the
consideration determined pursuant to Section 1.5(b)(ii).  Section 1.10(a) of the
Disclosure Schedule shall indicate the date of grant of each Option, the vesting
schedule and the exercise price.

(ii) As of the Effective  Time,  each Warrant (as defined below)  outstanding at
the  Effective  Time,  shall be  assumed  by the  Buyer.  Immediately  after the
Effective Time, each Warrant outstanding immediately prior to the Effective Time
shall be deemed  to  constitute  a warrant  to  acquire,  on the same  terms and
conditions as were  applicable  under such Warrant at the Effective  Time,  such
number of  shares of Buyer  Common  Stock as is equal to the  number of  Company
Shares  subject to the  unexercised  portion of such Warrant  multiplied  by the
Conversion  Ratio (with any fraction  resulting from such  multiplication  to be
rounded down to the next lowest whole  number).  The exercise price per share of
each such assumed  Warrant shall be equal to the exercise  price of such Warrant
immediately  prior to the Effective Time,  divided by the Conversion Ratio (with
any fraction of a cent resulting from such division to be rounded up to the next
highest whole cent).  The term,  exercisability,  vesting  schedule,  repurchase
provisions  and all of the other terms of the Warrants  shall  otherwise  remain
unchanged.

(b) The  Company  shall  cause the  exercise  prior to the  Closing  Date or the
termination in accordance  with the terms of the Agreement,  as of the Effective
Time,  of any  warrants,  contingent  obligations,  options  or other  rights to
purchase Company Shares other than the Options (collectively  referred to as the
"Warrants")  which  remain  unexercised,  all of which are set forth in  Section
1.10(b) of the Disclosure Schedule.

                                      -7-

<PAGE>

(c) The  Company  has  obtained  a written  consent  from each of the  following
holders of Options to the amendment to waive the accelerated  vesting under such
Option:

            Lisa   Ayala;   Gene   Barduson;   Vincent   Estrada;   Andrew
            Putterbaugh, Joseph Grane; Armando Jackson; John Bonsee; David
            Blue; Connie Symes;  Laura Fackreli;  Kathleen  Johnson;  Lynn
            Runyan;  Len Shaw;  Michael Kimball;  Doug Murray;  and Bonnie
            Sullivan.

(d) The Company shall use its best efforts to obtain,  prior to the Closing, the
consent from each holder of an Option or a Warrant to the  amendment or exercise
of such Option or Warrant  pursuant  to this  Section  1.10,  and in the case of
holders of Options,  the consent to be bound by the provisions of this Agreement
and the Escrow Agreement.

1.11. INDEMNIFICATION REPRESENTATIVE.


(a) In order to efficiently  administer the  transactions  contemplated  hereby,
including  (i) the waiver of any  condition  to the  obligations  of the Company
Stockholders  to  consummate  the  transactions  contemplated  hereby,  (ii) the
preparation of the Closing Balance Sheet, (iii) the defense and/or settlement of
any claims for which the Company  Stockholders  may be required to indemnify the
Buyer  and/or  the  Company  pursuant  to the Escrow  Agreement,  Article VI and
Article VII, below, the Company  Stockholders  hereby designate Joel D. Liffmann
as their representative (the "Indemnification Representative").

(b) The Company Stockholders hereby authorize the Indemnification Representative
(i) to take all action  necessary in connection with the waiver of any condition
to the obligations of the Company  Stockholders  to consummate the  transactions
contemplated  hereby,  or the defense and/or  settlement of any claims for which
the  Company  Stockholders  may be required to  indemnify  the Buyer  and/or the
Company pursuant to the Escrow Agreement, Article VI and Article VII below, (ii)
to give and receive all notices  required to be given under this  Agreement  and
the  Escrow  Agreement,  and (iii) to take any and all  additional  action as is
contemplated  to be taken by or on behalf  of the  Company  Stockholders  by the
terms of this Agreement or the Escrow Agreement.

(c) In the event that the Indemnification Representative dies, becomes unable to
perform  his  responsibilities  hereunder  or resigns  from such  position,  the
Company  Stockholders  holding,  prior to the Closing, a majority of the Company
Shares as set forth on ATTACHMENT A to the Escrow Agreement shall select another
representative to fill such vacancy and such substituted representative shall 

                                      -8-

<PAGE>

be deemed to be the  Indemnification  Representative  for all  purposes  of this
Agreement and the documents delivered pursuant hereto.

(d) All decisions and actions by the Indemnification  Representative,  including
without limitation any agreement between the Indemnification  Representative and
the Buyer  relating  to the  defense or  settlement  of any claims for which the
Company  Stockholders  may be required to indemnify the Buyer and/or the Company
pursuant to the Escrow  Agreement,  Article VI and  Article VII below,  shall be
binding upon all of the Company  Stockholders and no Company  Stockholder  shall
have the right to object, dissent, protest or otherwise contest the same.

(e) By his, her or its  approval of this  Agreement,  each  Company  Stockholder
agrees that:

(i)  the  Buyer  shall  be able to rely  conclusively  on the  instructions  and
decisions of the  Indemnification  Representative  as to the  settlement  of any
claims for  indemnification  by the Buyer  and/or the  Company  pursuant  to the
Escrow Agreement, Article VI and Article VII below or any other actions required
or  permitted  to be taken by the  Indemnification  Representative  hereunder or
under the  Escrow  Agreement,  and no party  hereunder  shall  have any cause of
action  against  the  Buyer  to  the  extent  the  Buyer  has  relied  upon  the
instructions or decisions of the Indemnification Representative;

(ii)  all  actions,  decisions  and  instructions  of  the  Indemnification
Representative  shall  be  conclusive  and  binding  upon  all  of  the  Company
Stockholders and no Company  Stockholder  shall have any cause of action against
the  Indemnification  Representative  for any  action  taken,  decision  made or
instruction given by the  Indemnification  Representative  under this Agreement,
except  for fraud or willful  breach of this  Agreement  by the  Indemnification
Representative;

(iii) the provisions of this Section 1.11 are  independent  and  severable,  are
irrevocable   and   coupled   with  an   interest   and  shall  be   enforceable
notwithstanding  any rights or remedies that any Company Stockholder may have in
connection with the transactions contemplated by this Agreement;

(iv) remedies  available at law for any breach of the provisions of this Section
1.11 are inadequate;  therefore,  the Buyer and the Company shall be entitled to
temporary  and  permanent  injunctive  relief  without the  necessity of proving
damages if either the Buyer  and/or the Company  brings an action to enforce the
provisions of this Section 1.11; and

(v) the  provisions  of this Section  1.11 shall be binding upon the  executors,
heirs, legal representatives, personal representatives,  successor trustees, and
successors of each Company Stockholder,  and any references in this Agreement 

                                      -9-

<PAGE>

to a Company Stockholder or the Company  Stockholders shall mean and include the
successors to the Company  Stockholder's  rights hereunder,  whether pursuant to
testamentary disposition, the laws of descent and distribution or otherwise.

(f)  All  reasonable  out-of-pocket  expenses  incurred  by the  Indemnification
Representative  shall be paid by the Company Stockholders in proportion to their
ownership of Company Shares as set forth in ATTACHMENT A to the Escrow Agreement
attached  hereto and shall be paid from the Escrow  Property  (as defined in the
Escrow Agreement) in accordance with the provisions of the Escrow Agreement.

1.12.  CERTIFICATE OF  INCORPORATION.  The Certificate of  Incorporation  of the
Surviving  Corporation  shall be the same as the Certificate of Incorporation of
the Transitory  Subsidiary  immediately prior to the Effective Time, except that
the name of the  corporation  set forth  therein shall be changed to the name of
the Company.

1.13. BY-LAWS. The By-laws of the Surviving Corporation shall be the same as the
By-laws of the Transitory  Subsidiary  immediately  prior to the Effective Time,
except that the name of the  corporation  set forth  therein shall be changed to
the name of the Company.

1.14. DIRECTORS AND OFFICERS.  The directors of the Transitory  Subsidiary shall
become the directors of the Surviving  Corporation as of the Effective Time. The
officers of the Transitory Subsidiary shall became the officers of the Surviving
Corporation  as of the Effective  Time, in their  respective  positions with the
Transitory Subsidiary.

1.15. NO FURTHER  RIGHTS.  From and after the Effective Time, no Company Shares,
Options  or  Warrants  shall  be  deemed  to  be  outstanding,  and  holders  of
Certificates, or agreements relating to Options or Warrants, as the case may be,
shall cease to have any rights with respect  thereto,  except as provided herein
or by law.

1.16. CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer books
of the  Company  shall  be  closed  and no  transfer  of  Company  Shares  shall
thereafter be made. If, after the Effective Time,  Certificates are presented to
the  Surviving  Corporation,  they shall be cancelled  and exchanged for Initial
Shares in accordance with Section 1.5(b), subject to Section 1.8 and Section 1.9
and to applicable law in the case of Dissenting Shares.

1.17.  TAX-FREE  REORGANIZATION.  The Merger is intended to be a  reorganization
within the meaning of Section 368(a) of the Code, and this Agreement is intended
to  be a  "plan  of  reorganization"  within  the  meaning  of  the  regulations
promulgated under Section 368 of the Code.

                                      -10-

<PAGE>


1.18.  ACCOUNTING  TREATMENT.  The  business  combination  to be effected by the
Merger is  intended  to be treated  for  accounting  purposes  as a "pooling  of
interests."


                  Article II - REPRESENTATIONS AND WARRANTIES
                                 OF THE COMPANY


         The Company  represents  and  warrants to the Buyer and the  Transitory
Subsidiary  that  the  statements  contained  in this  Article  II are  true and
correct,  except as set forth in the disclosure  schedule  attached  hereto (the
"Disclosure  Schedule").  The  Disclosure  Schedule  shall be  initialed  by the
Parties and shall be arranged in section  and  paragraphs  corresponding  to the
numbered and lettered sections and paragraphs  contained in this Article II, and
the  disclosures in any paragraph of the Disclosure  Schedule shall qualify only
the corresponding section or paragraph in this Article II.

2.1.  ORGANIZATION,   QUALIFICATION  AND  CORPORATE  POWER.  The  Company  is  a
corporation  duly  organized,  validly  existing and in  corporate  and tax good
standing under the laws of the state of its  incorporation.  The Company is duly
qualified to conduct  business and is in corporate and tax good  standing  under
the laws of each  jurisdiction  in which  the  nature of its  businesses  or the
ownership or leasing of its  properties  requires  such  qualification,  each of
which jurisdiction is set forth in Section 2.1 of the Disclosure Schedule and/or
the filing of Tax  Returns  (as defined  below).  The Company has all  requisite
corporate  power and authority to carry on the businesses in which it is engaged
and to own and  use the  properties  owned  and  used  by it.  The  Company  has
furnished  to  the  Buyer  true  and  complete  copies  of  its  Certificate  of
Incorporation and By-laws,  each as amended and as in effect on the date hereof.
The Company is not in default  under or in  violation  of any  provision  of its
Certificate of Incorporation or By-laws.

2.2.  CAPITALIZATION.  The authorized  capital stock of the Company  consists of
16,100,000  Company Shares, of which 9,775,173 shares are issued and outstanding
and no  shares  are held in the  treasury  of the  Company.  Section  2.2 of the
Disclosure  Schedule  sets  forth  a  complete  and  accurate  list  of (i)  all
stockholders  of the Company,  indicating  the number of Company  Shares held by
each stockholder,  and (ii) all holders of Options and Warrants,  indicating the
number of Company  Shares  subject to each Option and  Warrant and the  exercise
price  thereof.  True and  complete  copies of all  Options  and  Warrants  have
previously been provided to the Buyer. All of the issued and outstanding Company
Shares are, and all Company  Shares that may be issued upon  exercise of Options
and  Warrants,  when  issued in  compliance  with the terms of such  Options  or
Warrants,  will be, duly authorized,  validly issued, fully paid,  nonassessable
and free of all  preemptive  rights.  There  are no  outstanding  or  authorized
options,  warrants,  rights,  calls,  convertible  instruments,   agreements  or
commitments  to which  the  Company  is a party or which  are  binding  

                                      -11-

<PAGE>


upon the Company  providing for the issuance,  disposition or acquisition of any
of its capital stock,  other than the Options and Warrants listed in Section 2.2
of the Disclosure  Schedule,  which Warrants will expire or be exercised in full
prior to the  Effective  Time or be assumed by the Buyer at the  Effective  Time
pursuant to Section  1.10(a) and which  Options  will expire or be  cancelled or
exercised  prior to the Effective  Time or be exchanged  into a right to receive
shares of Buyer Common Stock pursuant to Section  1.10(a) at the Effective Time.
There are no  outstanding  or authorized  stock  appreciation,  phantom stock or
similar  rights with respect to the  Company.  There are no  agreements,  voting
trusts,  proxies,  or understandings with respect to the voting, or registration
under the  Securities  Act of 1933, as amended (the  "Securities  Act"),  of any
Company Shares. All of the issued and outstanding  Company Shares were issued in
compliance with applicable federal and state securities laws.

2.3.  AUTHORIZATION  OF  TRANSACTION.  The Company has all  requisite  power and
authority to execute and deliver this  Agreement and to perform its  obligations
hereunder.  The execution  and delivery of this  Agreement  and,  subject to the
adoption of this  Agreement  and the approval of the Merger by a majority of the
votes  represented by the  outstanding  Company Shares  entitled to vote on this
Agreement and the Merger (the "Requisite Stockholder Approval"), the performance
by the  Company of this  Agreement  and the  consummation  by the Company of the
transactions  contemplated  hereby have been duly and validly  authorized by all
necessary  corporate  action on the part of the  Company.  Without  limiting the
generality  of the  foregoing,  the  Company has taken all  necessary  corporate
actions  relating to its stock option  plans,  warrants and other  securities to
effect the transactions  contemplated  hereby.  This Agreement has been duly and
validly  executed  and  delivered  by the  Company and  constitutes  a valid and
binding obligation of the Company, enforceable against the Company in accordance
with  its  terms,  except  as  limited  by  applicable  bankruptcy,  insolvency,
reorganization,  moratorium  and other  laws of  general  application  affecting
enforcement of creditors' rights  generally,  and as limited by laws relating to
the availability of specific  performance,  injunctive relief or other equitable
remedies.

2.4. NONCONTRAVENTION. Subject to compliance with the applicable requirements of
the  Securities  Act,  any  applicable  state  securities  laws  and  the  Hart-
Scott-Rodino  Antitrust  Improvements Act of 1976, as amended (the  "Hart-Scott-
Rodino  Act"),  and the filing of the  Certificate  of Merger as required by the
Delaware  General  Corporation  Law,  neither the execution and delivery of this
Agreement  by  the  Company,   nor  the  consummation  by  the  Company  of  the
transactions  contemplated  hereby,  will  (a)  conflict  with  or  violate  any
provision of the  charter,  By-laws or  comparable  agreement or document of the
Company or any corporation, partnership, limited liability company or other form
of business  association  (each, a "Business  Entity") with respect to which the
Company, directly or indirectly,  either (i) has the power to vote or direct the
voting of  sufficient  securities  to elect a majority of 

                                      -12-

<PAGE>


the  directors  (or to control the  operations  and  governance  of the Business
Entity in a similar manner) or (ii) in the case of a partnership,  serves as the
general  partner or holds a  majority  of the  partnership  interests  (each,  a
"Subsidiary"),  (b)  require on the part of the  Company or any  Subsidiary  any
filing with,  or any permit,  authorization,  consent or approval of, any court,
arbitrational   tribunal,   administrative   agency  or   commission   or  other
governmental or regulatory  authority or agency (a "Governmental  Entity"),  (c)
conflict with,  result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate,  terminate,  modify or cancel, or require any
notice,  consent  or waiver  under,  any  contract,  lease,  sublease,  license,
sublicense,  franchise,  permit,  indenture,  agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement  to which the Company or any  Subsidiary  is a party or by which the
Company or any  Subsidiary  is bound or to which any of their assets is subject,
(d) result in the  imposition  of any Security  Interest  upon any assets of the
Company or any Subsidiary or (e) violate any order,  writ,  injunction,  decree,
statute,  rule or regulation applicable to the Company, any Subsidiary or any of
their properties or assets. For purposes of this Agreement,  "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than (i) mechanic's,
materialmen's,   and  similar   liens,   (ii)  liens  arising   under   worker's
compensation,  unemployment insurance,  social security,  retirement and similar
legislation and (iii) liens on goods in transit incurred pursuant to documentary
letters of  credit,  capital  lease  arrangements,  in each case  arising in the
ordinary course of business  consistent with past custom and practice (including
with respect to frequency  and amount) of the Company (the  "Ordinary  Course of
Business") and not incurred in connection with the borrowing of money.

2.5. SUBSIDIARIES.

(a) Section  2.5(a) of the  Disclosure  Schedule sets forth for each  Subsidiary
that  is  not  a  partnership  (a  "Corporate  Subsidiary")  (i)  its  name  and
jurisdiction of incorporation,  (ii) the number of shares of authorized  capital
stock of each  class of its  capital  stock,  (iii) the  number  of  issued  and
outstanding  shares of each class of its capital stock, the names of the holders
thereof  and the number of shares held by each such  holder,  (iv) the number of
shares  of its  capital  stock  held in  treasury,  and (v)  its  directors  and
officers.  Each Corporate  Subsidiary is a corporation  duly organized,  validly
existing  and  in  corporate  and  tax  good  standing  under  the  laws  of the
jurisdiction of its incorporation.  Each Corporate  Subsidiary is duly qualified
to conduct  business and is in corporate and tax good standing under the laws of
each  jurisdiction  in which the nature of its  businesses  or the  ownership or
leasing of its properties  requires such qualification  and/or the filing of Tax
Returns.  Each  Corporate  Subsidiary  has all  requisite  corporate  power  and
authority to carry on the  businesses  in which it is engaged and to own and use
the  properties  owned and used by it. The  Company has  delivered  to the Buyer
correct  and  complete  

                                      -13-

<PAGE>


copies of the charter and By-laws of each  Corporate  Subsidiary,  as amended to
date.  No  Corporate  Subsidiary  is in  default  under or in  violation  of any
provision of its charter or By-laws. All of the issued and outstanding shares of
capital stock of each Corporate Subsidiary are duly authorized,  validly issued,
fully paid,  nonassessable  and free of  preemptive  rights.  All shares of each
Subsidiary  that are held of record or owned  beneficially by either the Company
or any Corporate Subsidiary are held or owned free and clear of any restrictions
on  transfer  (other  than  restrictions  under  the  Securities  Act and  state
securities  laws),  claims,  Security  Interests,   options,  warrants,  rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized  options,  warrants,  rights,  agreements or commitments to which the
Company or any  Corporate  Subsidiary  is a party or which are binding on any of
them providing for the issuance, disposition or acquisition of any capital stock
of any  Corporate  Subsidiary.  There  are no  outstanding  stock  appreciation,
phantom stock or similar rights with respect to any Corporate Subsidiary.  There
are no voting  trusts,  proxies,  or other  agreements  or  understandings  with
respect to the voting of any capital stock of any Corporate Subsidiary.

(b) Section  2.5(b) of the  Disclosure  Schedule sets forth for each  Subsidiary
that is a partnership (a "Partnership Subsidiary") (i) its name and jurisdiction
of formation  and (ii) the name and address of each person or entity  holding an
interest in the  Partnership  Subsidiary  and the amount of the  interest.  Each
Partnership Subsidiary is duly organized,  legally existing and in corporate and
tax good standing  under the laws of the  jurisdiction  of its  formation.  Each
Partnership Subsidiary is duly qualified to conduct business and is in corporate
and tax good standing under the laws of each jurisdiction in which the nature of
its  businesses  or the  ownership or leasing of its  properties  requires  such
qualification and/or the filing of Tax Returns. Each Partnership  Subsidiary has
all  requisite  partnership  power and  authority to carry on the  businesses in
which it is engaged and to own and use the properties  owned and used by it. The
Company  has  delivered  to  the  Buyer  correct  and  complete  copies  of  the
organizational  documents of each  Partnership  Subsidiary,  as amended to date,
including without limitation its partnership  agreement and, if applicable,  its
certificate  of limited  partnership.  No  Partnership  Subsidiary is in default
under  or in  violation  of any  provision  of its  partnership  agreement.  The
partnership interests in each Partnership  Subsidiary that are held of record or
owned  beneficially  by either the Company or any  Subsidiary  are held or owned
free and clear of any  restrictions on transfer (other than  restrictions  under
the Securities  Act and state  securities  laws),  claims,  Security  Interests,
options, warrants, rights, contracts, calls, commitments,  equities and demands.
There are no outstanding or authorized options,  warrants, rights, agreements or
commitments  to which the Company or any  Partnership  Subsidiary  is a party or
which are binding on any of them  providing  for the  issuance,  disposition  or
acquisition  of any  interest  in any  Partnership  Subsidiary.  No  Partnership
Subsidiary has any employees.

                                      -14-

<PAGE>


(c) The Company does not control  directly or  indirectly  or have any direct or
indirect equity participation in any corporation,  partnership,  trust, or other
business association which is not a Subsidiary.

2.6.  FINANCIAL  STATEMENTS.  The Company has previously  furnished to the Buyer
complete  and  accurate  copies of its (a)  audited  balance  sheets and related
statements of income, retained earnings, stockholders' equity and cash flows for
the fiscal  year ended  December  31,  1996 and a draft of its  audited  balance
sheets and related statements of income, retained earnings, shareholders' equity
and cash flows for the fiscal year ended  December 31, 1997,  and (b)  unaudited
balance  sheet (the "Most  Recent  Balance  Sheet")  and related  statements  of
income,  retained  earnings,   stockholders'  equity  and  cash  flows  for  the
seven-month period ended July 31, 1998 (the "Balance Sheet Date"). The foregoing
financial  statements  (the  "Financial   Statements")  have  been  prepared  in
accordance  with GAAP  applied on a  consistent  basis  throughout  the  periods
covered thereby (except as may be indicated  therein or in the notes thereto and
except that the Most Recent  Balance Sheet and related  unaudited  statements of
income do not include footnotes and are subject to normal and recurring year-end
audit  adjustments,  which will not individually or in the aggregate be material
in amount),  fairly present the financial  condition,  results of operations and
cash flows of the Company and the Subsidiaries,  on a consolidated  basis, as of
the respective  dates thereof and for the periods  referred to therein,  and are
consistent  with the books and records of the Company and the  Subsidiaries,  as
the case may be. The accruals for vacation, sickness and disability expenses are
accounted  for on the Most Recent  Balance  Sheet and are  adequate and properly
reflect the expenses associated therewith in accordance with GAAP.

2.7. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, (a) there has not
been any material adverse change in the assets,  business,  financial condition,
results of operations or future  prospects of the Company and its  Subsidiaries,
taken as a whole,  nor has there occurred any event or  development  which could
reasonably  be  foreseen  to result  in such a  material  adverse  change in the
future,  and (b) neither the  Company  nor any  Subsidiary  has taken any of the
actions set forth in paragraphs  (a) through (p) of Section 4.4. The Company has
not been  profitable as is disclosed in the Financial  Statements,  and does not
expect to be profitable  prior to the Closing.  The Company's  continued lack of
profitability  consistent  with  the  results  of  operations  in the  Financial
Statements will not be considered a material adverse effect for purposes of this
Agreement.

2.8. UNDISCLOSED  LIABILITIES.  None of the Company and its Subsidiaries has any
liability  (whether known or unknown,  whether  absolute or contingent,  whether
liquidated  or  unliquidated  and whether due or to become due),  except for (a)
liabilities  shown on the Most Recent Balance Sheet, a copy of which is included
in Section 2.8 of the  Disclosure  Schedule  (b)  liabilities  which have arisen
since the Balance  Sheet Date in the Ordinary  Course of Business of the Company
and which 

                                      -15-

<PAGE>


are similar in nature and amount to the liabilities which arose during
the comparable period of time in the immediately preceding fiscal period and (c)
contractual  liabilities  incurred  in the  Ordinary  Course of  Business of the
Company that are not  required by GAAP to be  reflected  on a balance  sheet and
that are not in the aggregate material.

2.9. TAX MATTERS.


(a) Each of the Company and the  Subsidiaries  has timely  filed all Tax Returns
(as defined  below) that it was  required to file and all such Tax Returns  were
correct  and  complete  in all  material  respects.  Each of the Company and the
Subsidiaries  has paid on a timely basis all Taxes (as defined  below) due on or
before the Closing Date whether or not shown on any such Tax Returns. The unpaid
Taxes of the Company and the  Subsidiaries  for tax periods  through the date of
the Most Recent  Balance Sheet do not exceed the accruals and reserves for Taxes
set  forth on the  Most  Recent  Balance  Sheet.  Neither  the  Company  nor any
Subsidiary  has any actual or potential  liability for any Tax obligation of any
taxpayer  (including  without limitation any affiliated group of corporations or
other  entities  that  included  the  Company or any  Subsidiary  during a prior
period) other than the Company and the Subsidiaries.  All Taxes that the Company
or any  Subsidiary  is or was  required by law to withhold or collect  have been
duly withheld or collected and, to the extent required, have been timely paid to
the proper  Governmental  Entity. For purposes of this Agreement,  "Taxes" means
all taxes,  charges,  fees, levies or other similar  assessments or liabilities,
including  without  limitation  income,  gross  receipts,  ad valorem,  premium,
value-added,  excise,  real property,  personal property,  sales, use, transfer,
withholding,  employment, payroll, profits, license, leave service, service use,
severance,  stamp, occupation,  windfall profits,  customs,  franchise and other
taxes  imposed  by the United  States of America or any state,  local or foreign
government,  or any agency thereof, or other political subdivision of the United
States or any such government,  and any interest, fines, penalties,  assessments
or additions to tax resulting  from,  attributable  to or incurred in connection
with any tax or any contest or dispute thereof.  For purposes of this Agreement,
"Tax  Returns"  means all reports,  returns,  declarations,  statements or other
information  required to be supplied to a taxing  authority in  connection  with
Taxes.

(b) The Company has  delivered to the Buyer  correct and complete  copies of all
federal income Tax Returns,  examination  reports and statements of deficiencies
assessed  against or agreed to by the Company or any  Subsidiary  since 1994. No
examination  or audit of any Tax Returns of the Company or any Subsidiary by any
Governmental Entity is currently in progress or, to the knowledge of the Company
and the  Subsidiaries,  threatened or contemplated.  Neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or deficiency.

                                      -16-

<PAGE>


(c) Neither the Company nor any Subsidiary is a "consenting  corporation" within
the meaning of Section  341(f) of the Code and none of the assets of the Company
or the Subsidiaries are subject to an election under Section 341(f) of the Code.

(d)  Neither  the  Company  nor any  Subsidiary  has been a United  States  real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.

(e) Neither the Company nor any  Subsidiary is a party to any Tax  allocation or
sharing agreement, and neither the Company nor any Subsidiary has any accrual or
potential liability for any Taxes of any person or entity other than the Company
and its Subsidiaries.

(f) To the  knowledge  of the  Company  and each of its  Subsidiaries,  no claim
exists by a taxing authority in any jurisdiction  that the Company or any of its
Subsidiaries  is, or may be, subject to Taxes assessed by such  jurisdiction for
any period in which they did not file Tax Returns in such jurisdiction.

(g) Neither the Company nor any of its  Subsidiaries  has made any payments,  or
is, or shall become, obligated (under any contract entered into on or before the
Closing Date) to make any payments,  that shall be  nondeductible  under Section
280G of the Code (or any  corresponding  provision  of state,  local or  foreign
income Tax law).

(h) Neither the  Company  nor any  Subsidiary  is or has ever been a member of a
group of corporations with which it has filed for (or been required to file for)
consolidated, combined, or unitary Tax Returns, other than a group of which only
the Company and the Subsidiaries are or were members.

(i) Neither the Company  nor any  Subsidiary  is or has been  required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).

(j) None of the assets of the Company or any Subsidiary: (i) is property that is
required  to be  treated  as being  owned by any other  person  pursuant  to the
provisions of former  Section  168(f)(8) of the Code;  (ii) is  "tax-exempt  use
property" within the meaning of Section 168(h) of the Code; or (iii) directly or
indirectly  secures any debt the interest on which is tax exempt  under  Section
103(a) of the Code.

(k) Neither the Company nor any  Subsidiary has undergone a change in its method
of  accounting  resulting in an  adjustment  to its taxable  income  pursuant to
Section 481(h) of the Code.

                                      -17-

<PAGE>

(l) No state or federal "net  operating  loss" of the Company or any  Subsidiary
determined  as of the Closing Date is subject to  limitation on its use pursuant
to Section 382 of the Code or comparable  provisions of state law as a result of
any  "ownership  change"  within the  meaning  of Section  382(g) of the Code or
comparable provisions of state law occurring prior to the Closing Date.

2.10. ASSETS.


(a) Each of the Company and the Subsidiaries  owns or leases all tangible assets
necessary  for the  conduct of its  businesses  as  presently  conducted  and as
presently  proposed  to be  conducted.  Each  such  tangible  asset is free from
material  defects,  has been  maintained  in  accordance  with  normal  industry
practice,  is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used.  No asset
of the Company (tangible or intangible) is subject to any Security Interest.

(b) Section  2.10(b) of the Disclosure  Schedule sets forth (i) a true,  correct
and complete list of all items of tangible personal property,  including without
limitation  computers,  furniture and  equipment  and purchased and  capitalized
software, owned by the Company or any Subsidiary, or not owned by the Company or
any  Subsidiary  but in the possession of or used in the business of the Company
or any Subsidiary (the "Personal Property"), other than individual assets with a
book value of less than $10,000, and (ii) a description of the owner of, and any
agreement  relating to the use of, each item of Personal  Property  not owned by
the Company or any  Subsidiary and the  circumstances  under which such Personal
Property is used. Each item of Personal Property not owned by the Company or any
Subsidiary  is in such  condition  that upon the return of such  property to its
owner in its  present  condition  at the end of the  relevant  lease  term or as
otherwise  contemplated by the applicable  agreement  between the Company or any
Subsidiary and the owner or lessor  thereof,  the  obligations of the Company or
such Subsidiary to such owner or lessor will be discharged.

2.11. OWNED REAL PROPERTY.  Neither the Company nor any Subsidiary now owns, 
or has ever owned, any real property.
      

2.12. INTELLECTUAL PROPERTY.

(a) Each of the Company and the  Subsidiaries  owns, or is licensed or otherwise
possesses  legally  enforceable  right to use,  all  Intellectual  Property  (as
defined  below in this  Section  2.12) used in the  operation of its business or
necessary  for the  operation  of its  businesses  as  presently  proposed to be
conducted.  Each item of Intellectual Property owned by or used in the operation
of the business of the Company or any  Subsidiary  at any time during the period
covered by the  Financial  Statements  will be owned or available for use by the
Company on identical  

                                      -18-

<PAGE>

terms and conditions  immediately following the Closing. Each of the Company and
the Subsidiaries has taken reasonable measures to protect the proprietary nature
of each item of  Intellectual  Property and to maintain in confidence  all trade
secrets and confidential information,  that it owns or uses. To the knowledge of
the Company and the  Subsidiaries,  no other  person or Business  Entity has any
rights to any of the  Intellectual  Property owned or used by the Company or any
Subsidiary  (other than in connection with  Intellectual  Property  representing
commercially  available  software  licensed  to the  Company on a  non-exclusive
basis),  and no other  person or Business  Entity is  infringing,  violating  or
misappropriating  any of the  Intellectual  Property  that  the  Company  or any
Subsidiary owns or uses. For purposes of this Agreement, "Intellectual Property"
means all (i) patents,  patent applications,  patent disclosures and all related
continuation, continuation-in-part,  divisional, reissue, reexamination, utility
model,  certificate  of  invention  and  design  patents,  patent  applications,
registrations  and applications  for  registrations,  (ii)  trademarks,  service
marks, trade dress, logos, trade names and corporate names and registrations and
applications for registration  thereof,  (iii) copyrights and  registrations and
applications  for  registration  thereof,  (iv)  computer  software,   data  and
documentation,  (v) trade secrets and confidential business information, whether
patentable  or  unpatentable  and whether or not reduced to practice,  know-how,
manufacturing and production processes and techniques,  research and development
information,  copyrightable  works,  financial,  marketing  and  business  data,
pricing and cost  information,  business  and  marketing  plans and customer and
supplier lists and information, (vi) other proprietary rights relating to any of
the foregoing, and (vii) copies and tangible embodiments thereof.

(b) None of the  activities  or business  conducted by the Company or any of the
Subsidiaries infringes, violates or constitutes a misappropriation of (or in the
past infringed,  violated or constituted a misappropriation of) any Intellectual
Property rights of any other person or Business Entity.  Neither the Company nor
any  Subsidiary has received any  complaint,  claim or notice  alleging any such
infringement, violation or misappropriation, and to the knowledge of the Company
and the Subsidiaries, there is no basis for any such complaint, claim or notice.

(c) Section  2.12(c) of the Disclosure  Schedule  identifies  each (i) patent or
registration  that has been issued to the Company or any Subsidiary with respect
to any  of  its  Intellectual  Property,  (ii)  pending  patent  application  or
application  for  registration  that the Company or any Subsidiary has made with
respect  to any  of its  Intellectual  Property,  and  (iii)  license  or  other
agreement pursuant to which the Company or any Subsidiary has granted any rights
to any third party with respect to any of its Intellectual Property. The Company
has  delivered  to the Buyer  correct and complete  copies of all such  patents,
registrations,  applications,  licenses and  agreements (as amended to date) and
has specifically identified and made available to the Buyer correct and complete
copies of all other  written  documentation  evidencing  ownership  of,  and any
claims or disputes  relating to, each such item.  

                                      -19-

<PAGE>

Except as set forth in Section 2.12(c) of the Disclosure Schedule,  with respect
to each item of Intellectual Property that the Company or any Subsidiary owns:

(A) subject to such rights as have been granted by the Company or any Subsidiary
under license  agreements entered into in the Ordinary Course of Business of the
Company and the Subsidiaries,  the Company or a Subsidiary  possesses all right,
title and interest in and to such item;

(B)  such  item is not  subject  to any  outstanding  judgment,  order,  decree,
stipulation or injunction; and

(C) Subject to any indemnity  given in  agreements  entered into in the Ordinary
Course of Business of the Company and its  Subsidiaries  as set forth in Section
2.12(c) of the Disclosure  Schedule,  neither the Company nor any Subsidiary has
agreed  to  indemnify  any  person  or  Business   Entity  for  or  against  any
infringement, misappropriation or other conflict with respect to such item.

(d)  Section  2.12(d)  of  the  Disclosure  Schedule  identifies  each  item  of
Intellectual  Property  used in the operation of the business of the Company and
the  Subsidiaries  at any  time  during  the  period  covered  by the  Financial
Statements,  or that the Company or any  Subsidiary  plans to use in the future,
that is owned by a party  other than the  Company or a  Subsidiary  (other  than
commercially  available desktop software applications generally available to the
public,  which are not listed in Section 2.12(d) of the Disclosure  Schedule but
with  respect  to which  the  representations  set forth  below on this  Section
2.12(d) are true).  The Company has supplied the Buyer with correct and complete
copies of all licenses,  sublicenses  or other  agreements  (as amended to date)
pursuant to which the Company or any Subsidiary uses such Intellectual Property,
all of which are listed on Section  2.12(d) of the  Disclosure  Schedule  (other
than commercially available desktop software applications generally available to
the public).  Except as set forth in Section 2.12(d) of the Disclosure Schedule,
with respect to each such item of Intellectual Property:

(i) the license,  sublicense  or other  agreement  covering  such item is legal,
valid,  binding,  enforceable  and in full  force  and  effect,  except  as such
enforceability  may be  limited by  bankruptcy,  insolvency,  reorganization  or
similar laws affecting creditor's rights generally;

(ii) such  license,  sublicense  or other  agreement  will continue to be legal,
valid,  binding,  enforceable and in full force and effect immediately following
the  Closing in  accordance  with the terms  thereof  as in effect  prior to the
Closing, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditor's rights generally;

                                      -20-

<PAGE>


(iii) neither the Company or any Subsidiary nor, to the knowledge of the Company
and the  Subsidiaries,  any other  party to such  license,  sublicense  or other
agreement is in breach or default,  and no event has occurred  which with notice
or lapse of time would  constitute  a breach or  default or permit  termination,
modification or acceleration thereunder;

(iv) to the Company's and the  Subsidiaries'  knowledge,  the underlying item of
Intellectual Property is not subject to any outstanding judgment, order, decree,
stipulation or injunction;

(v) subject to any indemnity  given in  agreements  entered into in the Ordinary
Course of Business of the Company and its  Subsidiaries  as set forth in Section
2.12(c) of the Disclosure  Schedule,  neither the Company nor any Subsidiary has
agreed  to  indemnify  any  person  or  Business   Entity  for  or  against  any
interference,  infringement,  misappropriation or other conflict with respect to
such item; and

(vi) no license or other fee is payable upon any transfer or  assignment of such
license, sublicense or other agreement.

2.13. INVENTORY.  All inventory of the Company and the Subsidiaries,  whether or
not  reflected  on the Most  Recent  Balance  Sheet,  consists  of a quality and
quantity  usable and  saleable in the Ordinary  Course of  Business,  except for
obsolete  items  and items of  below-standard  quality,  all of which  have been
written-off or written-down  to net realizable  value on the Most Recent Balance
Sheet.  The Company has no inventory  recorded on its Most Recent Balance Sheet.
The quantities of each type of inventory, whether raw materials, work-in-process
or finished goods, are not excessive in the present circumstances of the Company
and the Subsidiaries.

2.14. REAL PROPERTY  LEASES.  Section 2.14 of the Disclosure  Schedule lists and
describes  briefly all real  property  leased or subleased to the Company or any
Subsidiary  and  lists  the term of such  lease,  any  extension  and  expansion
options, and the rent payable thereunder. The Company has delivered to the Buyer
correct and  complete  copies of the leases and  subleases  (as amended to date)
listed in Section 2.14 of the  Disclosure  Schedule.  With respect to each lease
and sublease listed in Section 2.14 of the Disclosure Schedule:

(a) the lease or  sublease is legal,  valid,  binding,  enforceable  and in full
force and effect  with  respect to the  Company,  and, to the  knowledge  of the
Company,   with  respect  to  the  other   parties   thereto,   except  as  such
enforceability  may be  limited by  bankruptcy,  insolvency,  reorganization  or
similar laws affecting creditor's rights generally;

                                      -21-

<PAGE>


(b) the lease or sublease will continue to be legal, valid, binding, enforceable
and in full force and effect with respect to the Company,  and, to the knowledge
of the Company, with respect to the other parties thereto, immediately following
the  Closing in  accordance  with the terms  thereof  as in effect  prior to the
Closing, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditor's rights generally;

(c) neither the Company or any  Subsidiary  nor, to the Company's  knowledge any
other party to the lease or  sublease is in breach or default,  and no event has
occurred  which,  with  notice or lapse of time,  would  constitute  a breach or
default or permit termination, modification, or acceleration thereunder;

(d) there are no disputes,  oral agreements or forbearance programs in effect as
to the lease or sublease;

(e) neither the Company nor any Subsidiary has assigned, transferred,  conveyed,
mortgaged,  deeded in trust or  encumbered  any  interest  in the  leasehold  or
subleasehold;

(f) all  facilities  leased or subleased  thereunder are supplied with utilities
and other services necessary for the operation of said facilities;

(g) to the  knowledge  of the  Company,  the  owner of the  facility  leased  or
subleased  by the  Company  or any  Subsidiary  has good and  clear  record  and
marketable title to the parcel of real property,  free and clear of any Security
Interest,   easement,  covenant  or  other  restriction,   except  for  recorded
easements,  covenants,  and other  restrictions which do not impair the Intended
Uses, occupancy or value of the property subject thereto; and

(h) no construction, alteration or other leasehold improvement work with respect
to the lease or sublease  remains to be paid for or  performed by the Company or
any Subsidiary.

2.15. CONTRACTS.


(a)  Section  2.15  of the  Disclosure  Schedule  lists  the  following  written
arrangements  (including  without  limitation  written  agreements) to which the
Company or any Subsidiary is a party:

(i) any written  arrangement (or group of related written  arrangements) for the
furnishing or receipt of services;

(ii) any written  arrangement  concerning  confidentiality,  non-competition  or
non-solicitation  (other  than  confidentiality  agreements  with  customers  or
employees of the Company or any Subsidiary  set forth in the Company's  standard
terms and conditions of sale or standard form of employment agreement, copies of
which have previously been delivered to the Buyer);

                                      -22-

<PAGE>


(iii) any  written  arrangement  under  which the  consequences  of a default or
termination  could  have a  material  adverse  effect on the  assets,  business,
financial condition, results of operations or future prospects of the Company or
any Subsidiary or on the ability of the Parties to consummate  the  transactions
contemplated by this Agreement;

(iv) any written arrangement (or group of related written  arrangements) for the
lease of personal  property  from or to third  parties  providing  (A) for lease
payments  in excess of  $10,000  per annum or (B) for a term of more than  three
years;

(v) any written arrangement establishing a partnership or joint venture;

(vi) any written  arrangement (or group of related written  arrangements)  under
which it has created,  incurred,  assumed, or guaranteed (or may create,  incur,
assume, or guarantee)  indebtedness  (including  capitalized lease  obligations)
involving  more than  $10,000 or under  which it has  imposed  (or may impose) a
Security Interest on any of its assets, tangible or intangible;

(vii) any written arrangement involving any of the Company Stockholders or their
Affiliates  (for the purposes of this Agreement,  "Affiliate"  shall mean (A) in
the case of an  individual,  the  members  of the  immediate  family  (including
parents,  siblings and children) or (i) the individual and (ii) the individual's
spouse,  and (iii) any Business Entity that directly or indirectly,  through one
or more intermediaries controls, or is controlled by, or is under common control
with any of the foregoing individuals,  or (B) in the case of a Business Entity,
another Business Entity or a person that directly or indirectly,  through one or
more  intermediaries  controls,  or is controlled by, or is under common control
with the Business Entity);

(viii) any  written  arrangement  under which the  consequences  of a default or
termination  could  have a  material  adverse  effect on the  assets,  business,
financial  condition,  results of operations or future  prospects of the Company
and the Subsidiaries, taken as a whole;
 
(ix) any written  arrangement  which requires or contemplates the performance of
services or the delivery of products by the Company or any Subsidiary;

                                      -23-

<PAGE>

(x) any  written  arrangement  based in any manner  upon the  sales,  purchases,
receipts, revenues, income or profits of the Company or any Subsidiary;

(xi) any written  arrangement  restricting  the Company or any  Subsidiary  from
carrying on its business anywhere in the world;

(xii) any written  arrangement  for joint  product  development  with any party,
other than Company Customer Contracts;

(xiii) any written  arrangements with vendors of material equipment purchased by
the Company or any  Subsidiary  as reseller of  equipment,  other than  purchase
orders in the ordinary course of business;

(xiv) any  written  franchise  arrangement,  marketing  arrangement  or  royalty
arrangement  that  requires  payments or results in recurring  revenues and with
respect  to  each  such  arrangement,  Section  2.14 of the  Company  Disclosure
Schedule sets forth or describes the aggregate royalties or similar payment paid
or payable thereunder by the Company or any Subsidiary as of the date hereof;

(xv) any written  arrangement as of the date of this  Agreement  relating to the
evaluation of the Company by any other  company,  person or entity who was or is
considering  acquiring  all or a significant  part of the Company's  business by
acquisition, merger, joint venture or otherwise; and

(xvi) any other written  arrangement (or group of related written  arrangements)
involving  more than  $25,000  or not  entered  into in the  Ordinary  Course of
Business of the Company or any Subsidiary.

(b) Section 2.15 of the Disclosure Schedule accurately discloses with respect to
each  arrangement  or  agreement   disclosed  therein  (the   "Contracts"),   if
applicable,  (i) the  project  name;  (ii) the date of the  Contract;  (iii) the
customer name and address and customer contact person and phone number; (iv) the
contract  amount  or,  if the  contract  amount  is  not  fixed,  a good  faith,
reasonable  estimate of the contract amount;  (v) the estimated  contract amount
most  recently  communicated  to the customer;  (vi) the total  billings to date
under such  Contract;  (vii) the estimated  completion  dates  therefor;  (viii)
estimated  costs to complete  based on hours and rates;  and (ix) whether or not
the Company  has any reason to believe  that its profit  margin with  respect to
such  Contract  might be less than it has  customarily  achieved in the past for
similar contracts.

(c) The Company has  delivered to the Buyer a correct and complete  copy of each
Contract (as amended to date).  With respect to each Contract:  (i) the Contract
is legal,  valid,  binding and enforceable against the Company and in full 

                                      -24-

<PAGE>

force and effect;  (ii) to the knowledge of the Company,  the Contract is legal,
valid,  binding  and  enforceable  against the other  party  thereto;  (iii) the
Contract will continue to be legal,  valid,  binding and enforceable and in full
force and effect immediately  following the Closing in accordance with the terms
thereof  as in effect  prior to the  Closing;  and (iv) no party is in breach or
default,  and no event has  occurred  which  with  notice or lapse of time would
constitute  a  breach  or  default  or  permit   termination,   modification  or
acceleration, under the Contract.

(d)  Neither the Company  nor any  Subsidiary  is a party to any oral  contract,
agreement  or other  arrangement  which,  if reduced to written  form,  would be
required to be listed in Section 2.15 of the Disclosure Schedule under the terms
of this Section 2.15.  Neither the Company nor any  Subsidiary is a party to any
written or oral  arrangement  (i) to perform  services or sell products which is
expected to be performed  at, or to result in, a loss,  (ii) which  requires the
performance  of  services  or the  delivery  of  products  by the Company or any
Subsidiary  at a  fixed  price  (which  shall  include,  for  purposes  of  this
Agreement,  an agreement  for the provision of services on a "time and materials
not to exceed"  basis),  or (iii) for which the customer has already been billed
or paid that have not been fully accounted for on the Most Recent Balance Sheet.
Neither  the Company nor any  Subsidiary  is  restricted  by any  Contract  from
carrying on business anywhere in the world.

2.16.  ACCOUNTS  RECEIVABLE.  All  accounts  receivable  of the  Company and the
Subsidiaries  reflected on the Most Recent  Balance Sheet are valid  receivables
subject to no setoffs or counterclaims and, except to the extent collected since
the date of the Most Recent Balance Sheet,  are current and collectible  (within
90 days  after the date on which it first  became due and  payable),  net of the
applicable  reserve for bad debts on the Most Recent Balance Sheet. All accounts
receivable  reflected in the financial or accounting records of the Company that
have arisen  since the Balance  Sheet Date are valid  receivables  subject to no
setoffs or counterclaims and are collectible,  net of a reserve for bad debts in
an amount proportionate to the reserve shown on the Most Recent Balance Sheet.

2.17. POWERS OF ATTORNEY.  There are no outstanding  powers of attorney executed
on behalf of the Company or any Subsidiary.

2.18.  INSURANCE.  Section 2.18 of the Disclosure  Schedule lists each insurance
policy   (including  fire,   theft,   casualty,   general   liability,   workers
compensation,  business  interruption,   environmental,  product  liability  and
automobile  insurance  policies and bond and surety  arrangements)  to which the
Company or any Subsidiary  has been a party,  a named insured,  or otherwise the
beneficiary  of  coverage  at any time  within the past three  years.  Each such
insurance  policy is enforceable  and in full force and effect and will continue
to be enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect prior to the Closing.  Neither
the Company nor any Subsidiary is in breach or default  

                                      -25-

<PAGE>

(including  with  respect to the  payment of  premiums or the giving of notices)
under any such policy, and no event has occurred which, with notice or the lapse
of time,  would  constitute  such a breach or  default  or  permit  termination,
modification or acceleration, under such policy; and neither the Company nor any
Subsidiary  has  received  any notice from the insurer  disclaiming  coverage or
reserving  rights with respect to a particular  claim or such policy in general.
Section 2.18 of the Disclosure  Schedule  identifies all claims  asserted by the
Company or any Subsidiary pursuant to any insurance policy since January 1, 1995
and describes the nature and status of each such claim.  Neither the Company nor
any Subsidiary has incurred any loss,  damage,  expense or liability  covered by
any such insurance  policy for which it has not properly  asserted a claim under
such policy. Each of the Company and the Subsidiaries is covered by insurance in
scope and amount  customary  and  reasonable  for the  businesses in which it is
engaged.

2.19.  LITIGATION.  Section  2.19 of the  Disclosure  Schedule  identifies,  and
contains a brief description of, (a) any unsatisfied  judgement,  order, decree,
stipulation  or  injunction  and  (b)  any  claim,   complaint,   action,  suit,
proceeding,  hearing or investigation of or in any Governmental Entity or before
any  arbitrator  to which the  Company or any  Subsidiary  is a party or, to the
knowledge of the Company and the Subsidiaries, is threatened to be made a party.
None  of  the   complaints,   actions,   suits,   proceedings,   hearings,   and
investigations   set  forth  in  Section  2.19  of  the   Disclosure   Schedule,
individually  or  collectively,  could  have a  material  adverse  effect on the
assets, business, financial condition, results of operations or future prospects
of the Company and Subsidiaries, taken as a whole.

2.20.  WARRANTY.  No product or service  manufactured,  sold, leased,  licensed,
delivered or otherwise  provided by the Company or any  Subsidiary is subject to
any guaranty, warranty, right of return or other indemnity.

2.21. EMPLOYEES.

(a) Section 2.21 of the Disclosure  Schedule contains a list of all employees of
the Company and each  Subsidiary,  along with the  position,  date of hire,  the
annual rate of  compensation  (or with  respect to employees  compensated  on an
hourly or per diem  basis,  the  hourly or per diem  rate of  compensation)  and
estimated or target annual incentive  compensation of each such person.  None of
such  employees  is a party to an  employment  agreement  or  contract  with the
Company.  Each such  Employee has entered into the  Company's  standard  form of
confidentiality  and  assignment of inventions  agreement  with the Company or a
Subsidiary,  a copy of which has previously  been delivered to the Buyer. To the
knowledge  of the  Company  and its  Subsidiaries,  no key  employee or group of
employees  has any  plans  to  terminate  employment  with  the  Company  or any
Subsidiary.

                                      -26-

<PAGE>

(b)  Neither  the  Company  nor any  Subsidiary  is a party  to or  bound by any
collective  bargaining  agreement,  nor has any of them experienced any strikes,
grievances,  claims of unfair  labor  practices or other  collective  bargaining
disputes.   The  Company  and  the   Subsidiaries   have  no  knowledge  of  any
organizational  effort made or threatened,  either  currently or within the past
two years,  by or on behalf of any labor union with  respect to employees of the
Company or any Subsidiary.

(c) Neither  the  Company or any  Subsidiary  nor any  director,  who is also an
employee of the Company or a  Subsidiary,  officer or other key  employee of the
Company  or  any  Subsidiary  owns,  directly  or  indirectly,  individually  or
collectively,  any interest in any Business  Entity (other than as the holder of
less than 20% of the stock of a public  Business  Entity) which is in a business
similar or competitive to the businesses of the Company and the  Subsidiaries or
which has any existing undisclosed contractual  relationship with the Company or
any of the Subsidiaries.

(d) For purposes of this Agreement,  the term  "employee"  shall be construed to
include sales agents and other  independent  contractors who spend a majority of
their  working  time on the business of the Company or any  Subsidiary  (each of
whom shall be so identified in Section 2.21 of the Disclosure Schedule).

2.22. EMPLOYEE BENEFITS.

(a) Section 2.22(a) of the Disclosure  Schedule contains a complete and accurate
list of all Employee Benefit Plans (as defined below) maintained, or contributed
to, by the Company,  any Subsidiary,  or any ERISA Affiliate (as defined below).
For purposes of this  Agreement,  "Employee  Benefit  Plan" means any  "employee
pension  benefit  plan" (as defined in Section 3(2) of the  Employee  Retirement
Income  Security  Act of 1974,  as amended  ("ERISA")),  any  "employee  welfare
benefit  plan" (as defined in Section 3(1) of ERISA),  and any other  written or
oral plan, agreement or arrangement  involving direct or indirect  compensation,
including without limitation insurance coverage, severance benefits,  disability
benefits, deferred compensation, bonuses, stock options, stock purchase, phantom
stock,  stock   appreciation  or  other  forms  of  incentive   compensation  or
post-retirement compensation.  For purposes of this Agreement, "ERISA Affiliate"
means any entity which is a member of (i) a controlled group of corporations (as
defined in Section  414(b) of the  Code),  (ii) a group of trades or  businesses
under  common  control (as defined in Section  414(c) of the Code),  or (iii) an
affiliated  service group (as defined  under  Section  414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes the Company
or a Subsidiary.  Complete and accurate copies of (i) all Employee Benefit Plans
which have been  reduced to writing,  (ii) written  summaries  of all  unwritten
Employee Benefit Plans, (iii) all related trust agreements,  insurance contracts
and summary plan  descriptions,  and (iv) all annual  reports  filed on IRS Form
5500,  5500C or 5500R  for the last five plan  years for each  

                                      -27-

<PAGE>


Employee  Benefit Plan, have been delivered to the Buyer.  Each Employee Benefit
Plan has been administered in accordance with its terms and each of the Company,
the  Subsidiaries  and the ERISA Affiliates has met its obligations with respect
to such Employee Benefit Plan and has made all required  contributions  thereto.
The Company and all Employee  Benefit Plans are in compliance with the currently
applicable provisions of ERISA and the Code and the regulations thereunder.

(b)  There  are  no  investigations  by  any  Governmental  Entity,  termination
proceedings or other claims  (except  claims for benefits  payable in the normal
operation  of the  Employee  Benefit  Plans  and  proceedings  with  respect  to
qualified domestic  relations orders) suits or proceedings  against or involving
any Employee  Benefit Plan or asserting  any rights or claims to benefits  under
any Employee Benefit Plan that could give rise to any liability.

(c) All the  Employee  Benefit  Plans that are  intended to be  qualified  under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Employee Benefit Plans are qualified and
the plans and the trusts  related  thereto are exempt from federal  income taxes
under  Sections  401(a)  and  501(a),   respectively,   of  the  Code,  no  such
determination  letter has been revoked and revocation  has not been  threatened,
and no such  Employee  Benefit Plan has been amended  since the date of its most
recent  determination  letter or application therefor in any respect, and no act
or omission has  occurred,  that would  adversely  affect its  qualification  or
increase its cost.

(d)  Neither the  Company,  any  Subsidiary,  nor any ERISA  Affiliate  has ever
maintained an Employee  Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA.

(e) At no time has the  Company,  any  Subsidiary  or any ERISA  Affiliate  been
obligated  to  contribute  to any  "multi-employer  plan" (as defined in Section
4001(a)(3) of ERISA).

(f) There are no unfunded  obligations under any Employee Benefit Plan providing
benefits  after  termination of employment to any employee of the Company or any
Subsidiary  (or to any  beneficiary  of any such  employee),  including  but not
limited to retiree  health  coverage and deferred  compensation,  but  excluding
continuation of health coverage  required to be continued under Section 4980B of
the Code and insurance conversion privileges under state law.

(g) No act or omission has occurred and no condition  exists with respect to any
Employee  Benefit Plan  maintained by the Company,  any  Subsidiary or any ERISA
Affiliate that would subject the Company,  any Subsidiary or any ERISA Affiliate
to any material fine, penalty,  tax or liability of any kind imposed under ERISA
or the Code.

                                      -28-

<PAGE>

(h) No Employee  Benefit  Plan is funded by,  associated  with,  or related to a
"voluntary  employee's  beneficiary  association"  within the meaning of Section
501(c)(9) of the Code.

(i) No Employee  Benefit Plan,  plan  documentation  or agreement,  summary plan
description or other written communication distributed generally to employees by
its terms  prohibits the Company from amending or terminating  any such Employee
Benefit Plan.

(j) Section  2.22(j) of the Disclosure  Schedule  discloses  each: (i) agreement
with any director, executive officer or other key employee of the Company or any
Subsidiary (A) the benefits of which are  contingent,  or the terms of which are
altered,  upon the  occurrence  of a  transaction  involving  the Company or any
Subsidiary  of  the  nature  of any of the  transactions  contemplated  by  this
Agreement, (B) providing any term of employment or compensation guarantee or (C)
providing  severance  benefits  or  other  benefits  after  the  termination  of
employment of such director,  executive officer or key employee; (ii) agreement,
plan or arrangement under which any person may receive payments from the Company
or any Subsidiary  that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the Company or any
Subsidiary,   including   without   limitation  any  stock  option  plan,  stock
appreciation right plan,  restricted stock plan, stock purchase plan,  severance
benefit plan, or any Employee Benefit Plan, any of the benefits of which will be
increased,  or the vesting of the benefits of which will be accelerated,  by the
occurrence  of any of the  transactions  contemplated  by this  Agreement or the
value of any of the benefits of which will be  calculated on the basis of any of
the  transactions  contemplated  by this  Agreement.  The accruals for vacation,
sickness and  disability  expenses are accounted for on the Most Recent  Balance
Sheet and are adequate and properly reflect the expenses associated therewith in
accordance with GAAP.

2.23. ENVIRONMENTAL MATTERS.

(a) Each of the Company and the  Subsidiaries  has complied with all  applicable
Environmental Laws (as defined below).  There is no pending or, to the knowledge
of the Company and the  Subsidiaries,  threatened civil or criminal  litigation,
written notice of violation, formal administrative proceeding, or investigation,
inquiry or  information  request by any  Governmental  Entity,  relating  to any
Environmental Law involving the Company or any Subsidiary.  For purposes of this
Agreement,  "Environmental Law" means any federal,  state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air,
water 

                                      -29-

<PAGE>

and noise pollution;  (iii) groundwater and soil  contamination;  (iv) the
release or  threatened  release into the  environment  of  industrial,  toxic or
hazardous substances,  or solid or hazardous waste, including without limitation
emissions,  discharges,  injections,  spills,  escapes or dumping of pollutants,
contaminants or chemicals;  (v) the protection of wild life, marine  sanctuaries
and  wetlands,  including  without  limitation  all  endangered  and  threatened
species; (vi) storage tanks, vessels and containers; (vii) underground and other
storage tanks or vessels,  abandoned,  disposed or discarded barrels, containers
and other closed  receptacles;  (viii)  health and safety of employees and other
persons;  and  (ix)  manufacture,  processing,  use,  distribution,   treatment,
storage,  disposal,  transportation  or  handling of  pollutants,  contaminants,
chemicals  or  industrial,  toxic or  hazardous  substances  or oil or petroleum
products or solid or hazardous  waste.  As used above,  the terms  "release" and
"environment"  shall have the  meaning  set forth in the  federal  Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").

(b) There have been no releases of any  Materials of  Environmental  Concern (as
defined  below)  into the  environment  at any  parcel of real  property  or any
facility formerly or currently owned, operated or controlled by the Company or a
Subsidiary.  With respect to any such  releases of  Materials  of  Environmental
Concern,  the  Company  or such  Subsidiary  has given all  required  notices to
Governmental Entities (copies of which have been provided to the Buyer). Neither
the  Company  nor any  Subsidiary  is  aware of any  releases  of  Materials  of
Environmental Concern at parcels of real property or facilities other than those
owned,  operated  or  controlled  by the  Company  or a  Subsidiary  that  could
reasonably  be  expected to have an impact on the real  property  or  facilities
owned,  operated or controlled  by the Company or a Subsidiary.  For purposes of
this  Agreement,  "Materials  of  Environmental  Concern"  means any  chemicals,
pollutants or contaminants,  hazardous substances (as such term is defined under
CERCLA),  solid wastes and hazardous wastes (as such terms are defined under the
federal  Resources  Conservation  and Recovery  Act),  toxic  materials,  oil or
petroleum and petroleum  products,  or any other material  subject to regulation
under any Environmental Law.

(c) Set forth in Section  2.23(c) of the  Disclosure  Schedule  is a list of all
environmental reports,  investigations and audits relating to premises currently
or  previously  owned  or  operated  by the  Company  or a  Subsidiary  (whether
conducted by or on behalf of the Company or a Subsidiary  or a third party,  and
whether done at the  initiative  of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which the Company has possession of or
access to. Complete and accurate  copies of each such report,  or the results of
each such investigation or audit, have been provided to the Buyer.

(d) Set forth in Section 2.23(d) of the Disclosure  Schedule is a list of all of
the solid and hazardous waste  transporters and treatment,  storage and disposal
facilities  that have been utilized by the Company or a Subsidiary.  Neither the

                                      -30-

<PAGE>

Company nor any Subsidiary is aware of any material  environmental  liability of
any such transporter or facility.

2.24.  LEGAL  COMPLIANCE.  Each of the  Company  and the  Subsidiaries,  and the
conduct and operations of their respective businesses, are and have been in full
compliance  with each law (including  rules and  regulations  thereunder) of any
federal,  state, local or foreign government,  or any Governmental Entity, which
(a) affects or relates to this Agreement or the transactions contemplated hereby
or (b) is applicable to the Company or such Subsidiary or business.

2.25. PERMITS.  Section 2.25 of the Disclosure Schedule sets forth a list of all
permits,  licenses,  registrations,  certificates,  orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property)  ("Permits")  issued to or held by the Company or any Subsidiary.
Such listed  Permits are the only  Permits that are required for the Company and
the Subsidiaries to conduct their respective  businesses as presently conducted.
Each such Permit is in full force and effect  and, to the best of the  knowledge
of the Company or any  Subsidiary,  no suspension or cancellation of such Permit
is threatened  and there is no basis for believing  that such Permit will not be
renewable  upon  expiration.  Each such Permit  will  continue in full force and
effect immediately following the Closing.

2.26. CERTAIN BUSINESS  RELATIONSHIPS WITH AFFILIATES.  No Company Stockholders,
Affiliate  of any  Company  Stockholder  or  Affiliate  of the Company or of any
Subsidiary (a) owns any property or right, tangible or intangible, which is used
in the business of the Company or any Subsidiary,  (b) has any claim or cause of
action against the Company or any Subsidiary,  (c) owes any money to the Company
or any  Subsidiary  or (d) is a  party  to any  contract  or  other  arrangement
(written  or  verbal)  with  the  Company  or any  Subsidiary  (the  agreements,
arrangements  and  relationships  described  in this  sentence  are  hereinafter
referred to as "Related  Party  Transactions").  Section 2.26 of the  Disclosure
Schedule summarizes any Related Party Transactions.

2.27.  BROKERS' FEES.  Except for fees payable to Piper Jaffray Inc., which will
be  reflected as a liability  on the Closing  Balance  Sheet if not paid in full
prior to the Closing,  neither the Company nor any  Subsidiary has any liability
or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.

2.28.  BOOKS AND  RECORDS.  The minute  books and other  similar  records of the
Company and each  Subsidiary  contain true and  complete  records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders,  Board
of Directors or any committee  thereof and of all written  consents  executed in
lieu of the  

                                      -31-

<PAGE>

holding of any such  meeting.  The books and records of the Company
and each  Subsidiary  accurately  reflect  the  assets,  liabilities,  business,
financial  condition and results of operations of the Company or such Subsidiary
and have been  maintained  in  accordance  with good  business  and  bookkeeping
practices.

2.29. CUSTOMERS AND SUPPLIERS.  No customer of the Company or any Subsidiary has
indicated  within  the past year that it will  stop,  or  decrease  the rate of,
buying materials,  products or services from the Company or such Subsidiary. The
Company  has  good  customer  relations  with  its  customers,  and none of such
customers  has  notified  the  Company  that  it  intends  to  discontinue   its
relationship  with  the  Company.  To the  knowledge  of  the  Company  and  the
Subsidiaries, no unfilled customer order or commitment obligating the Company or
any Subsidiary to process,  manufacture or deliver  products or perform services
will  result in a loss to the  Company  or any  Subsidiary  upon  completion  of
performance.  To the knowledge of the Company and the Subsidiaries,  no purchase
order or  commitment  of the  Company or any  Subsidiary  is in excess of normal
requirements, nor are prices provided therein in excess of current market prices
for the products or services to be provided thereunder.  No material supplier of
the Company or any  Subsidiary  has indicated  within the past year that it will
stop,  or decrease  the rate of,  supplying  materials,  products or services to
them. Section 2.29 of the Disclosure Schedule sets forth a list of each customer
of the Company  during the last full fiscal year and the interim  period through
the Balance Sheet Date and the amount of revenues accounted for by such customer
during each such periods.  No supplier is the sole  supplier of any  significant
product  or  component  to the  Company or a  Subsidiary.  The  Company  has not
received or submitted  any invoices or requests for any  prepayment  or deposits
from  customers for products to be shipped,  or services to be performed,  after
the Closing Date.

2.30. POOLING. To the knowledge of the Company and each Subsidiary,  neither the
Company nor any of its Affiliates  has through the date of this Agreement  taken
or agreed to take any action  that would  prevent the Company and the Buyer from
accounting  for the  business  combination  to be  effected  by the  Merger as a
"pooling of interests" in conformity with GAAP.

2.31. COMPANY ACTION.


(a) The Board of Directors  of the  Company,  at a meeting duly called and held,
has by the  unanimous  vote of all  directors  present (i)  determined  that the
Merger is fair and in the best  interests  of the Company and its  stockholders,
(ii) adopted this  Agreement in accordance  with the  provisions of the Delaware
General  Corporation  Law, and (iii) directed that this Agreement and the Merger
be submitted  to the Company  Stockholders  for their  adoption and approval and
resolved to recommend that Company Stockholders vote in favor of the adoption of
this Agreement and the approval of the Merger.

                                      -32-

<PAGE>

(b) The  financial  advisors to the  Company  have  delivered  to the Company an
opinion,  dated the date hereof,  to the effect that the terms of the Merger are
fair to the Company Stockholders from a financial point of view and will deliver
to the  Buyer  as soon as it is  received  a copy of such  opinion  in the  form
reduced to writing and signed by the Company's  financial advisor dated the date
of this Agreement.

2.32. PREPAYMENTS, PREBILLED INVOICES AND DEPOSITS.


(a) Section 2.32(a) of the Disclosure  Schedule sets forth (i) all  prepayments,
prebilled  invoices and deposits  that have been  received by the Company or any
Subsidiary as of the date of this  Agreement  from  customers for products to be
shipped,  or services to be  performed,  after the Closing  Date,  and (ii) with
respect to each such prepayment, prebilled invoice or deposit, (A) the party and
contract  credited,  (B) the date received or invoiced,  (C) the products and/or
services  to be  delivered,  and  (D) the  conditions  for  the  return  of such
prepayment,  prebilled  invoice  or  deposit.  All such  prepayments,  prebilled
invoices and deposits are properly  accrued for on the Most Recent Balance Sheet
in accordance with GAAP applied on a consistent  basis with the past practice of
the Company and the Subsidiaries.

(b) Section 2.32(b) of the Disclosure  Schedule sets forth (i) all  prepayments,
prebilled  invoices and  deposits  that have been made or paid by the Company or
any  Subsidiary  as of the date of this  Agreement for products to be purchased,
services to be  performed  or other  benefits  to be received  after the Closing
Date,  and (ii) with  respect  to each such  prepayment,  prebilled  invoice  or
deposit, (A) the party to whom such prepayment, prebilled invoice or deposit was
made or paid, (B) the date made or paid, (C) the products  and/or services to be
delivered,  and (D) the conditions for the return of such prepayment,  prebilled
invoice or deposit.  All such prepayments,  prebilled  invoices and deposits are
properly  accrued for on the Most Recent  Balance Sheet in accordance  with GAAP
applied on a consistent basis with the past practices of the Company.

2.33. BANKING FACILITIES.  Section 2.33 of the Disclosure Schedule identifies:
     
(a) Each bank,  savings and loan or similar  financial  institution in which the
Company or any  Subsidiary  has an account or safety deposit box and the numbers
of the  accounts  or safety  deposit  boxes  maintained  by the  Company or such
Subsidiary thereat; and

(b) The names of all persons  authorized to draw on each such account or to have
access to any such safety  deposit box facility,  together with a description of
the authority (and conditions  thereof, if any) or each such person with respect
thereto.

                                      -33-

<PAGE>

2.34. YEAR 2000.

(a) Other than  commercially  available  software  licensed  to the Company on a
non-exclusive  basis and except as set forth in Section  2.34 of the  Disclosure
Schedule  attached  hereto,  all software used by the Company or any  Subsidiary
that contains or calls on a calendar function,  including without limitation any
function that is indexed to a computer processing unit clock,  provides specific
dates or  calculates  spans of  dates,  is and  will be able to  record,  store,
process and provide true and accurate dates and calculations for dates and spans
of dates including and following January 1, 2000.

(b) All software  sold,  licensed or otherwise made available to any third party
by the  Company or any  Subsidiary,  that in each case,  contains  or calls on a
calendar function,  including without limitation any function that is indexed to
a computer processing unit clock, provides specific dates or calculates spans of
dates,  is and will be able to  record,  store,  process  and  provide  true and
accurate  dates and  calculations  for dates  and spans of dates  including  and
following January 1, 2000.

2.35. DISCLOSURE. No representation or warranty by the Company contained in this
Agreement,  and no statement  contained in the Disclosure  Schedule or any other
document,  certificate or other instrument delivered or to be delivered by or on
behalf of the Company pursuant to this Agreement, and no other statement made by
the Company or any of its  representatives  in connection  with this  Agreement,
contains or will  contain any untrue  statement  of a material  fact or omits or
will omit to state any material fact  necessary,  in light of the  circumstances
under which it was or will be made,  in order to make the  statements  herein or
therein not  misleading.  The Company has  disclosed  to the Buyer all  material
information  relating to the business of the Company and any  Subsidiary and the
transactions contemplated by this Agreement.

2.36. INFORMATION IN REGISTRATION STATEMENT. None of the information supplied or
to be  supplied  by the  Company or any of its  Subsidiaries  for the purpose of
inclusion  in the  registration  statement  on Form  S-4 to be  filed  with  the
Securities and Exchange Commission (the "SEC") by the Buyer under the Securities
Act for the purpose of registering the Merger Shares to be issued (together with
any amendments or supplements  thereto,  whether prior to or after the effective
date thereof,  the "Registration  Statement") will, at the time the Registration
Statement is filed with the SEC, at the time the Registration  Statement becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material  fact or omit to state any material  fact required to be
stated  therein  necessary  to make  the  statements  therein,  in  light of the
circumstances under which they were made, not misleading.

                                      -34-

<PAGE>


                                  Article III
                   REPRESENTATIONS AND WARRANTIES OF THE BUYER
                         AND THE TRANSITORY SUBSIDIARY


         Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:

3.1.  ORGANIZATION.  Each  of the  Buyer  and  the  Transitory  Subsidiary  is a
corporation  duly  organized,  validly  existing and in  corporate  and tax good
standing under the laws of the state of its incorporation.

3.2.  CAPITALIZATION.  The authorized capital stock of the Transitory Subsidiary
consists of 1,000  shares of common  stock,  $.01 par value per share,  of which
1,000 shares are issued and outstanding and held by the Buyer.  The common stock
of the Transitory  Subsidiary will represent the only class or series of capital
stock of the  Transitory  Subsidiary  entitled  to vote on the  adoption of this
Agreement.

3.3.  AUTHORIZATION  OF  TRANSACTION.  Each  of the  Buyer  and  the  Transitory
Subsidiary  has all  requisite  power and  authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform its
obligations  hereunder  and  thereunder.  The  execution  and  delivery  of this
Agreement  and (in the case of the Buyer) the Escrow  Agreement by the Buyer and
the Transitory Subsidiary and the performance of this Agreement and (in the case
of the  Buyer)  the  Escrow  Agreement  the  consummation  of  the  transactions
contemplated hereby and thereby by the Buyer and the Transitory  Subsidiary have
been duly and validly  authorized by all necessary  corporate action on the part
of the Buyer and Transitory Subsidiary. This Agreement has been duly and validly
executed  and  delivered  by  the  Buyer  and  the  Transitory   Subsidiary  and
constitutes  a valid and  binding  obligation  of the  Buyer and the  Transitory
Subsidiary,  enforceable  against them in accordance  with its terms,  except as
such enforceability may be limited by bankruptcy, insolvency,  reorganization or
similar laws affecting creditor's rights generally.

3.4. NONCONTRAVENTION. Subject to compliance with the applicable requirements of
the  Securities  Act and any applicable  state  securities  laws, the Securities
Exchange Act of 1934, as amended (the "Exchange  Act"),  the Hart-Scott-  Rodino
Act, the rules and regulations of the Nasdaq National Market,  and the filing of
the Certificate of Merger as required by the Delaware  General  Corporation Law,
neither the  execution  and  delivery of this  Agreement  or (in the case of the
Buyer) the Escrow Agreement by the Buyer or the Transitory  Subsidiary,  nor the
consummation  by the  Buyer or the  Transitory  Subsidiary  of the  transactions
contemplated  hereby or thereby  (including the issuance of the Merger  Shares),
will (a)  conflict  or violate  any  provision  of the charter or By-laws of the
Buyer or the Transitory Subsidiary,  (b) require on the part of the Buyer or the
Transitory  Subsidiary  any filing with,  or 

                                      -35-

<PAGE>


permit,  authorization,  consent or approval of, any  Governmental  Entity,  (c)
conflict with,  result in breach of,  constitute  (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party any right to accelerate,  terminate,  modify or cancel, or require any
notice,  consent  or waiver  under,  any  contract,  lease,  sublease,  license,
sublicense,  franchise,  permit,  indenture,  agreement or mortgage for borrowed
money,  instrument of indebtedness,  Security  Interest or other  arrangement to
which the Buyer or Transitory  Subsidiary is a party or by which either is bound
or to which any of their  assets are  subject,  or (d) violate any order,  writ,
injunction,  decree,  statute, rule or regulation applicable to the Buyer or the
Transitory Subsidiary or any of their properties or assets.

3.5. REPORTS AND FINANCIAL STATEMENTS. The Buyer has previously furnished to the
Company  complete and accurate copies,  as amended or  supplemented,  of its (a)
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed
with the SEC, and (b) all other  reports  filed by the Buyer under Section 13 of
the Exchange Act with the SEC since January 1, 1998 (such reports, together with
any amendments or supplements thereto are collectively referred to herein as the
"Buyer  Reports").  As of their  respective  dates,  the Buyer  Reports  did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated  therein or necessary to make the statements  therein,  in
light of the  circumstances  under  which they were made,  not  misleading.  The
audited financial  statements and unaudited interim financial  statements of the
Buyer  included  in the Buyer  Reports  (i)  comply  as to form in all  material
respects with  applicable  accounting  requirements  and the published rules and
regulations  of the SEC  with  respect  thereto,  (ii)  have  been  prepared  in
accordance  with GAAP  applied on a  consistent  basis  throughout  the  periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial  statements,  as permitted by Form 10-Q under
the Exchange Act),  (iii) fairly present the consolidated  financial  condition,
results of  operations  and cash flows of the Buyer as of the  respective  dates
thereof and for the periods  referred to therein,  and (iv) are consistent  with
the books and records of the Buyer.

3.6.  BROKERS' FEES.  Except for fees payable to Cowen & Co.,  neither the Buyer
nor the Transitory Subsidiary has any liability or obligation to pay any fees or
commissions  to any  broker,  finder or agent with  respect to the  transactions
contemplated by this Agreement.


3.7.  LEGALITY  OF  MERGER  SHARES.  All of the  Merger  Shares  have  been duly
authorized  and, when issued and delivered in accordance  with the terms hereof,
will be validly issued,  fully paid and non-assessable,  and free of pre-emptive
rights.

3.8.  DISCLOSURE.  No  representation or warranty by the Buyer contained in this
Agreement,  and no statement  contained in any  document,  certificate  or other

                                      -36-

<PAGE>

instrument delivered to or to be delivered by or on behalf of the Buyer pursuant
to this Agreement,  contains or will contain any untrue  statement of a material
fact or omit or will omit to state any material fact necessary,  in light of the
circumstances  under  which  it was or will  be  made,  in  order  to  make  the
statements herein or therein not misleading.


                                   Article IV

                                    COVENANTS

4.1. BEST EFFORTS. Each of the Parties shall use its best efforts, to the extent
commercially  reasonable,  to take all actions  and to do all things  necessary,
proper  or  advisable  to  consummate  the  transactions  contemplated  by  this
Agreement; provided, however, that notwithstanding anything in this Agreement to
the  contrary,  the Buyer  shall not be  required  to sell or dispose of or hold
separately  (through a trust or otherwise) any assets or businesses of the Buyer
or its  Affiliates.  The Buyer and the Company  shall each use all  commercially
reasonable efforts to cause the Merger to be treated as a reorganization  within
the meaning of Section 368 of the Code.

4.2. NOTICES AND CONSENTS.  The Company shall use its best efforts to obtain, at
its  expense,  all  such  waivers,   permits,   consents,   approvals  or  other
authorizations from third parties and Governmental  Entities,  and to effect all
such   registrations,   filings  and  notices  with  or  to  third  parties  and
Governmental  Entities,  as may be required by or with respect to the Company in
connection  with the  transactions  contemplated  by this  Agreement  (including
without  limitation those listed in Section 2.4, Section 2.12 or Section 2.25 of
the Disclosure Schedule).  Each of the Buyer and the Transitory Subsidiary shall
use its best  efforts to obtain,  at its  expense,  all such  waivers,  permits,
consents,  approvals or other authorizations from third parties and Governmental
Entities,  and to effect all such registrations,  filings and notices with or to
third parties and Governmental  Entities,  as may be required by or with respect
to the Buyer or the  Transitory  Subsidiary,  as the case may be, in  connection
with the transactions contemplated by this Agreement.

4.3. REGISTRATION; SPECIAL MEETING; OTHER ACTIONS


(a)  Within 90 days of the date  hereof,  assuming  receipt  by the Buyer of the
initial Computer Certificate,  the Buyer shall prepare and file the Registration
Statement with the SEC. The Buyer  acknowledges that the Company and its counsel
may participate in the preparation of the Registration Statement,  provided that
the final  determination  of any  issues  related  thereto  shall be made by the
Buyer.  The Buyer shall also take actions (other than  qualifying to do business
in any  jurisdiction  in  which  the  Buyer is now not so  qualified)  as may be
required to be taken under any applicable  state  securities  laws in connection
with the  issuance  of Buyer  Common 

                                      -37-

<PAGE>

Stock in the Merger.  The Company and its counsel and accountants  shall furnish
all information  concerning the Company and the holders of Company Shares as may
be reasonably  requested in connection  with the  foregoing,  including  without
limitation  all  information  concerning  the Company and the holders of Company
Shares that is required by the SEC to be included in the Registration Statement.

(b) Each Party agrees,  subject to  applicable  laws relating to the exchange of
information,  promptly  to  furnish  the other  Parties  with  copies of written
communications   (and  memoranda   setting  forth  the  substance  of  all  oral
communications)  received by such Party, or any of its Subsidiaries,  affiliates
or associates (as such terms are defined in Rule 12b-2 under the Exchange Act as
in effect on the date  hereof),  from,  or delivered by any of the foregoing to,
any  Governmental   Entity  relating  to  or  in  respect  of  the  transactions
contemplated under this Agreement.

(c) The Company shall use its  reasonable  best efforts to cause to be delivered
to the Buyer a "comfort" letter of Ernst & Young LLP, the Company's  independent
public  accountants,  dated the date on which the  Registration  Statement shall
become  effective and as of the Effective  Time,  and addressed to the Buyer and
the Company,  in form and  substance  reasonably  satisfactory  to the Buyer and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.

(d) The  Company  (i) shall  call a meeting  of its  stockholders  to be held as
promptly as  practicable  after the date hereof for purposes of voting upon this
Agreement (the "Company Special Meeting") or (ii) shall solicit written consents
of its  stockholders  in lieu thereof.  The Company and the  Subsidiaries  shall
comply with all applicable provisions of the Delaware General Corporation Law in
the calling and holding of the Company Special Meeting.

(e) The Company,  acting  through its Board of  Directors,  shall include in any
proxy  statement or written action  relating to the Company  Special Meeting the
recommendation  of its Board of Directors that the Company  Stockholders vote in
favor of the  adoption of this  Agreement  and the  approval of the Merger,  and
shall  otherwise  use its best  efforts  to  obtain  the  Requisite  Stockholder
Approval.

(f) Gene Barduson and Vincent  Estrada each agree to (i) vote all Company Shares
that are  beneficially  owned  by him or it,  or for  which he or it has  voting
authority,  in favor of the adoption of this  Agreement  and the approval of the
Merger and (ii)  otherwise  use his or its best efforts to obtain the  Requisite
Stockholder Approval.

                                      -38-

<PAGE>

4.4. OPERATION OF BUSINESS. Except as contemplated by this Agreement, during the
period from the date of this Agreement to the Effective  Time, the Company shall
(and shall cause each  Subsidiary  to) conduct its  operations  in the  Ordinary
Course of Business and in compliance  with all applicable  laws and  regulations
and, to the extent consistent therewith,  use all reasonable efforts to preserve
intact its  current  business  organization,  keep its  physical  assets in good
working  condition,  keep  available  the  services of its current  officers and
employees and preserve its  relationships  with customers,  suppliers and others
having  business  dealings  with it to the end that  its  goodwill  and  ongoing
business  shall not be impaired in any material  respect.  Without  limiting the
generality of the foregoing,  prior to the Effective  Time,  neither the Company
nor any Subsidiary shall, without the prior written consent of the Buyer:

(a) issue,  sell,  deliver or agree or commit to issue, sell or deliver (whether
through  the   issuance  or   granting   of  options,   warrants,   commitments,
subscriptions,  rights to purchase or otherwise) or authorize the issuance, sale
or  delivery  of, or redeem or  repurchase,  any stock of any class or any other
securities or any rights, warrants or options to acquire any such stock or other
securities  (except  pursuant  to the  conversion  or  exercise  of  convertible
securities, Options or Warrants outstanding on the date hereof), or amend any of
the terms of any such convertible securities, Options or Warrants;

(b) split,  combine or reclassify any shares of its capital  stock;  or declare,
set aside or pay any dividend or other  distribution  (whether in cash, stock or
property or any combination thereof) in respect of its capital stock;

(c)  create,  incur or  assume  any debt not  currently  outstanding  (including
obligations in respect of capital  leases) other than from the Buyer pursuant to
that certain loan agreement dated the date hereof; assume, guarantee, endorse or
otherwise  become  liable or  responsible  (whether  directly,  contingently  or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital  contributions  to, or  investments  in, any other person or
entity;

(d) enter into,  adopt or amend any Employee  Benefit Plan or any  employment or
severance  agreement or arrangement of the type described in Section  2.22(j) or
(except for normal increases in the Ordinary Course of Business) increase in any
manner  the  compensation  or fringe  benefits  of,  or  materially  modify  the
employment  terms  of,  its  directors,  officers  or  employees,  generally  or
individually, or pay any benefit not required by the terms in effect on the date
hereof of any existing Employee Benefit Plan;

(e)  acquire,  sell,  lease,  encumber  or  dispose  of any  assets or  property
(including  without  limitation  any  shares  or other  equity  interests  in or
securities of any  Subsidiary or any  corporation,  partnership,  association or
other 

                                      -39-

<PAGE>

business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;

(f)  Amend its Certificate of Incorporation or By-laws;

(g)  change in any  material  respect  its  accounting  methods,  principles  or
practices, except insofar as may be required by a generally applicable change in
GAAP;

(h)  discharge  or  satisfy  any  Security  Interest  or pay any  obligation  or
liability other than in the Ordinary Course of Business;

(i)  mortgage or pledge any of its property or assets or subject any such assets
to any Security Interest;

(j) sell, assign,  transfer or license any Intellectual Property,  other than in
the Ordinary Course of Business;

(k) enter  into,  amend,  terminate,  take or omit to take any action that would
constitute  a violation  of or default  under,  or waive any rights  under,  any
material contract or agreement;

(l)  make or commit to make any capital expenditure in excess of $10,000 per
expenditure or $50,000 in the aggregate;

(m) take any action or fail to take any action  permitted by this Agreement with
the knowledge that such action or failure to take action would result in (i) any
of the representations and warranties of the Company set forth in this Agreement
becoming  untrue in any material  respect or (ii) any of the  conditions  to the
Merger set forth in Article V not being satisfied;

(n) take any  action  that would  jeopardize  the  treatment  of the Merger as a
"pooling of interests" for accounting purposes;

(o) agree in writing or otherwise to take any of the foregoing actions; or

(p) make any  accrual or promise to pay any bonus or other form of  compensation
or make any loan to any  employee  or  entity  outside  the  Ordinary  Course of
Business.

The Parties  acknowledge  that as a condition  to  receiving  the Buyer's  prior
written  consent in accordance  with this Section 4.4, the Buyer and the Company
may mutually agree to reduce the Purchase Price.

                                      -40-

<PAGE>

4.5. FULL ACCESS.  The Company shall (and shall cause each Subsidiary to) permit
representatives  of the Buyer to have full access (at all reasonable  times, and
in a manner so as not to interfere  with the normal  business  operations of the
Company  and  the  Subsidiaries)  to all  premises,  properties,  financial  and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company and each  Subsidiary.  The officers and  management of
the  Company  and the  Subsidiaries  shall  cooperate  fully  with  the  Buyer's
representatives  and agents and shall make  themselves  available  to the extent
necessary to complete  the due  diligence  process and the Closing.  The Company
shall,  at the  request  of the  Buyer,  introduce  the  Buyer to the  principal
customers  and  employees  and the Company and the  Subsidiaries  to  facilitate
discussions  between  such persons and the Buyer in regard to the conduct of the
business  of  the  Company  and  the   Subsidiaries   following   the   Closing.
Notwithstanding  the  foregoing,  the Buyer  shall  work with and  consult  with
officers of the Company with respect to contacting such employees and customers.

4.6. NOTICE OF BREACHES. The Company shall promptly deliver to the Buyer written
notice  of any  event or  development  that  would  (a)  render  any  statement,
representation  or  warranty  of the Company in this  Agreement  (including  the
Disclosure  Schedule) inaccurate or incomplete in any respect, or (b) constitute
or result in a breach by the  Company  of, or a failure by the Company to comply
with, any agreement or covenant in this Agreement  applicable to such party.  No
such disclosure shall be deemed to avoid or cure any such  misrepresentation  or
breach.

4.7. EXCLUSIVITY.  The Company, Gene Barduson and Vincent Estrada shall not, and
the Company shall use its best efforts to cause its  Affiliates  and each of its
officers, directors,  employees,  representatives and agents not to, directly or
indirectly,   (a)  encourage,   solicit,  initiate,  engage  or  participate  in
discussions  or  negotiations  with any person or entity  (other than the Buyer)
concerning any merger,  consolidation,  sale of material  assets,  tender offer,
recapitalization,  accumulation of Company Shares,  proxy  solicitation or other
business  combination  involving the Company,  any Subsidiary or any division of
the  Company  or  any  Subsidiary  or (b)  provide  any  non-public  information
concerning  the business,  properties or assets of the Company or any Subsidiary
to any person or entity (other than the Buyer) without the prior written consent
of the Buyer other than providing pricing information and information concerning
the Company's system architecture to customers and prospective  customers in the
Ordinary Course of Business.  The Company shall immediately notify the Buyer of,
and shall  disclose to the Buyer all details of, any  inquiries,  discussions or
negotiations of the nature described in the first sentence of this Section 4.7.

4.8.  AGREEMENTS FROM CERTAIN  AFFILIATES OF THE COMPANY.  Concurrently with the
execution of this  Agreement,  the Company  shall deliver to the Buyer a list of
all  persons or entities  who are at such time  Affiliates  of the Company  (the
"Company Affiliates"). In order to help ensure that the Merger will be accounted
for as a 

                                      -41-

<PAGE>

"pooling of interests,"  that the issuance of Merger Shares will comply
with the  Securities  Act,  and that the  Merger  will be  treated as a tax-free
reorganization,  the Company  shall cause each Company  Affiliate to execute and
deliver to the Buyer, concurrently with the signing of this Agreement, a written
agreement substantially in the form attached hereto as EXHIBIT B (the "Affiliate
Agreement").

4.9. MONTHLY FINANCIAL  STATEMENTS.  Promptly as possible following the last day
of each month after the date of this  Agreement  until the Closing Date,  and in
any event  within 15 days after the end of each such month,  the  Company  shall
deliver to the Buyer an unaudited  consolidated balance sheet of the Company and
the  Subsidiaries  and the  related  statements  of income,  retained  earnings,
stockholders'  equity  and  cash  flows  for the  one-month  period  then  ended
(collectively,  the  "Interim  Financial  Statements").  The  Interim  Financial
Statements shall,  from and after the delivery  thereof,  constitute part of the
"Financial Statements" for purposes of this Agreement.

4.10. NASDAQ NATIONAL MARKET.  The Buyer will file all documents  required to be
filed to list the Merger Shares on the Nasdaq  National  Market and use its best
efforts to effect said listing.

4.11. BLUE SKY APPROVALS.  The Buyer will file all documents  required to obtain
the  Blue  Sky  permits  and  approvals,  if  any,  required  to  carry  out the
transactions contemplated by this Agreement (to the extent required prior to the
Effective  Time),  will pay all expenses  incident thereto and will use its best
efforts to obtain such permits and approvals;  PROVIDED, HOWEVER, that the Buyer
shall not be  required  in  connection  with this  Section  4.11 to qualify as a
foreign  corporation  or execute a general  consent to service of process in any
jurisdiction.

4.12.  HART-SCOTT-RODINO  ACT.  Each of the Buyer,  the  Company and the Company
Stockholders  shall promptly file any  Notification and Report Forms and related
material  that it,  he or she may be  required  to file with the  Federal  Trade
Commission and the Antitrust Division of the United States Department of Justice
under the  Hart-Scott-Rodino  Act,  shall use his,  her or its best  efforts  to
obtain an early termination of the applicable waiting period, and shall make any
further  filings  or  information  submissions  pursuant  thereto  that  may  be
necessary, proper or advisable.

4.13. POOLING ACCOUNTING. From and after the date hereof and until the Effective
Time, neither the Company nor the Buyer nor any of their respective subsidiaries
shall  knowingly  take any action that is reasonably  likely to  jeopardize  the
treatment of the merger as a "pooling of interests" for accounting purposes.

4.14.  INDEMNIFICATION OF COMPANY OFFICERS AND DIRECTORS.  Buyer shall guarantee
and shall cause the Surviving  Corporation to maintain and perform the 

                                      -42-

<PAGE>


Company's existing indemnification provisions with respect to present and former
directors and officers of the Company for all losses, claims, damages,  expenses
or  liabilities  arising  out of actions  or  omissions  or  alleged  actions or
omissions in their capacities as directors and/or officers occurring at or prior
to the Effective Time to the extent required under the Company's  Certificate of
Incorporation and Bylaws in effect as of the date hereof and permitted under and
consistent  with applicable law, for a period of not less than three years after
the Effective  Time.  During the period  commencing as of the Effective Time and
ending on the third  anniversary of the Effective Time,  Buyer shall cause to be
maintained  in  effect,  for the  benefit of present  and former  directors  and
officers  of the  Company,  a  policy  of  directors'  and  officers'  liability
insurance  that  is  substantially  identical  in  scope  and  coverage  to  the
directors' and officers'  liability  insurance  policy  currently  maintained by
Company. Prior to the Effective Time, the Company shall obtain a three year tail
policy on the Company's directors' and officers' liability insurance policy.

4.15.  RESOLUTION OF COMPUTER  ISSUE.  The Company shall use its best efforts to
resolve, to the satisfaction of the Buyer, the Computer Issue within eight weeks
of the date of this Agreement.  No later than eight weeks after the date of this
Agreement,  the Company shall provide to the Buyer a certificate  (the "Computer
Certificate")  signed by an  officer  of the  Company  setting  forth in detail,
together with all supporting documentation,  the following information:  (i) the
results of the work to be  performed  by IKON Office  Solutions on the status of
the  Company's  computer  systems  which shall  include a full  inventory of the
Company's  computers  and a  description  of the licenses  that are necessary to
operate the computers  using the Necessary  Software (as defined in Section 2.12
of the  Disclosure  Schedule) for the Minimum Number of Computers (as defined in
Section  2.12 of the  Disclosure  Schedule);  (ii) an  itemization  of all costs
incurred by the Company in connection with the Company's  efforts to resolve the
Computer  Issue;  (iii) a description  of all steps taken and to be taken by the
Company to resolve the Computer Issue; (iv) a description of any claims asserted
or  threatened  to be  asserted  against  the  Company in any way related to the
Computer  Issue;  and (v) if the Computer  Issue has not been resolved as of the
date of delivery of the  Computer  Certificate,  an estimate of the future costs
the  Company  expects  to  incur on or after  the  date of such  Certificate  in
connection  with the  resolution of the Computer  Issue which future costs shall
include (x) any amounts estimated by IKON Office Solutions or any other mutually
agreeable third party plus any other amount equal the additional  current retail
license fees necessary in order to obtain the Necessary Software for the Minimum
Number of Computers that had not been incurred by the Company on the date of the
Certificate (the "Compliance  Costs") and, (y) if not included in the Compliance
Costs,  the  amount  of any  threatened  or  asserted  claim in  clause  (iv) if
specified or, if not specified,  a reasonable  estimate of the maximum amount of
any such claim (the "Computer Claim  Amount").  The Company shall provide to the
Buyer updated Computer  Certificates pursuant to Sections 1.5(b)(iii) and 5.2(m)
of the Agreement.  In the event that the Computer Issue is not fully resolved as
of the Closing Date, then 

                                      -43-

<PAGE>



such  additional  number  of  shares  as is  equal to sum of (x) 2.7  times  the
Compliance  Costs plus (y) 1.2 times the Computer  Claim  Amount  divided by the
Buyer Stock Price shall be deemed to be Escrow Shares  instead of Initial Shares
and shall be deposited in a special  escrow account to be established at Closing
(the "Computer  Escrow").  In such event,  the  percentages set forth in Section
1.5(b)(iii) of the Agreement shall automatically be adjusted to reflect that the
number of Initial Shares derived from the calculation set forth in the foregoing
sentence had become  Escrow Shares such that the Escrow Shares shall be deducted
from the Initial Shares  delivered to each  Optionholder  and Stockholder at the
Closing on a pro rata basis.


                                   Article V

                      CONDITIONS TO CONSUMMATION OF MERGER

5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS.  The respective obligations of each
Party to consummate the Merger are subject to the  satisfaction of the following
conditions:

(a) all  applicable  waiting  periods  (and any  extensions  thereof)  under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated;

(b) this Agreement and the Merger shall have received the Requisite  Stockholder
Approval; and

(c) no action,  suit or  proceeding  shall be pending or threatened by or before
any  Governmental  Entity  wherein  an  unfavorable  judgment,   order,  decree,
stipulation  or  injunction  would  (i)  prevent  consummation  of  any  of  the
transactions  contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded  following  consummation or (iii)
affect  adversely  the right of the Buyer to own,  operate or control any of the
assets  and  operations  of  the  Surviving  Corporation  and  the  Subsidiaries
following  the Merger,  and no such  judgment,  order,  decree,  stipulation  or
injunction shall be in effect.

5.2. CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY  SUBSIDIARY.  The
obligation of each of the Buyer and the Transitory  Subsidiary to consummate the
Merger is subject to the satisfaction of the following additional conditions:

(a) the number of Dissenting Shares shall not exceed 5% of the number of 
outstanding Company Shares as of the Effective Time;

(b) the Company and the Subsidiaries shall have obtained (i) all of the waivers,
permits,  consents,  approvals or other authorizations,  and effected all of the
registrations, filings and notices, referred to in the first sentence of Section
4.2;

                                      -44-

<PAGE>


(c) the  representations  and  warranties of the Company set forth in Article II
shall be true and correct in all material  respects when made on the date hereof
and shall be true and correct in all material  respects as of the Effective Time
as if  made  as of the  Effective  Time,  except  for  (i)  representations  and
warranties  made as of a specific  date,  which shall be true and correct in all
material respects as of such date and (ii) any breach or noncompliance resulting
from  occurrences  or  developments  between the date of this  Agreement and the
Effective  Time which are (x) not material to the Company and the  Subsidiaries,
taken as a whole,  or (y) not  material to that  segment of the  business of the
Company and the Subsidiaries serviced on the Company's proprietary network;

(d) the  Company  shall have  performed  or  complied  with its  agreements  and
covenants  required to be performed or complied with under this  Agreement as of
or prior to the Effective Time in all material respects;

(e) the Company shall have delivered to the Buyer and the Transitory  Subsidiary
a  certificate  (without   qualification  as  to  knowledge  or  materiality  or
otherwise)  to the effect that each of the  conditions  specified in clauses (b)
and (c) of Section  5.1 and  clauses  (a)  through  (d) of this  Section  5.2 is
satisfied in all respects;

(f) the Buyer and the Transitory  Subsidiary  shall have received from Pillsbury
Madison & Sutro LLP,  counsel to the Company,  an opinion  substantially  in the
form  attached  hereto as EXHIBIT C,  addressed to the Buyer and the  Transitory
Subsidiary  and dated as of the  Closing  Date  unless  such  opinion  cannot be
delivered  due to facts,  circumstances  or  events or for a reason  that is not
material  and would not  otherwise  constitute  a failure of a  condition  under
Section 5.1 or 5.2.

(g) [Intentionally omitted]

(h) the Buyer,  the  Indemnification  Representative  and the Escrow Agent shall
have entered into the Escrow  Agreement in the form attached hereto as EXHIBIT A
and such  Agreement  shall be in full  force and effect on the  Closing  Date in
accordance with its terms;

(i) the Buyer shall have received a letter from Ernst & Young LLP,  auditors for
the Buyer,  in a form reasonably  satisfactory  to the Buyer,  dated the Closing
Date,  to the effect  that the Buyer  shall be entitled to treat the Merger as a
"pooling of  interests"  for  accounting  purposes as provided for in Accounting
Principles Board Opinion No. 16;

(j)  the  Buyer  and  the   Transitory   Subsidiary   shall  have  received  the
resignations,  effective as of the Effective  Time, of each director and officer
of the 

                                      -45-

<PAGE>


Company and the  Subsidiaries  specified by the Buyer in writing at least
five business days prior to the Closing;

(k) the Buyer shall have received, from all advisors, consultants,  accountants,
lawyers, investment bankers, brokers, agents and other such professionals, final
invoices  for  fees,  services,  expenses  and other  amounts  to be paid by the
Company or any  Subsidiary  in  connection  with the  transactions  contemplated
hereby (such final invoices,  together with all invoices  previously rendered in
connection with this transaction, the "Transaction Invoices");

(l) each  holder of an Option  shall  have  delivered  to the  Company a written
instrument  providing  for the  exchange  of such Option into a right to receive
shares of Buyer  Common Stock (if any) prior to the Closing as  contemplated  by
Section  1.10 and each  holder of an Option  shall have  agreed in writing to be
bound by the provisions of this Agreement and the Escrow  Agreement prior to the
Closing  PROVIDED  HOWEVER that so long as the Company  shall have received such
instruments and agreements from holders of an aggregate of 94% of the Options it
shall be  deemed to have  satisfied  the  condition  specified  in this  Section
5.2(e);

(m) the  Company  shall have  delivered a Computer  Certificate  dated as of the
Closing  Date to the Buyer and, if the Computer  Issue has not been  resolved to
Buyer's  satisfaction  prior to  Closing,  the  parties  shall have  created the
Computer Escrow; and

(n) all actions to be taken by the Company in connection  with the  consummation
of  the  transactions  contemplated  hereby  and  all  certificates,   opinions,
instruments and other documents required to effect the transactions contemplated
hereby shall be reasonably  satisfactory  in form and substance to the Buyer and
the Transitory Subsidiary.

5.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY.  The obligation of the Company to
consummate the Merger is subject to the satisfaction of the following additional
conditions:

(a)  the  representations  and  warranties  of  the  Buyer  and  the  Transitory
Subsidiary  set forth in Article III shall be true and  correct in all  material
respects  when  made on the date  hereof  and shall be true and  correct  in all
material  respects as of the Effective Time as if made as of the Effective Time,
except for (i)  representations and warranties made as of a specific date, which
shall be true and correct in all material  respects as of such date and (ii) any
breach or noncompliance  resulting from occurrences or developments  between the
date of this  Agreement and the Effective Date (other than those which have been
publicly  disclosed pursuant to filings by the Buyer with the SEC) which are not
material to the Buyer;

                                      -46-

<PAGE>


(b) the Buyer and the  Transitory  Subsidiary  shall  have  obtained  all of the
waivers, permits, consents, approvals or other authorizations,  and effected all
of the  registrations,  filings and notices,  referred in the second sentence of
Section 4.2 hereof;

(c) each of the Buyer and the  Transitory  Subsidiary  shall have  performed  or
complied with its agreements and covenants  required to be performed or complied
with under this  Agreement as of or prior to the Effective  Time in all material
respects;

(d) there has not been any material  adverse  change in the business,  financial
condition or results of operations of the Buyer and its subsidiaries, taken as a
whole, since the date of this Agreement;

(e) each of the Buyer and the Transitory  Subsidiary shall have delivered to the
Company a certificate  (without  qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions  specified in clause (c) of
Section 5.1 and clauses (a) through (d) of this  Section 5.3 is satisfied in all
respects;

(f) the Company shall have  received  from the General  Counsel to the Buyer and
the Transitory Subsidiary,  an opinion substantially in the form attached hereto
as EXHIBIT D,  addressed  to the Company and dated as of the Closing Date unless
such opinion cannot be delivered due to facts,  circumstances or events or for a
reason  that  would not  otherwise  constitute  a failure of a  condition  under
Section 5.1 or 5.3;

(g) the Buyer, the  Indemnification  Representative  and Escrow Agent shall have
entered into the Escrow  Agreement in the form attached  hereto as EXHIBIT A and
such  Agreement  shall  be in full  force  and  effect  on the  Closing  Date in
accordance with its terms;

(h) the Buyer and  Transitory  Subsidiary  shall have delivered to the Company a
certificate,  dated the Closing Date and executed by an executive officer of the
Buyer, in substantially the form attached as EXHIBIT E hereto; and

(i) all  actions  to be taken by the  Buyer  and the  Transitory  Subsidiary  in
connection with the consummation of the transactions contemplated hereby and all
certificates,  opinions,  instruments and other documents required to effect the
transactions  contemplated  hereby shall be reasonably  satisfactory in form and
substance to the Company.

                                      -47-

<PAGE>



                                   Article VI

                                 INDEMNIFICATION

6.1.  INDEMNIFICATION.  The Company  Stockholders  (including the holders of the
Options)  shall   indemnify  the  Surviving   Corporation  and  the  Buyer  (the
"Indemnified  Persons") in respect of, and hold the Indemnified Persons harmless
against, any and all claims,  debts,  obligations and other liabilities (whether
absolute, accrued,  contingent, fixed or otherwise, or whether known or unknown,
or due or to become due or otherwise),  monetary  damages,  fines,  fees, Taxes,
penalties,  interest obligations,  deficiencies,  losses and expenses (including
without limitation amounts paid in settlement,  interest,  court costs, costs of
investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors  and other  experts,  and other  expenses  of  litigation)  incurred or
suffered by the Indemnified Persons or any Affiliate thereof ("Damages"):

(a) resulting from, relating to or constituting any misrepresentation, breach of
warranty  or  failure  to perform  any  covenant  or  agreement  of the  Company
contained in this Agreement or in the Certificates delivered pursuant to Section
5.2(e) or Section 5.2(m),  PROVIDED,  that any indemnity for Damages relating to
Taxes shall be determined in accordance with Article VII hereof;

(b)  resulting  from or relating to any failure of any Company  Stockholders  to
have good,  valid and  marketable  title to the issued and  outstanding  Company
Shares held by such Company  Stockholders,  free and clear of all liens, claims,
pledges, options, adverse claims or charges of any nature whatsoever;

(c)  resulting  from  or  relating  to any  claim  by a  stockholder  or  former
stockholder of the Company,  or any other person or Business Entity,  seeking to
assert,  or based upon:  (i)  ownership  or rights to ownership of any shares of
stock of the Company;  (ii) any rights of a stockholder (other than the right to
receive the Merger Shares  pursuant to this Agreement or appraisal  rights under
the applicable  provisions of the Delaware General  Corporation Law),  including
any option,  preemptive  rights or rights to notice or to vote; (iii) any rights
under the Certificate of  Incorporation  or By-laws of the Company;  or (iv) any
claim that his, her or its shares were wrongfully repurchased by the Company;

(d)  resulting  from or relating  to the  complaint  filed by  Michelle  Stuckey
against the Company  alleging  damages from  violation of the Family and Medical
Leave Act and the Fair Labor Standards Act or the alleged actions of the Company
set forth in such complaint;

                                      -48-

<PAGE>


(e)  resulting  from  or  relating  to any  claim  against  the  Company  or any
Subsidiary  relating to the alleged failure to pay employment  related taxes for
any employee or independent contractor of the Company or any Subsidiary; or

(f)  resulting  from  or  relating  to any  claim  against  the  Company  or any
Subsidiary  relating in any way to the Computer  Issue  (except that such claims
shall  first be made  against  amounts  to be held in the  Computer  Escrow if a
Computer Escrow is established).

6.2. METHOD OF ASSERTING CLAIMS.

(a) All claims for  indemnification  by an Indemnified  Person  pursuant to this
Article  VI  shall  be made in  accordance  with the  provisions  of the  Escrow
Agreement.

(b) The  Indemnified  Person  shall  give  prompt  written  notification  to the
Indemnification  Representative  of the  commencement  of any  action,  suit  or
proceeding relating to a third party claim for which indemnification pursuant to
this Article VI may be sought;  provided,  however, that no delay on the part of
the Indemnified  Person in notifying the  Indemnification  Representative  shall
relieve the Company Stockholders of any liability or obligation hereunder except
to the extent of any damage or liability caused by or arising out of such delay.
Within  20  days  after  delivery  of  such  notification,  the  Indemnification
Representative  may,  upon written  notice  thereof to the  Indemnified  Person,
assume  control of the defense of such action,  suit or proceeding  with counsel
reasonably   satisfactory   to  the   Indemnified   Person,   provided  (i)  the
Indemnification  Representative  acknowledges  in  writing  to  the  Indemnified
Person, on behalf of the Company Stockholders, that any damages, fines, costs or
other  liabilities  that may be  assessed  against  the  Indemnified  Person  in
connection with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this Article
VI, (ii) the third  party  seeks  monetary  damages  only,  and (iii) an adverse
resolution of the third party's claim would not have a material  adverse  effect
on the goodwill or the  reputation  of the  Indemnified  Person or the business,
operations or future conduct of the Indemnified  Person. If the  Indemnification
Representative  does not so assume  control  of such  defense,  the  Indemnified
Person shall control such defense.  The party not  controlling  such defense may
participate  therein at its own expense;  provided  that if the  Indemnification
Representative  assumes  control  of such  defense  and the  Indemnified  Person
reasonably  concludes that the indemnifying  parties and the Indemnified  Person
have conflicting  interests or different defenses available with respect to such
action,  suit or proceeding,  the reasonable fees and expenses of counsel to the
Indemnified Person shall be considered "Damages" for purposes of this Agreement.
The party  controlling  such defense  shall keep the other party  advised of the
status of such  action,  suit or  proceeding  and the defense  thereof and shall
consider  in good faith  recommendations  made by the other  party with  respect

                                      -49-

<PAGE>


thereto.  The  Indemnified  Person  shall  not agree to any  settlement  of such
action,   suit  or  proceeding   without  the  prior  written   consent  of  the
Indemnification  Representative,  which  shall not be  unreasonably  withheld or
delayed. The Indemnification Representative shall not agree to any settlement of
or the entry of a judgment in any action,  suit or proceeding  without the prior
written  consent of the  Indemnified  Person,  which  shall not be  unreasonably
withheld (it being understood that it is reasonable to withhold such consent if,
among  other  things,  the  settlement  or the entry of a  judgment  (A) lacks a
complete  release of the  Indemnified  Person  for all  liability  with  respect
thereto or (B) imposes any liability or obligation on the Indemnified Person).

6.3. SURVIVAL.

(a)  Unless  otherwise  specified  in  this  Section  6.3 or  elsewhere  in this
Agreement,  all provisions of this  Agreement  shall survive the Closing and the
consummation of the transactions  contemplated hereby and shall continue forever
in full force and effect in accordance with their terms.

(b) The  representations  and  warranties of the Company set forth in Article II
above or in any other  location in this  Agreement,  including  the  certificate
delivered  by  the  Company   pursuant  to  Section  5.2(e)   hereof,   and  the
indemnification obligations set forth in this Article VI:

(i)  shall  survive  the  Closing  and  the  consummation  of  the  transactions
contemplated  hereby and  continue  until the first  anniversary  of the Closing
Date;

(ii) shall not be affected by any examination made for or on behalf of the Buyer
or  the  knowledge  of any of the  Buyer's  officers,  directors,  stockholders,
employees or agents.

Notwithstanding  the foregoing,  the  indemnification  obligations  set
forth in this Article VI specified in Sections  6.1(d) and (e) and, in the event
a Computer  Escrow is  established,  Section  6.1(f)  shall  continue  until the
expiration of the later of the  applicable  statute of  limitations or the final
resolution by settlement,  judicial  resolution or other resolution of any claim
asserted pursuant to the foregoing Sections. For purposes of the indemnification
obligations  set forth in this  Article VI  specified  in Section  6.1(d),  such
number of shares having a Fair Market Value (as defined in the Escrow Agreement)
of $150,000  shall remain in escrow under the Escrow  Agreement  until the final
resolution by settlement,  judicial  resolution or other resolution of any claim
asserted pursuant to the foregoing Section prior to the third anniversary of the
Closing Date. For purposes of the indemnification  obligations set forth in this
Article VI  specified  in Section  6.1(e),  such number of shares  having a Fair
Market Value of $200,000 shall remain in escrow under the Escrow Agreement until

                                      -50-

<PAGE>


the later of (i) the third  anniversary  of the  Closing  Date or (ii) the final
resolution by settlement,  judicial  resolution or other resolution of any claim
asserted  pursuant  to  Section  6.1(e)  prior to the third  anniversary  of the
Closing Date.

(c) The date on which any particular representation, warranty or indemnification
obligation  of the Company  and/or each of the Company  Stockholders  terminates
shall be  referred  to herein and in the Escrow  Agreement  as the  "Termination
Date." If a notice of a claim is given in accordance with the notice  provisions
of this Agreement or the Escrow  Agreement  before the  Termination  Date,  then
(notwithstanding  the occurrence of the  Termination  Date) the  representation,
warranty or  indemnification  obligation  applicable to such claim shall survive
until, but only for purposes of, the resolution of such claim.

6.4. LIMITATIONS.

(a) Notwithstanding  anything to the contrary herein, except as provided in this
Section 6.4, (a) the aggregate liability of the Company Stockholders for Damages
under  this  Article VI shall not  exceed  the fair  market  value of the Escrow
Property (as defined in the Escrow Agreement),  as determined in accordance with
the Escrow Agreement and (b) the Company  Stockholders shall not be liable under
this Article VI unless and until the aggregate Damages exceed $100,000 (at which
point the Company Stockholders shall become liable for all Damages, in excess of
$20,000).  No Company  Stockholder shall have any right of contribution  against
the  Company  with  respect  to  any  breach  by  the  Company  of  any  of  its
representations, warranties, covenants or agreements.

(b) The Buyer's recourse for Damages under Article VII and Sections 1.5(b)(vii),
6.1(b),  (c), (d) and (e) and 10.11 shall not be subject to the  limitations set
forth in Section 6.4(a). In the event that a Computer Escrow is established, the
Buyer's  recourse for Damages under  Section  6.1(f) shall not be subject to the
limitations set forth in 6.4(a).


                                  Article VII

                                   TAX MATTERS

7.1. PREPARATION AND FILING OF TAX RETURNS.


(a) The Company at the direction of the Company  Stockholders  shall cause to be
accurately  prepared  and  timely  filed all Tax  Returns  required  to be filed
(taking into account  extensions)  prior to the Closing Date with respect to the
Company  and any  Subsidiaries  or in  respect  of their  businesses,  assets or
operations.

                                      -51-

<PAGE>

(b) The Buyer shall  prepare  and timely file or shall cause to be prepared  and
timely  filed  all  other  Tax  Returns  with  respect  to the  Company  and any
Subsidiaries or in respect of their businesses, assets or operations.

7.2. TAX INDEMNIFICATION BY THE COMPANY STOCKHOLDERS.

(a) The Company  Stockholders  shall indemnify the Buyer in respect of, and hold
the Buyer  harmless,  on an after-Tax  basis,  against the following  Taxes with
respect to the Company and the  Subsidiaries to the extent such Taxes exceed the
accruals or reserves  for Taxes set forth on the Closing  Balance  Sheet and the
amount of any  estimated Tax payments made on or before the Closing Date (to the
extent they had not been applied on or before the Closing Date):

(i) Any and all Taxes due and payable by the Company or any Subsidiaries for any
taxable period that ends (or is deemed  pursuant to Section 7.3(b) to end) on or
before the Closing Date; and

(ii) Any sales,  use,  transfer,  stamp,  conveyance,  value  added,  recording,
registration, documentary, filing or other Taxes and fees, whether levied on the
Buyer,  the Company  Stockholders,  the Company,  a  Subsidiary  or any of their
respective Affiliates, resulting from the Merger or otherwise on account of this
Agreement or the transactions contemplated hereby.

(b) Amounts payable  pursuant to this Section 7.2 shall be computed after taking
into account all Tax  consequences  to the Buyer (or its  Affiliates) of (i) the
receipt of (or the right to receive)  the  indemnification  payment and (ii) the
incurrence  of the  liability  that  gave  rise  to the  right  to  receive  the
indemnification payment. Thus, it is the intention of the Parties that the Buyer
be held harmless  with respect to the  liability  that gave rise to the right to
the indemnification payment on an after-Tax basis.

(c) All claims for indemnification pursuant to this Article VII shall be made
in accordance with Section 6.2 hereof.

7.3. ALLOCATION OF CERTAIN TAXES.

(a) The Buyer and the  Company  Stockholders  agree  that if the  Company or any
Subsidiary  is permitted but not required  under  applicable  foreign,  state or
local Tax laws to treat the  Closing  Date as the last day of a taxable  period,
the Buyer and the Company Stockholders shall treat such day as the last day of a
taxable period.

(b) Any Taxes for a taxable period ending after the Closing Date with respect to
the Company  and/or any  Subsidiary  shall be the  obligation of the 

                                      -52-

<PAGE>


Buyer, the Company and/or any Subsidiary, and the Taxes for such period shall be
apportioned for the purpose of Section 7.2 based on the actual operations of the
Company and/or any Subsidiaries,  as the case may be, during the portion of such
period  ending on (and  including)  the Closing Date, if any, and the portion of
such period beginning on the day following the closing Date, and for purposes of
the  provision of Section 7.2, each portion of such period shall be deemed to be
a taxable period (whether or not it is in fact a taxable period).

7.4. [Intentionally omitted]


7.5.  COOPERATION  ON TAX MATTERS.  The Buyer and the Company  Stockholders  and
their  respective  Affiliates  shall  cooperate  in the  preparation  of all Tax
Returns for any Tax periods  for which one Party  could  reasonably  require the
assistance of the other Party or Parties in obtaining any necessary information.

7.6.  TERMINATION  OF  TAX-SHARING  AGREEMENTS.  All Tax sharing  agreements  or
similar   arrangements  with  respect  to  or  involving  the  Company  and  its
Subsidiaries  shall be  terminated  prior to the  Closing  Date  and,  after the
Closing  Date,  the Company and its  Subsidiaries  shall not be bound thereby or
have any liability thereunder for amounts due in respect of periods ending on or
before the Closing Date.


                                  Article VIII

                                   TERMINATION

8.1. TERMINATION OF AGREEMENT. The Parties may terminate this Agreement prior to
the Effective Time (whether before or after Requisite  Stockholder  Approval) as
provided below:

(a) the Parties may terminate this Agreement by mutual written consent;

(b) the Buyer may  terminate  this  Agreement  by giving  written  notice to the
Company in the event the Company is in breach,  and the  Company  may  terminate
this  Agreement  by  giving  written  notice  to the  Buyer  and the  Transitory
Subsidiary in the event the Buyer or the Transitory  Subsidiary is in breach, of
(i) any representation or warranty, such that the condition specified in Section
5.2(c), in the case of a breach by the Company or in Section 5.3(a), in the case
of a breach by the Buyer or the Transitory Subsidiary, would not be satisfied at
the Effective  Time if the Effective  Time were the date of the notice,  or (ii)
any material covenant contained in this Agreement, and, in the event such breach
can be  remedied,  such  breach is not  remedied  within 30 days of  delivery of
written notice thereof;

                                      -53-

<PAGE>



(c) any Party may terminate this Agreement by giving written notice to the other
Parties  at any time  after the  Company  Stockholders  have voted on whether to
approve this Agreement and the Merger in the event this Agreement and the Merger
failed to receive the Requisite Stockholder Approval;

(d) the Buyer may  terminate  this  Agreement  by giving  written  notice to the
Company if the Closing shall not have occurred on or before  January 30, 1999 by
reason of the failure of any condition precedent under Section 5.1 or 5.2 hereof
(unless  the  failure  results  primarily  from a  breach  by the  Buyer  or the
Transitory  Subsidiary of any representation,  warranty or covenant contained in
this Agreement); or

(e) the Company may terminate  this  Agreement by giving  written  notice to the
Buyer and the Transitory Subsidiary if the Closing shall not have occurred on or
before  January  30, 1999 by reason of the  failure of any  condition  precedent
under Section 5.1 or 5.3 hereof  (unless the failure  results  primarily  from a
breach  by the  Company,  any  Subsidiary  or  any  Company  Stockholder  of any
representation, warranty or covenant contained in this Agreement).

(f) [Intentionally omitted]

(g) the Buyer may terminate this Agreement if the Buyer Stock Price is less than
$35.00  per  share  (subject  to  equitable  adjustment  in  the  event  of  any
Recapitalization).

8.2. EFFECT OF TERMINATION.  If any Party terminates this Agreement  pursuant to
Section  8.1 or  otherwise,  all  obligations  of the  Parties  hereunder  shall
terminate  without  any  liability  of any Party to any other  Party  (except as
expressly  set forth in Section 8.3).  Without  limiting the  foregoing,  in the
event  of  termination  of  this  Agreement,  there  shall  be no  liability  or
obligation on the part of the Company, the Buyer or the Transitory Subsidiary or
their  respective  officers,  directors,  stockholders or affiliates,  except as
expressly set forth in Section 8.3.

8.3. TERMINATION FEES.


(a) Except as set forth in  Sections  8.3(b) and 8.3(c),  all fees and  expenses
incurred in connection  with this  Agreement and the  transactions  contemplated
hereby shall be paid by the Party  incurring such  expenses,  whether or not the
Merger is consummated;  provided,  however, that the Company and the Buyer shall
share equally all fees and expenses,  other than  attorneys'  fees,  incurred in
relation to the printing  and filing of the  Registration  Statement  (including
financial statements and exhibits) and any amendments or supplements.

                                      -54-

<PAGE>



(b)  Notwithstanding  paragraph (a) above, the Company shall reimburse the Buyer
for all expenses of the Buyer and the Transitory  Subsidiary  actually  incurred
relating to the transactions contemplated by this Agreement prior to termination
(including  but not limited to,  fees and  expenses of the Buyer's  accountants,
financial  advisors  and  counsel)  up to a maximum  amount of $75,000  upon the
earlier to occur of the following events:

(i) the  termination  of this  Agreement by the Buyer pursuant to Section 8.1(b)
after a breach by the Company; or

(ii) the termination of this Agreement by any Party pursuant to Section 8.1(c).

(c)  Notwithstanding  paragraph (a) above, the Buyer shall reimburse the Company
for all expenses  actually  incurred by the Company relating to the transactions
contemplated by this Agreement  prior to termination  (including but not limited
to, fees and  expenses of the  Company's  accountants,  financial  advisors  and
counsel)  up to a maximum  amount of  $75,000  upon the  earlier to occur of the
following events:

(i) the termination of this Agreement by the Company  pursuant to Section 8.1(b)
after a breach by the Buyer or the Transitory Subsidiary; or

(ii) the termination of this Agreement by the Buyer pursuant to Section 8.1(g).

(d) Notwithstanding  paragraph (a) above, the Buyer shall deliver to the Company
the sum of  $1,500,000  and the Company  shall  deliver to the Buyer in exchange
therefor 750,000 shares of the Company's Series A-1 Preferred Stock and warrants
to purchase 508,500 shares of the Company's Common Stock at an exercise price of
$.20 per share,  which  warrants  shall be  exercisable  at any time  during the
period of seven years commencing on the Effective Date upon the earlier to occur
of the following events:

(i) the termination of this Agreement by the Company  pursuant to Section 8.1(b)
after a breach by the Buyer or the Transitory Subsidiary; or

(ii) the termination of this Agreement by the Buyer pursuant to Section 8.1(g).

(e) This Section 8.3 shall be the  exclusive  remedy of the Parties in the event
of termination of this  Agreement.  In no event shall any Party be liable to the
other Party for any consequential or other damages arising from the termination,
for any reason, of this Agreement.

                                      -55-

<PAGE>



                                   Article IX

                                  DEFINITIONS

         For purposes of this Agreement,  each of the following defined terms is
defined in the Section of this Agreement indicated below.

<TABLE>
<CAPTION>

Defined Term                                                Section
------------                                                -------
<S>                                                         <C>

Affiliate                                                   2.15(a)(vii)
Affiliate Agreement                                         4.8
Balance Sheet Date                                          2.6
Business Entity                                             2.4
Buyer                                                       Introduction
Buyer Common Stock                                          1.5(b)(i)
Buyer Reports                                               3.5
Buyer Stock Price                                           1.5(b)
CERCLA                                                      2.23(a)
Certificate of Merger                                       1.1
Certificates                                                1.3
Clause A Quotient                                           1.5(b)(i)
Clause B Quotient                                           1.5(b)(i)
Closing                                                     1.2
Closing Balance Sheet                                       1.9
Closing Date                                                1.2
Code                                                        Introduction
Company                                                     Introduction
Company Affiliates                                          4.8
Company Shares                                              1.5(a)
Company Special Meeting                                     4.3(d)
Company Stockholder                                         1.5(b)
Compliance Costs                                            4.15
Computer Claim Amount                                       4.15
Computer Escrow                                             4.15
Computer Expenses                                           1.5(b)(vii)
Computer Issue                                              Section 2.12 of 
                                                            Disclosure Statement
Computer Certificate                                        4.15

                                      -56-

<PAGE>


Defined Term                                                Section
------------                                                -------

Contracts                                                   2.15(b)
Conversion Ratio                                            1.5(b)
Corporate Subsidiary                                        2.5(a)
Damages                                                     6.2(b)
Disclosure Schedule                                         Article II
Dissenting Shares                                           1.6(a)
Effective Time                                              1.1
Employee Benefit Plan                                       2.22(a)
Environmental Law                                           2.23(a)
ERISA                                                       2.22(a)
ERISA Affiliate                                             2.22(a)
Escrow Agreement                                            1.3
Escrow Agent                                                1.3
Escrow Shares                                               1.5(b)(iii)
Exchange Act                                                3.4
Facility                                                    4.11
Financial Statements                                        2.6
GAAP                                                        1.9
Governmental Entity                                         2.4
Indemnification Representative                              1.3
Indemnified Persons                                         6.1
Initial Shares                                              1.5(b)(iii)
Intellectual Property                                       2.12(a)
Intended Uses                                               2.11(a)
Interim Financial Statements                                4.9
Materials of Environmental Concern                          2.23(b)
Merger                                                      1.1
Merger Shares                                               1.5(b)(iii)
Most Recent Balance Sheet                                   2.6
Optionholder Initial Shares                                 1.5(b)(iii)
Optionholder Escrow Shares                                  1.5(b)(iii)
Option Shares                                               1.5(b)(ii)
Options                                                     1.10(a)
Ordinary Course of Business                                 2.4
Partnership Subsidiary                                      2.5(b)

                                      -57-

<PAGE>

Defined Term                                                Section
------------                                                -------

Party                                                       Introduction
Permit                                                      2.25
Personal Property                                           2.10(b)
Purchase Price                                              1.5(b)
Purchase Price Adjustment Closing Certificate               1.5(b)(vii)
Recapitalization                                            1.5(b)(i)
Registration Statement                                      2.36
Related Party Transactions                                  2.26
Requisite Stockholder Approval                              2.3
SEC                                                         2.36
Securities Act                                              2.2
Security Interest                                           2.4
Stockholder Initial Shares                                  1.5(b)(iii)
Stockholder Escrow Shares                                   1.5(b)(iii)
Subsidiary                                                  2.4
Surviving Corporation                                       1.1
Taxes                                                       2.9(a)
Tax Returns                                                 2.9(a)
Termination Date                                            6.3(c)
Transaction Invoices                                        10.12
Transitory Subsidiary                                       Introduction
Warrants                                                    1.10(b)

</TABLE>


                                   Article X

                                  MISCELLANEOUS

10.1. PRESS RELEASES AND  ANNOUNCEMENTS.  No Party shall issue any press release
or public  disclosure  relating to the subject matter of this Agreement  without
the prior written  approval of the other Parties;  PROVIDED,  HOWEVER,  that any
Party may make any public  disclosure  it  believes in good faith is required by
law or  regulation  (in which case the  disclosing  Party shall advise the other
Parties and provide them with a copy of the proposed  disclosure prior to making
the disclosure);  PROVIDED;  FURTHER,  that following the Closing, the Buyer may
issue any press release or make public disclosure relating to the subject matter
of this Agreement without the consent of the other Parties.

                                      -58-

<PAGE>

10.2. NO THIRD PARTY  BENEFICIARIES.  This Agreement shall not confer any rights
or  remedies  upon any  person  other  than the  Parties  and  their  respective
successors and permitted assigns; PROVIDED,  HOWEVER, that (a) the provisions in
Article I concerning  issuance of the Merger Shares and the  representations and
warranties of the Buyer and the  Transitory  Subsidiary set forth in Article III
hereof are intended for the benefit of the Company Stockholders.

10.3.  ENTIRE  AGREEMENT.  This Agreement,  including the Exhibits and Schedules
attached  hereto and the documents  referred to herein,  (together with the loan
agreement  and  related  documents  dated the date  hereof  relating  to certain
interim  financing to be provided to the Company by the Buyer),  constitute  the
entire  agreement  among the Parties  and  supersede  any prior  understandings,
agreements,  or representations  by or among the Parties,  written or oral, with
respect to the subject matter hereof.

10.4. SUCCESSION AND ASSIGNMENT.  This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their  respective  successors and
permitted  assigns.  No Party may assign  either  this  Agreement  or any of its
rights,  interests,  or obligations hereunder without the prior written approval
of the other  Parties;  provided that the  Transitory  Subsidiary may assign its
rights,  interests and  obligations  hereunder to an Affiliate of the Buyer and,
after the Closing,  the Buyer may assign its rights,  interests and  obligations
hereunder to an Affiliate of the Buyer.

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

10.6.  HEADINGS.  The section headings  contained in this Agreement are inserted
for  convenience   only  and  shall  not  affect  in  any  way  the  meaning  or
interpretation of this Agreement.

10.7. NOTICES. All notices, requests,  demands, claims, and other communications
hereunder  shall be in writing.  Any notice,  request,  demand,  claim, or other
communication  hereunder  shall be deemed duly delivered two business days after
it is sent by registered or certified mail,  return receipt  requested,  postage
prepaid,  or one  business  day  after  it is sent  via a  reputable  nationwide
overnight courier service,  in each case to the intended  recipient as set forth
below:

                                      -59-


<PAGE>


If to the Company:                              Copy to:
------------------                              --------  
EDiX Corporation                                Thomas E. Sparks, Esq.
4250 Executive Square                           Pillsbury Madison & Sutro LLP
Suite 850                                       235 Montgomery Street
La Jolla, California 92037                      San Francisco, California 94104
                                   and
                                                Joel D. Liffmann
                                                Oracle Partners, L.P.
                                                712 Fifth Avenue
                                                New York, New York  10019

If to the Buyer:                                Copy to:
----------------                                --------
IDX Systems Corporation                         Robert W. Baker, Jr., Esq.
1400 Shelburne Road                             IDX Systems Corporation
P.O. Box 1070                                   1400 Shelburne Road
Burlington, Vermont 05402-1070                  P.O. Box 1070
Attn:  President                                Burlington, Vermont 05402-1070

If to the Transitory Subsidiary:                Copy to:
--------------------------------                --------
IDX Systems Corporation                         Robert W. Baker, Jr., Esq.
1400 Shelburne Road                             IDX Systems Corporation
P.O. Box 1070                                   1400 Shelburne Road
Burlington, Vermont 05402-1070                  P.O. Box 1070
Attn:  President                                Burlington, Vermont 05402-1070

Any Party may give any notice,  request,  demand,  claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service,  telecopy,  telex, ordinary mail, or electronic mail), but no
such notice,  request,  demand, claim, or other communication shall be deemed to
have been duly given  unless and until it  actually is received by the party for
whom it is  intended.  Any  Party  may  change  the  address  to which  notices,
requests,  demands,  claims,  and  other  communications  hereunder  are  to  be
delivered by giving the other Parties notice in the manner herein set forth.

10.8.  GOVERNING  LAW.  This  Agreement  shall be governed by and  construed  in
accordance with the internal laws (and not the law of conflicts) of the State of
Delaware.

10.9.  AMENDMENTS  AND WAIVERS.  The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time; PROVIDED,  

                                      -60-

<PAGE>


HOWEVER,  that any amendment  effected  subsequent to the Requisite  Stockholder
Approval shall be subject to the restrictions  contained in the Delaware General
Corporation  Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties.  No waiver
by any  Party of any  default,  misrepresentation,  or  breach  of  warranty  or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or  subsequent  default,  misrepresentation,  or  breach  of  warranty  or
covenant  hereunder  or affect in any way any  rights  arising  by virtue of any
prior or subsequent such occurrence.

10.10. SEVERABILITY.  Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or  enforceability  of the remaining terms and provisions hereof or the validity
or  enforceability  of the offending term or provision in any other situation or
in any  other  jurisdiction.  If the  final  judgment  of a court  of  competent
jurisdiction   declares  that  any  term  or  provision  hereof  is  invalid  or
unenforceable,  the Parties  agree that the court  making the  determination  of
invalidity  or  unenforceability  shall  have the  power to  reduce  the  scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace  any invalid or  unenforceable  term or  provision  with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision,  and this Agreement
shall be  enforceable  as so modified  after the  expiration  of the time within
which the judgment may be appealed.

10.11. EXPENSES. Except as set forth in the Escrow Agreement and in Section 8.3,
each of the Parties  shall bear its own costs and expenses  (including  fees and
expenses of their respective legal,  accounting and financial advisors) incurred
in connection with this Agreement and the transactions  contemplated  hereby and
all fees and expenses  incurred by the Company or its Subsidiaries in connection
with this Agreement and the transactions  contemplated hereby, including without
limitation  those set forth on the Transaction  Invoices,  shall be set forth as
liabilities on the Closing Balance Sheet. If the Acquisition is consummated, the
Company  and the  Subsidiaries  shall  not  incur  fees and  expenses  of legal,
accounting and financial advisors in connection with the Merger in excess of the
amounts set forth in Section 10.11 of the Disclosure Schedule,  and any fees and
expenses  incurred by the Company and the Subsidiaries in excess of such amounts
shall be recovered by the Buyer pursuant to the Escrow Agreement  without regard
to the provisions of the first sentence of Section 6.4(a).

10.12. SPECIFIC  PERFORMANCE.  Each of the Parties (including without limitation
for purposes of this Section 10.12 the  stockholders of the Company signing this
Agreement)  acknowledges  and agrees that one or more of the other Parties would
be damaged  irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are breached.

                                      -61-

<PAGE>

Accordingly, each of the Parties agrees that the other Parties shall be entitled
to an injunction or  injunctions  to prevent  breaches of the provisions of this
Agreement  and  to  enforce  specifically  this  Agreement  and  the  terms  and
provisions  hereof in any action instituted in any court of the United States or
any state thereof having  jurisdiction  over the Parties and the matter (subject
to the provisions of Section 10.13), in addition to any other remedy to which it
may be entitled, at law or in equity.

10.13.  SUBMISSION  TO  JURISDICTION.  Each of the  Parties  (a)  submits to the
jurisdiction  of any state or federal  court sitting in Vermont in any action or
proceeding  arising out of or relating  to this  Agreement,  (b) agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court, and (c) agrees not to bring any action or proceeding  arising out of
or relating to this Agreement in any other court. Each of the Parties waives any
defense of inconvenient  forum to the maintenance of any action or proceeding so
brought and waives any bond,  surety or other security that might be required of
any other  Party with  respect  thereto.  Any Party may make  service on another
Party by sending or  delivering  a copy of the process to the Party to be served
at the address and in the manner  provided  for the giving of notices in Section
10.7.  Nothing in this  Section  10.13,  however,  shall affect the right of any
Party to serve legal process in any other manner permitted by law.

10.14.  CONSTRUCTION.  The language used in this Agreement shall be deemed to be
the language chosen by the Parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal,  state,  local,  or foreign  statute or law shall be deemed also to
refer to all rules and regulations  promulgated  thereunder,  unless the context
requires otherwise.

10.15.  INCORPORATION  OF EXHIBITS AND  SCHEDULES.  The  Exhibits and  Schedules
identified  in this  Agreement are  incorporated  herein by reference and made a
part hereof.

                                      -62-


<PAGE>


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


                                            IDX SYSTEMS CORPORATION


                                            By:/S/ JOHN A.KANE
                                               ---------------------------------
                                            Title:  CFO
                                                  ------------------------------
                    
                                   

                                            UNDERWOOD ACQUISITION CORP.


                                            By:/S/ JOHN A. KANE
                                               --------------------------------
                                            Title:  PRESIDENT
                                                  ------------------------------


                    
                                            EDiX CORPORATION


                                            By:/S/ Gene Barduson
                                               ---------------------------------

                                            Title: CHIEF EXECUTIVE OFFICER
                                                 ------------------------------