Exhibit 2.2

                    [EXECUTION COPY - CONFORMED AS EXECUTED]

[Provider HealthNet Services, Inc. Logo]              [MedGrup Corporation Logo]


                          AGREEMENT AND PLAN OF MERGER

                                  by and among

                        PROVIDER HEALTHNET SERVICES INC.

                              MGC ACQUISITION CORP.

                                       and

                               MEDGRUP CORPORATION

                                   Dated as of

                                 March 26, 2002



<PAGE>

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----

I.       THE MERGER.....................................................      1
         1.01     The Merger............................................      1
         1.02     Effective Time; Closing...............................      2
         1.03     Effects of the Merger.................................      2
         1.04     Articles of Incorporation; Bylaws.....................      2
         1.05     Directors; Officers...................................      2

II.      EXERCISE OF PHNS OPTION; CONVERSION OF SECURITIES;
         EXCHANGE OF CERTIFICATES.......................................      3
         2.01     Exercise of PHNS Option...............................      3
         2.02     Conversion of Securities..............................      3
         2.03     Payment of Merger Consideration.......................      6
         2.04     Closing of Stock Transfer Books.......................      8
         2.05     Stock Options; Option Plans; Warrant..................      8

III.     REPRESENTATIONS AND WARRANTIES.................................      9
         3.01     Representations and Warranties of the Company.........      9
         3.02     Representations and Warranties of Parent and
                  Merger Sub............................................     24

IV.      CONDUCT OF BUSINESS PENDING THE MERGER.........................     26
         4.01     Conduct of Business of the Company Pending the Merger.     26
         4.02     Notification of Certain Matters.......................     28

V.       ADDITIONAL AGREEMENTS..........................................     28
         5.01     Shareholders Meeting..................................     28
         5.02     Preparation of Proxy Statement and Schedule 13E-3;
                  Recommendation of Board of Directors; Shareholder
                  Vote..................................................     29
         5.03     Access to Information; Confidentiality................     29
         5.04     Further Actions; Consents; Filings....................     30
         5.05     Indemnification.......................................     30
         5.06     Public Announcements..................................     32
         5.07     No-Shop...............................................     32
         5.08     [Intentionally Omitted]...............................     33
         5.09     Employment and Employee Benefits Matters..............     33

VI.      CONDITIONS TO THE MERGER.......................................     34
         6.01     Conditions to the Obligations of Each Party...........     34
         6.02     Conditions to the Obligations of Parent and Merger Sub     34
         6.03     Conditions to Obligations of the Company..............     36

VII.     TERMINATION, AMENDMENT AND WAIVER..............................     37
         7.01     Termination...........................................     37
         7.02     Effect of Termination.................................     39
         7.03     Amendment.............................................     39
         7.04     Waiver................................................     39
         7.05     Procedures for Termination, Amendment or Waiver.......     40
         7.06     Expenses..............................................     40

                                        i
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                                TABLE OF CONTENTS
                                   (continued)
                                                                            Page
                                                                            ----

VIII.    MISCELLANEOUS..................................................     40
         8.01     No Survival of Representations and Warranties.........     40
         8.02     Notices...............................................     40
         8.03     Definitions...........................................     42
         8.04     Interpretation........................................     43
         8.05     Entire Agreement; Assignment..........................     43
         8.06     Parties in Interest...................................     43
         8.07     Governing Law.........................................     43
         8.08     Headings..............................................     43
         8.09     Counterparts..........................................     43
         8.10     Consent to Jurisdiction...............................     44
         8.11     Waiver of Jury Trial..................................     44
         8.12     Severability..........................................     45
         8.13     Enforcement...........................................     45


Schedule 1.05       -    Directors and Officers of Surviving Corporation

Exhibit A           -    Form of Non-Compete Agreement


                                       ii
<PAGE>

                             TABLE OF DEFINED TERMS


       Term           Section              Term                  Section
       ----           -------              ----                  -------

10-Q's                     3.01           Court                      8.10
Acquisition Proposal       5.07           Covered Employees          5.09(a)
Additional Merger                         Dissenting Shares          2.02(e)
   Consideration           2.02(d)(iii)   Effective Time             1.02
Adjusted Common Stock                     EKS&H                      3.01(v)
   Equivalents                            Environmental Laws         8.03(d)
   Outstanding             2.02(d)(iii)   Environmental Permits      3.01(t)
Affiliate                  8.03(a)        ERISA                      3.01(m)
Agreed                     1.02           Exchange Act               3.01(e)(v)
Agreement                  Preamble       Exchange Agent             2.03(a)
Annualized Company                        Expenses                   7.06
   EBITDA                   2.02(d)(ii)   Fee                        7.01(b)
Articles of Merger         1.02           GAAP                       3.01(g)
Board                      Recitals       Governmental Entity        3.01(e)(v)
Business Combination       7.01(c)        Incentive Stock
Business Day               8.03(b)          Option Plan              2.05(a)
Cancelled Company                         Indemnified Parties        5.05(b)
   Stock Options           2.02(d)(iii)   Indemnifying Party         5.05(b)
CBCA Recitals                             Intellectual Property      3.01(p)(ii)
Certificates               2.03(b)        IRS                        3.01(m)(v)
Claim                      5.05(b)        Knowledge                  8.03(e)
Closing                    1.02           Law                        3.01(e)(iv)
Closing Date               1.02           Leased Real Property       3.01(k)
Code                       2.03(f)        Licensed Software          3.01(q)(i)
Company                    Preamble       Majority Shareholders      Recitals
Company Disclosure                        Material Contracts         3.01(s)
   Schedule                3.01           Measurement Time           3.01(d)
Company ERISA Plans        3.01(m)        Merger                     Recitals
Company Filed SEC                         Merger Consideration       2.02(a)
   Reports                 3.01           Merger Sub                 Preamble
Company Financial                         MMC                        Recitals
   Statements              3.01(g)        Order                      3.01(e)(iv)
Company Indemnified                       Owned Software             3.01(q)(i)
   Parties                 5.05(a)(iii)   Parent                     Preamble
Company Material Adverse                  Parent Disclosure
  Effect                   3.01(a)          Schedule                 3.02(b)(ii)
Company Option Agreements  2.05(a)        Parent Material Adverse
Company Plans              3.01(m)          Effect                   3.02(a)
Company Preferred Shares   3.01(d)        Payment Fund               2.03(a)
Company SEC Reports        3.01(f)        Permits                    3.01(l)
Company Shares             Recitals       Person                     8.03(f)
Company Stock Options      2.05(a)        PHNS Option                Recitals
Confidential Software      3.01(q)(vii)   PHNS Option Agreement      Recitals
Confidentiality Contract   3.01(q)(vii)   Proxy Statement            5.02(a)
Control                    8.03(c)        Real Property Leases       3.01(k)
                                          Reference Month            2.02(d)

                                       iii
<PAGE>

Representatives            5.03(a)
Requisite Shareholder
  Vote                     3.01(e)(i)
Returns                    3.01(o)(i)
Schedule 13E-3             5.02(a)
SEC                        3.01(f)
Shareholder Shares         Recitals
Shareholders Meeting       5.01
Software                   3.01(p)(ii)
Subsidiary                 8.03(g)
Surviving Corporation      1.01
Taxes                      3.01(o)(xi)
Trade Secrets              3.01(p)(ii)
Warrants                   2.05(a)
WDC                        Recitals

                                       iv
<PAGE>


                          AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger is made and entered into on this 26th day
of March,  2002 (this  "Agreement"),  among  Provider  HealthNet  Services  Inc.
("Parent"),  MGC  Acquisition  Corp., a Colorado  corporation and a wholly owned
Subsidiary  of Parent  ("Merger  Sub"),  and  MedGrup  Corporation,  a  Colorado
corporation (the "Company").

     WHEREAS,  Parent,  William D. Cronin  ("WDC") and Margaret M. Cronin ("MMC"
and,  together  with  WDC,  the  "Majority  Shareholders")  have  simultaneously
herewith  entered  into  an  Option  and  Voting  Agreement  (the  "PHNS  Option
Agreement"),  dated  as of March  26,  2002,  pursuant  to  which  the  Majority
Shareholders  have (i) granted Parent the option (the "PHNS Option") to purchase
an aggregate of 3,350,000  shares of the Company's Common Stock, par value $.001
per share, (the "Company Shares"),  which shares constitute  approximately 56.8%
of the outstanding Company Shares (the Company Shares subject to the PHNS Option
are referred to in this Agreement as the "Shareholder  Shares");  (ii) agreed to
vote the  Shareholder  Shares in favor of the Merger and (iii)  granted  certain
irrevocable proxies to Parent;

     WHEREAS,  Parent  intends to  exercise  the PHNS  Option at or prior to the
Closing;

     WHEREAS,  Parent has proposed that Parent acquire the  outstanding  Company
Shares,  other  than the  Shareholder  Shares,  on the terms and  subject to the
conditions of this Agreement;

     WHEREAS, a majority of the members of the Board of Directors of the Company
(the "Board") other than the Majority Shareholders has (i) determined that it is
in the best interests of the Company and its shareholders  (excluding Parent and
the Majority  Shareholders) to consummate the merger of Merger Sub with and into
the Company, with the Company being the surviving corporation (the "Merger"), on
the terms and subject to the conditions of this Agreement and in accordance with
the Colorado Business  Corporation Act (the "CBCA"),  (ii) approved and declared
the  advisability  of this  Agreement  and the  Merger,  and (iii)  resolved  to
recommend that the shareholders of the Company adopt this Agreement;

     WHEREAS, the Boards of Directors of Merger Sub, Parent and the Company have
approved this Agreement; and

     WHEREAS,  Parent,  Merger Sub and the Majority  Shareholders desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.

     NOW,  THEREFORE,  in  consideration  of  the  representations,  warranties,
covenants and agreements contained in this Agreement,  the parties hereto hereby
agree as follows:

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

1.01 The Merger
     ----------

     On the terms of this  Agreement and subject to the  conditions set forth in
Article VI, and in accordance with the CBCA, at the Effective  Time,  Merger Sub
will be  merged  with and into the  Company.  As a  result  of the  Merger,  the
separate existence of Merger Sub will cease and the Company will continue as the
surviving corporation of the Merger (the "Surviving Corporation").

<PAGE>

1.02 Effective Time; Closing
     -----------------------

     Unless  this  Agreement  shall have been  terminated  and the  transactions
herein  contemplated  shall have been  abandoned  pursuant to Article  VII,  and
subject  to the  satisfaction  or waiver of all of the  conditions  set forth in
Article VI, the closing of the Merger (the  "Closing")  will take place at 10:00
a.m.  Dallas  time,  as promptly as  practicable  and in no event later than the
tenth (10th) Business Day following the satisfaction or waiver of the conditions
set forth in Article VI (other than those conditions that by their nature are to
be satisfied at the Closing),  but subject to the fulfillment or waiver of those
conditions,  or such  other  date as may be agreed in  writing by Parent and the
Company  ("Agreed")  (such date, the "Closing  Date"),  at the offices of Jones,
Day,  Reavis & Pogue,  2727 North  Harwood,  Dallas,  Texas 75201 (or such other
place as may be Agreed).  On the  Closing  Date,  the  parties  hereto will file
articles  of  merger  (the  "Articles  of  Merger")  and any  other  appropriate
documents with the Secretary of State of the State of Colorado,  in such form as
is required by, and executed in accordance with, the relevant  provisions of the
CBCA (or such other date as may be Agreed),  and will make all other  filings or
recordings  required  under the CBCA in connection  with the Merger.  The Merger
shall become  effective  upon the filing with, and the acceptance for filing by,
the  Secretary of State of the State of Colorado of the  Articles of Merger,  or
such later time as may be Agreed and  specified  in the  Articles of Merger (the
"Effective Time").

1.03 Effects of the Merger
     ---------------------

     At the Effective Time, the effect of the Merger will be as provided in this
Agreement  and in the  applicable  provisions  of the  CBCA  (including  but not
limited to Section  7-111-106 of the CBCA).  Without  limiting the generality of
the  foregoing,  at the  Effective  Time,  Parent  and/or Merger Sub will become
obligated to pay the Merger  Consideration  as provided in Section 2.02, and all
of the property,  rights,  privileges,  powers,  franchises and interests of the
Company and Merger Sub will vest in the  Surviving  Corporation,  and all debts,
liabilities, obligations,  restrictions,  disabilities and duties of the Company
and Merger Sub will become the debts,  liabilities,  obligations,  restrictions,
disabilities and duties of the Surviving Corporation.

1.04 Articles of Incorporation; Bylaws
     ---------------------------------

     At the Effective Time, (a) the articles of  incorporation  of Merger Sub as
then  in  effect  will  be  the  articles  of  incorporation  of  the  Surviving
Corporation  until  thereafter  amended as provided by Law and such  articles of
incorporation,  and (b) the bylaws of Merger  Sub as then in effect  will be the
Bylaws of the Surviving Corporation until thereafter amended as provided by Law,
the articles of incorporation of the Surviving Corporation and such bylaws.

1.05 Directors; Officers
     -------------------

     From and after the Effective Time, (a) the individuals listed in clause (a)
of  Schedule  1.05  will  become  the  directors  of the  Surviving  Corporation
effective as of the Effective Time and will each hold office in accordance  with
the articles of incorporation and bylaws of the Surviving  Corporation until the
earlier  of their  resignation  or removal or until  their  successors  are duly

                                        2
<PAGE>

elected or appointed and qualified, and (b) the individuals listed in clause (b)
of Schedule  1.05 will be the officers of the  Surviving  Corporation,  and will
each hold office in accordance with the articles of incorporation  and bylaws of
the Surviving  Corporation  until the earlier of their resignation or removal or
until their respective successors are duly elected or appointed and qualified.

II.  Exercise of PHNS Option; Conversion of Securities; Exchange of Certificates
     ---------------------------------------------------------------------------

2.01 Exercise of PHNS Option
     -----------------------

     To the extent not previously exercised, simultaneously with the Closing and
subject to the satisfaction or waiver of the conditions  contained in Article VI
hereof  and in  Sections  5 and 6 of the  PHNS  Option  Agreement,  Parent  will
exercise the PHNS Option and acquire all of the Shareholder  Shares on the terms
and subject to the conditions of the PHNS Option Agreement.

2.02 Conversion of Securities
     ------------------------

     At the  Effective  Time,  by virtue of the Merger and without any action on
the part of any  holder of  Company  Shares or any  other  capital  stock of the
Company or any shares of capital stock of Merger Sub:

     (a) Conversion of Company Shares other than Shareholder Shares

     Each  Company  Share  issued  and  outstanding  immediately  prior  to  the
Effective Time (other than any Company Shares to be canceled pursuant to Section
2.02(b)  and any  Dissenting  Shares)  will be  converted,  subject to  Sections
2.02(d)(ii) or (iii) and Section 2.03, into the right to receive $2.2465 in cash
per share (the "Merger  Consideration"),  without any interest  thereon.  At the
Effective Time, each Company Share issued and outstanding  immediately  prior to
the Effective  Time  converted in accordance  with this Section  2.02(a) will no
longer be outstanding and will  automatically  be canceled and retired and cease
to exist, and each Certificate evidencing such Company Shares will evidence only
the right to receive  upon  surrender  cash in an amount equal to the product of
(i) the number of Company Shares  represented by such  Certificate  and (ii) the
Merger Consideration, without any interest thereon.

     (b) Cancellation of Treasury Shares and Parent-Owned Shares

     Each Company  Share or other right to purchase  Company  Shares held in the
treasury of the Company or owned,  directly or  indirectly,  by Parent or Merger
Sub (which  for  purposes  of this  Section  2.02 will be deemed to include  all
Shareholder  Shares that Parent and Merger Sub acquire  pursuant to the exercise
of the PHNS Option),  in each case immediately prior to the Effective Time, will
be canceled and  extinguished  without any  conversion  thereof  and,  except as
provided  in  Section  2.02(f),  no payment  or  distribution  will be made with
respect thereto.

     (c) Common Stock of Merger Sub

     Each share of common stock, par value $0.01 per share, of Merger Sub issued
and outstanding  immediately  prior to the Effective Time will be converted into
shares of common stock, par value $0.01 per share, of the Surviving Corporation,
which shares shall constitute all of the issued and outstanding capital stock of
the Surviving Corporation immediately after the Effective Time.

                                        3
<PAGE>

     (d) Adjustment of Merger Consideration

          (i) If between  the date of this  Agreement  and the  Effective  Time,
     there is a reclassification, recapitalization, stock split, split-up, stock
     dividend,  combination  or exchange  of shares  with  respect to, or rights
     issued in respect of,  Company  Shares,  the Merger  Consideration  will be
     adjusted    accordingly,    without    duplication,    to   reflect    such
     reclassification,  recapitalization, stock split, split-up, stock dividend,
     combination  or  exchange  of shares in order to provide to the  holders of
     Company Shares the same economic  effect as  contemplated by this Agreement
     prior to such event.

          (ii) Notwithstanding the foregoing,  the Merger Consideration shall be
     adjusted  according  to the  following  formula if the  Annualized  Company
     EBITDA is less than $1,750,000:

               MC1=MC0  X ((8 X Annualized Company EBITDA)/14,000,000), where

               MC0=$2.2465.

          If an  adjustment  is required  pursuant to this Section  2.02(d)(ii),
     then the  Merger  Consideration  shall be deemed to be "MC1" as  determined
     pursuant  to  this  Section  2.02(d)(ii).  For  purposes  of  this  Section
     2.02(d)(ii),  "Annualized  Company EBITDA" shall mean twelve (12) times the
     Company's income before interest,  taxes, depreciation and amortization for
     the calendar  month  immediately  preceding the calendar month in which the
     Closing is  scheduled  to occur (or, if the Closing is  scheduled  to occur
     before the 15th day of such calendar month, the calendar month prior to the
     calendar  month  immediately  preceding  the  calendar  month in which  the
     Closing is  scheduled  to occur),  with each item of EBITDA  determined  in
     accordance with GAAP. The month used to determine Annualized Company EBITDA
     is referred to herein as the "Reference Month." For purposes of determining
     the Merger Consideration pursuant to this Agreement, the maximum Annualized
     Company  EBITDA  shall be  $1,750,000  and the minimum  Annualized  Company
     EBITDA shall be  $1,625,000  and no  adjustment  will be made to the Merger
     Consideration  if Annualized  Company EBITDA is greater than  $1,750,000 or
     less than $1,625,000.

          (iii) The Merger  Consideration shall be subject to further adjustment
     in the event that fewer than  1,000,000  Company Stock Options and Warrants
     are outstanding at the Effective Time according to the following formula:

               Adjustment  to  Merger  Consideration  = Merger  Consideration  +
          (Additional  Merger  Consideration/Adjusted  Common Stock  Equivalents
          Outstanding), where:

               "Additional Merger  Consideration"  equals the difference between
          (A) the  product  of the  Merger  Consideration  times  the  number of
          Company  Stock  Options  that are  terminated,  cancelled or forfeited
          after the date of this  Agreement but prior to the Effective Time (the
          "Cancelled  Company Stock  Options")  and (B) the  aggregate  exercise
          price of the Cancelled Company Stock Options"); and

                                        4
<PAGE>

               "Adjusted Common Stock Equivalents  Outstanding" means, as of the
          Effective  Time,  the sum of (A) the  number  of  outstanding  Company
          Shares  plus (B) the  number of  in-the-money  Company  Stock  Options
          (other than Cancelled Company Stock Options) and the Warrant.

          (iv) In the event that any adjustments to the Merger Consideration are
     required pursuant to Section  2.02(d)(ii) or (iii), then, when used in this
     Agreement, the term "Merger Consideration" shall be deemed to be the Merger
     Consideration  as  adjusted in  accordance  with either or both of Sections
     2.02(d)(ii) or (iii).

          (v) No later  than ten (10) days  after  the  first  date on which the
     parties can determine the results of the Reference Month, the Company shall
     provide Parent and Merger Sub with a statement setting forth, in reasonable
     detail,  the  calculation of Annualized  Company  EBITDA,  certified by the
     Chief  Financial  Officer of the Company.  Parent and Merger Sub shall have
     fifteen  (15)  days  from  receipt  of  such  statement  to  object  to the
     calculation  of Annualized  Company  EBITDA,  and if they fail to so object
     then such  calculation  of Annualized  Company EBITDA shall be deemed final
     for all purposes (including under the PHNS Option Agreement). If Parent and
     Merger Sub object to the  calculation,  they shall deliver a written notice
     of such  objection,  stating in reasonable  detail the reasons for any such
     objection.  The Company, Parent and Merger Sub shall attempt to resolve any
     dispute  through good faith  negotiations  between their  respective  Chief
     Executive  Officers  (or  officers to whom  settlement  authority  has been
     delegated)  to be held no later than  twenty (20) days prior to the date of
     the  Closing.  If the  parties are unable to reach  agreement,  the dispute
     shall be  submitted  to  resolution  to a mutually  acceptable  independent
     public accounting firm or any other mutually  agreeable party,  whose costs
     will be divided  equally  between  Parent and the Company.  The decision of
     such firm shall be made within ten (10) days of  submission  of the dispute
     and shall be final,  conclusive  and binding on Parent,  Merger Sub and the
     Company.

     (e) Dissenting Shares

     Notwithstanding  Section 2.02 or any other  provision of this  Agreement to
the contrary,  Company Shares (other than Shareholder Shares) that have not been
voted in favor of the  adoption  of this  Agreement  and with  respect  to which
dissenters'  rights shall have been demanded and  perfected in  accordance  with
Sections  7-113-101  to  7-113-302  of the CBCA and not  withdrawn  ("Dissenting
Shares")   will  not  be  converted   into  the  right  to  receive  the  Merger
Consideration  at or after the Effective  Time,  but such Company Shares will be
converted into the right to receive such  consideration  as may be determined to
be due to holders of Dissenting Shares pursuant to the CBCA;  provided,  that if
the  holder of such  Dissenting  Shares  withdraws  his or her  demand  for such
appraisal or becomes  ineligible for such appraisal  (through failure to perfect
or  otherwise),  then, as of the Effective Time or the occurrence of such event,
whichever last occurs,  such holder's  Dissenting  Shares will  automatically be
converted  into and  represent  the right to receive  the Merger  Consideration,
without any interest thereon,  as provided in Section 2.02(a).  The Company will
give the Parent (a) prompt notice of any demands for appraisal of Company Shares

                                        5
<PAGE>

received  by  the  Company  and  (b)  the  opportunity  to  participate  in  all
negotiations  and  proceedings  with respect to any such  demands.  Prior to the
Effective  Time, the Company will not,  without the prior written consent of the
Parent,  make any  payment  with  respect  to,  or  settle,  offer to  settle or
otherwise negotiate,  any such demands. The parties hereto agree and acknowledge
that the  Majority  Shareholders  have  agreed to vote for the Merger and not to
perfect any dissenters' rights, all as provided in the PHNS Option Agreement.

     (f) Treatment of Shareholder Shares

     As provided in, and subject to the  provisions of Section 2.01,  Parent and
the Majority  Shareholders  intend that,  subject to the terms and conditions of
the PHNS Option  Agreement,  Parent will exercise the PHNS Option at or prior to
the Effective Time and to hold the "Closing" as such term is defined in the PHNS
Option  Agreement so that all  Shareholders  Shares will be owned by Parent (for
purposes  of  this  Article  II) at the  Effective  Time.  Therefore,  following
execution of the PHNS Option  Agreement  and prior to the  Effective  Time,  the
Majority  Shareholders  will have the right to  receive  only the  consideration
provided  for in the PHNS Option  Agreement  and will not be entitled to receive
any Merger Consideration.

2.03 Payment of Merger Consideration
     -------------------------------

     (a) Exchange Agent/Payment Fund

     At or prior to the Closing,  Parent will cause to be deposited  with a bank
or trust company  designated by Parent and having a capital  surplus of at least
$500 million (the "Exchange  Agent"),  for the benefit of the holders of Company
Shares to be  converted  in  accordance  with  Section  2.02(a),  for payment in
accordance  with  this  Article  II  through  the  Exchange  Agent,  immediately
available funds in an aggregate amount  necessary to make the payments  pursuant
to Section 2.02(a) (such funds, the "Payment Fund").

     (b) Procedures for Exchange of Certificate for Merger Consideration

     Promptly after the Effective Time, but in no event later than five Business
Days thereafter,  Parent will cause the Exchange Agent to mail to each holder of
record of a certificate  or  certificates  (other than  certificates  evidencing
Company  Shares to be canceled  pursuant to Section  2.02(b) and any  Dissenting
Shares),  which immediately prior to the Effective Time represented  outstanding
Company  Shares  (the  "Certificates"),  (i) a letter  of  transmittal  and (ii)
instructions  for use in effecting the surrender of the Certificates in exchange
for payment therefor.  Upon surrender to the Exchange Agent of a Certificate for
exchange  and  cancellation,  together  with such  letter of  transmittal,  duly
executed and completed in accordance  with the  instructions  thereto,  and such
other documents as may be required pursuant to such instructions,  the holder of
record of each Certificate  will be entitled to receive,  and the Exchange Agent
shall pay, in respect  thereof cash in an amount equal to the product of (i) the
number of Company  Shares  represented by such  Certificate  and (ii) the Merger
Consideration,  without any interest thereon, and the Certificate so surrendered
will  forthwith be canceled in accordance  with Section  2.03(c)  below.  In the
event of a transfer of ownership of Company Shares that is not registered in the
transfer  records of the Company,  such payment may be issued to a transferee if
the  Certificate  representing  such Company Shares is presented to the Exchange
Agent,  accompanied by all documents  requested by Parent to evidence and effect
such transfer and by evidence  satisfactory to Parent that any applicable  share
transfer taxes have been paid.

                                        6
<PAGE>

     (c) Cancellation and Retirement of Shares; No Further Rights

     As of the Effective Time, all Company Shares (other than the Company Shares
to be cancelled in accordance with Section  2.02(b) and any Dissenting  Shares),
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall  automatically be cancelled and retired and shall cease to
exist,  and each  holder  of a  Certificate  theretofore  representing  any such
Company  Shares shall cease to have any rights with respect  thereto  (including
without  limitation  the right to vote),  except the right to receive the Merger
Consideration,   without  interest,   upon  surrender  of  such  Certificate  in
accordance with this Article II, and until so surrendered, each such Certificate
shall represent for all purposes only the right,  subject to Section 2.02(e), to
receive the Merger  Consideration,  without interest.  The Merger  Consideration
paid upon the surrender  for exchange of  Certificates  in  accordance  with the
terms of this Article II shall be deemed to have been paid in full  satisfaction
of all rights pertaining to the Company Shares  theretofore  represented by such
Certificates.

     (d) Investment of Payment Fund

     The Exchange Agent shall invest the Payment Fund, as directed by Parent, in
(i) direct  obligations of the United States of America,  (ii)  obligations  for
which the full faith and  credit of the  United  States of America is pledged to
provide for the payment of principal and interest,  (iii) commercial paper rated
the highest  quality by either  Moody's  Investor  Services,  Inc. or Standard &
Poor's Corporation,  or (iv) certificates of deposit, bank repurchase agreements
or bankers' acceptances of commercial banks with capital exceeding $500 million.
Any net  earnings  with respect to the Payment Fund shall be the property of and
paid over to Parent as and when  requested  by Parent;  provided,  that any such
investment  or any such  payment  of  earnings  shall not delay the  receipt  by
holders of Certificates of the Merger Consideration.

     (e) Termination of Payment Fund; Limitation of Liability

     Any portion of the Payment Fund that remains  undistributed  to the holders
of Company  Shares for 120 days after the  Effective  Time will be  returned  to
Parent or the Surviving Corporation, as applicable, upon demand, and any holders
of Company Shares that have not  theretofore  complied with this Article II will
thereafter look only to Parent and the Surviving  Corporation for payment of the
Merger  Consideration,  without any interest thereon. Any portion of the Payment
Fund  remaining  unclaimed  by holders  of  Company  Shares as of a date that is
immediately  prior to such time as such amounts  would  otherwise  escheat to or
become  property of any  Governmental  Entity will,  to the extent  permitted by
applicable Law, become the property of the Surviving  Corporation free and clear
of any claims or interest of any Person  previously  entitled  thereto.  Neither
Parent  nor the  Surviving  Corporation  will be liable to any holder of Company
Shares for any Merger  Consideration  (whether  payable from the Payment Fund or
otherwise)  delivered to a public official  pursuant to any abandoned  property,
escheat or similar Law.

                                        7
<PAGE>

     (f) Withholding Rights

     Each of the Surviving  Corporation,  Parent and the Exchange  Agent will be
entitled  to  deduct  and  withhold  from the  consideration  otherwise  payable
pursuant to this  Agreement to any holder of Company  Shares such amounts as are
required to be deducted and withheld  with respect to the making of such payment
under the United States Internal  Revenue Code of 1986, as amended (the "Code"),
or any  provision  of state or local tax Law. To the extent that  amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such withheld amounts will be treated for all purposes of this Agreement
as having been paid to the holder of the Company Shares in respect of which such
deduction and withholding was made by the Surviving  Corporation,  Parent or the
Exchange Agent, as the case may be.

     (g) Lost Certificates

     If any Certificate has been lost,  stolen or destroyed,  upon the making of
an affidavit of that fact by the Person  claiming such  Certificate  to be lost,
stolen or destroyed and, if required by the Surviving  Corporation,  the posting
by such Person of a bond, in such reasonable amount as the Surviving Corporation
may direct,  as  indemnity  against  any claim that may be made  against it with
respect to such  Certificate,  the Exchange  Agent will pay in exchange for such
lost, stolen or destroyed  Certificate,  cash, in an amount equal to the product
of (x) the number of Company Shares  represented by such Certificate and (y) the
Merger Consideration, without any interest thereon.

2.04 Closing of Stock Transfer Books
     -------------------------------

     At the  Effective  Time,  the stock  transfer  books of the Company will be
closed and there will be no further  registration of transfers of Company Shares
thereafter on the records of the Company.

2.05 Stock Options; Option Plans; Warrant
     ------------------------------------

     (a) Conversion of Stock Options and Warrant

     At the  Effective  Time each vested,  unexpired and  unexercised  option or
right to purchase Company Shares granted under (i) the Company's incentive stock
option  plan  ("Incentive  Stock  Option  Plan"),  (ii) any other  stock  option
agreement  between  the  Company  and  any  other  Person  (including,   without
limitation,  any option  agreement  filed as an exhibit to any Company Filed SEC
Reports  and any  option  agreement  listed  on the  Disclosure  Schedule)  (the
"Company Option  Agreements")  (such vested,  unexercised and unexpired options,
collectively  with  options  to  purchase  Company  Shares  under the  Company's
Incentive Stock Option Plan, the "Company Stock Options") and (iii) the warrants
to purchase  Company Shares (the "Warrants") held by affiliates or principals of
Kashner  Davidson   Securities   Corporation  or  their   transferees  that  are
outstanding  immediately  prior  to the  Effective  Time  will be  automatically
converted at the Effective Time into the right to receive,  and each holder of a
Company  Stock  Option or Warrant  will be paid,  an amount in cash per  Company
Share  subject to each such Company Stock Option or Warrant equal to the excess,
if any, of the Merger  Consideration  over the  exercise  price of such  Company
Stock  Option  or  Warrant,  as the case may be  (less  an  amount  equal to any
required tax withholdings), whereupon each such Company Stock Option and Warrant
will be cancelled and  extinguished.  All unvested Company Stock Options will be
terminated on the Effective Date.

                                        8
<PAGE>

     (b) Amendment and Termination of Option Plans and Consents and Releases

     Prior to the Effective  Time, the Company shall (i) make any amendments to,
or take such other  action in respect of, the terms of (A) the  Incentive  Stock
Option Plan, (B) any Company Option  Agreements and (C) any Warrants that Parent
deems  necessary  to give  effect to the  transactions  contemplated  by Section
2.05(a),  (ii) cause the  Incentive  Stock  Option Plan to  terminate  as of the
Effective  Time and (iii) obtain  consents to cash out and/or cancel any Company
Stock Options or Warrants  prior to the  Effective  Time that by their terms may
not be cancelled upon notice or in connection with the Merger. The Company shall
obtain all necessary waivers, consents or releases from holders of Company Stock
Options  and  Warrants  and take  any such  other  action  as may be  reasonably
necessary to give effect to the transactions contemplated by Section 2.05(a).

                       III. Representations and Warranties
                            ------------------------------

3.01 Representations and Warranties of the Company
     ---------------------------------------------

     The Company  hereby  represents and warrants to Parent and Merger Sub that,
except as set forth in the disclosure  letter delivered by the Company to Parent
on the date  hereof in Agreed form (the  "Company  Disclosure  Schedule")  or as
disclosed  in the  Company's  Annual  Report on Form  10-KSB for the fiscal year
ended December 31, 2000, the Company's  Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, June 30 or September 30, 2001 (the "10-Qs"), any
of the Company's Current Reports on Form 8-K filed with the SEC since January 1,
2001, or the Company's Definitive Proxy Statement for its 2001 Annual Meeting of
Shareholders  dated  April 17,  2001,  including  any  amendments  to any of the
foregoing,  in each case in the form filed by the Company  with the SEC no later
than two Business Days prior to the date of this  Agreement  (collectively,  the
"Company Filed SEC Reports"):

     (a) Organization and Qualification

     The Company is a corporation  duly organized,  validly existing and in good
standing under the Laws of the State of Colorado and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business  as  it  is  now  being  conducted.   The  Company  has  all  necessary
governmental licenses,  permits,  authorizations and approvals to own, lease and
operate its  properties  and to carry on its business as it is  currently  being
conducted, except where the failure to have such governmental licenses, permits,
authorizations  and  approvals  has not had or  resulted  in a Company  Material
Adverse  Effect.  The  Company  is duly  qualified  and in good  standing  to do
business in each  jurisdiction in which the nature of the business  conducted by
it or the  character  of  the  properties  owned  or  leased  by it  makes  such
qualification  necessary,  other than where the failure to be so duly  qualified
and in good  standing  has not had or  resulted  in a Company  Material  Adverse
Effect.  For purposes of this  Agreement,  the term  "Company  Material  Adverse
Effect"  means  any  change,   effect,  event,   condition  or  exception  that,
individually  or when  taken  together  with all other  such  changes,  effects,
events,  conditions  or exceptions  (excluding in each case any change,  effect,
event,  condition or exception to the extent it occurs,  exists or arises due to
general  economic or stock market  conditions)  has had or could  reasonably  be
expected to have or result in an adverse effect equal to or greater than $50,000
on the business, condition (financial or otherwise), assets, properties, results
of  operations  or  prospects  of the Company and its  Subsidiaries,  taken as a
whole.

                                        9
<PAGE>

     (b) No Subsidiaries

     The  Company  does not own,  directly  or  indirectly,  an equity  interest
representing  50% or more of the capital stock of, or other equity interests in,
any corporation,  partnership, joint venture, limited liability company or other
legal entity.

     (c) Articles of Incorporation and Bylaws

     The Company has heretofore  furnished to Parent a complete and correct copy
of its Amended and Restated  Articles of Incorporation  and Amended and Restated
Bylaws,  each as  amended  to  date.  Such  Amended  and  Restated  Articles  of
Incorporation and Amended and Restated Bylaws are in full force and effect.  The
Company  is not in  violation  of any  provision  of its  Amended  and  Restated
Articles of Incorporation or Amended and Restated Bylaws.

     (d) Capitalization

     The authorized  capital stock of the Company consists of 45,000,000 Company
Shares and 5,000,000  shares of Preferred  Stock, par value $.001 per share (the
"Company  Preferred  Shares").  As of the close of business on the last Business
Day prior to the date hereof (the  "Measurement  Time"),  (i) 5,899,777  Company
Shares (excluding treasury shares) are issued and outstanding, all of which have
been validly issued and are fully paid and nonassessable, (ii) no Company Shares
and no Company Preferred Shares were held in the treasury of the Company,  (iii)
1,750,000  Company  Shares were  reserved for future  issuance  (with respect to
which options to acquire  1,316,000  Company Shares are issued and  outstanding)
pursuant to stock  options or other  rights  granted  pursuant to the  Incentive
Stock Option Plan,  (iv) no Company  Shares were reserved for  issuance,  and no
stock  options have been granted under Company  Option  Agreements,  (v) 185,000
Company Shares are reserved for issuance  pursuant to the Warrants,  and (vi) no
Company Preferred Shares were issued, reserved for issuance or outstanding,  and
there were no other shares of capital stock or equity  securities of the Company
issued,  reserved for issuance or outstanding.  During the period from September
30,  2001 to the  Measurement  Time,  (x) there  have been no  issuances  by the
Company of shares of capital  stock of, or other equity or voting  interests in,
the Company other than issuances of Company  Shares  pursuant to the exercise of
employee stock options or other rights granted  pursuant to the Incentive  Stock
Option Plan, the Company Option  Agreements or the Warrants,  and (y) there have
been no issuances by the Company of options, warrants or other rights to acquire
shares of capital stock of, or other equity or voting interests in, the Company.
Except as otherwise  specified in this  Agreement or the PHNS Option  Agreement,
there are no  options,  offers,  warrants,  conversion  rights or other  rights,
agreements,  arrangements  or  other  equity  interests  or  commitments  of any
character  relating  to the issued or  unissued  capital  stock or other  equity
interests of the Company or other rights to  subscribe  for or to purchase  from
the Company or obligating  the Company or to issue,  transfer or sell any shares
of capital stock of the Company  (whether debt,  equity or a combination of debt
or equity) or  obligating  the  Company to grant,  extend or enter into any such
agreement.  All issued  shares of capital  stock of the  Company  were issued in

                                       10
<PAGE>

compliance with all applicable state and federal laws concerning the issuance of
securities and all shares of capital stock of the Company subject to issuance as
aforesaid,  have been, or upon issuance on the terms and conditions specified in
the  instruments  pursuant to which they are issuable will be, duly  authorized,
validly  issued,  fully paid and  nonassessable  and not  subject to  preemptive
rights.  Except  for  this  Agreement,  there  are  no  outstanding  contractual
obligations  of the Company (i) to repurchase,  redeem or otherwise  acquire any
shares of capital  stock of the Company or (ii) to provide funds to, or make any
investment (in the form of a loan,  capital  contribution  or otherwise) in, any
Person.  The Company  Disclosure  Schedule lists the name of each optionee,  the
date of grant, vesting schedule,  exercise price and option termination date for
all of the options and other rights to purchase Company Shares  (including under
the Incentive Stock Option Plan, the Company Option Agreements and the Warrants)
which are  outstanding as of the  Measurement  Time.  Except as set forth in the
Company  Disclosure  Schedule,  none of the  Incentive  Stock Option  Plan,  the
Company Option  Agreements or the Warrant contain a provision  providing for the
acceleration  of vesting or lapse of a repurchase  right upon the  occurrence of
any events.

     (e) Authority; No Conflicts; Consents and Approvals

          (i) The Company has all  necessary  corporate  power and  authority to
     execute and deliver this Agreement and, subject to receipt of the Requisite
     Shareholder  Vote, to perform its  obligations  hereunder and to consummate
     the transactions  contemplated  hereby.  The execution and delivery of this
     Agreement  by the  Company  and  the  consummation  by the  Company  of the
     transactions  contemplated  hereby have been duly and validly authorized by
     all necessary  corporate action, and no other corporate  proceedings on the
     part of the  Company  are  necessary  to  authorize  this  Agreement  or to
     consummate the transactions  contemplated  hereby (other than, with respect
     to the Merger,  (a) the adoption of this Agreement by the affirmative  vote
     of (i) a  majority  of the  outstanding  Company  Shares  entitled  to vote
     thereon and (ii) a majority of the  outstanding  Company  Shares present at
     the Shareholders  Meeting and entitled to vote thereon excluding the Parent
     Shares and the  Shareholder  Shares (the votes specified in clauses (i) and
     (ii),  collectively,  the "Requisite  Shareholder Vote") and (b) the filing
     and recordation of appropriate merger documents as required by the CBCA).

          (ii) This  Agreement has been duly and validly  executed and delivered
     by the Company and, assuming the due authorization,  execution and delivery
     by Parent,  Merger Sub and the Majority  Shareholders,  constitutes a valid
     and binding  obligation of the Company  enforceable  against the Company in
     accordance with its terms.

          (iii) The Board  (other than the Majority  Shareholders)  at a meeting
     thereof duly called and held on March 22, 2002,  unanimously (A) determined
     that this Agreement and the Merger are in the best interests of the Company
     and its shareholders (excluding Parent and the Majority Shareholders),  (B)
     approved and declared the  advisability  of this  Agreement and the Merger,
     and (C) resolved to recommend  that the  shareholders  of the Company adopt
     this Agreement.

                                       11
<PAGE>

          (iv) The execution and delivery of this  Agreement by the Company does
     not,  and the  performance  of this  Agreement by the Company will not, (i)
     conflict with or result in a violation of the Amended and Restated Articles
     of  Incorporation  or Amended and Restated  Bylaws of the Company,  in each
     case as amended to the date of this Agreement, (ii) conflict with or result
     in a violation of any law, statute,  ordinance,  rule or regulation ("Law")
     or any judgment,  decree,  order,  writ,  determination  or award ("Order")
     applicable  to the Company or by which any property or asset of the Company
     is bound or  affected,  or (iii)  result in any  violation  or  breach  of,
     constitute  (with or  without  notice  or lapse of time or both) a  default
     under, or require the Company to obtain any consent, approval or action of,
     make any  filing  with or give any  notice  to, or result in or give to any
     Person any right of payment or  reimbursement,  termination,  cancellation,
     modification  or  acceleration  of, or  result in the loss of any  material
     benefit  under or the creation or imposition of any lien on any property or
     asset of the Company,  under any of the terms,  conditions or provisions of
     any  agreement,  commitment,  lease,  license,  evidence  of  indebtedness,
     mortgage, indenture, security agreement, instrument, note, bond, franchise,
     permit, concession or other instrument, obligation or agreement of any kind
     to which the Company is a party, except for in the case of clauses (ii) and
     (iii),  for any thereof  that have not had or resulted in, or will not have
     or  result  in, a Company  Material  Adverse  Effect or are not  reasonably
     expected to prevent or materially delay the consummation of the Merger.

          (v) The execution  and delivery of this  Agreement by the Company does
     not, and the performance of this Agreement by the Company will not, require
     any  consent,  approval,  authorization  or permit  of,  or filing  with or
     notification  to,  any  domestic,  foreign or  supranational  governmental,
     regulatory or administrative authority,  agency or commission or any court,
     tribunal  or  arbitral  body  ("Governmental   Entity"),   except  (i)  for
     applicable  requirements of the Securities Exchange Act of 1934, as amended
     (together  with the  rules  and  regulations  promulgated  thereunder,  the
     "Exchange  Act"),  the CBCA and the filing and  recordation  of appropriate
     merger  documents as required by the CBCA and (ii) for such other consents,
     approvals,  authorizations,  permits,  filings or notifications that if not
     obtained or made will not prevent or materially  delay the  consummation of
     the transactions contemplated by this Agreement.

     (f) SEC Filings

     The  Company  has filed  all  forms,  reports,  schedules,  statements  and
documents required to be filed by it with the Securities and Exchange Commission
("SEC")  including  (i) its Annual  Reports on Form 10-KSB for the fiscal  years
ended December 31, 1999 and 2000, respectively,  (ii) the 10-Qs, (iii) all proxy
statements relating to the Company's meetings of shareholders (whether annual or
special),  and (iv) all other forms,  reports and other registration  statements
required to be filed by the Company  with the SEC (the forms,  reports and other
documents referred to in clauses (i), (ii), (iii) and (iv) above,  collectively,
the  "Company  SEC  Reports").  The Company  SEC  Reports  (i) were  prepared in
accordance  with the  requirements  of the Securities Act of 1933, as amended or
the  Exchange  Act,  as  applicable,  and the rules and  regulations  of the SEC
promulgated  thereunder,  (ii) did not, at the time they were filed, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein,  in
the light of the circumstances  under which they were made, not misleading,  and
(iii) were filed in a timely manner.

                                       12
<PAGE>

     (g) Financial Statements

     Each of the  financial  statements  (including,  in each  case,  any  notes
thereto)   contained  in  the  Company  SEC  Reports  (the  "Company   Financial
Statements")  complied as to form, as of their  respective  dates of filing with
the SEC, in all material  respects with applicable  accounting  requirements and
the published  rules and regulations of the SEC, was prepared in accordance with
United States generally  accepted  accounting  principles  ("GAAP") applied on a
consistent basis (except, in the case of unaudited  statements,  as permitted by
Form 10-QSB of the SEC) during the periods  involved (except as may be indicated
in the  notes  thereto)  and  presented  fairly  in all  material  respects  the
financial  position,  results of operations  and cash flows of the Company as at
the respective dates thereof and for the respective  periods indicated  therein.
The balance sheets of the Company contained in the Company Financial  Statements
reflect all claims against and all debts and  liabilities of the Company,  fixed
or contingent,  as at the respective dates thereof, required to be shown thereon
under GAAP,  (except as permitted by Form 10-QSB) and the related  statements of
operations  and cash flows  fairly  present  the results of  operations  for the
respective  periods  indicated,  except  that any  unaudited  interim  financial
statements were subject to normal and recurring  year-end  adjustments that have
not had or resulted in a Company Material Adverse Effect.

     (h) Absence of Certain Changes or Events; No Undisclosed Liabilities

          (i) Except as  disclosed  in the  Company  Filed SEC Reports or in the
     Company  Disclosure  Schedule,  since the date of the most  recent  audited
     financial  statements  provided to Parent and which will be included in the
     Company's  Annual Report on Form 10-KSB for the fiscal year ended  December
     31, 2001,  which  report the Company will timely file with the  Commission,
     the Company has  conducted its business  only in the ordinary  course,  and
     there has not been (A) any  change,  event or  occurrence  which has had or
     could reasonably be expected to have,  individually or in the aggregate,  a
     Company  Material  Adverse Effect;  (B) any  declaration,  setting aside or
     payment of any dividend or other  distribution  in respect of shares of the
     Company's  capital  stock,  or any  redemption or other  acquisition by the
     Company of any shares of its capital stock; (C) any increase in the rate or
     terms of  compensation  payable or to become  payable by the Company to its
     directors,  officers or key employees,  except  increases  occurring in the
     ordinary course of business  consistent with past practices;  (D) any entry
     into, or increase in the rate or terms of, any bonus, insurance, severance,
     pension or other employee or retiree  benefit plan,  payment or arrangement
     made to, for or with any such  directors,  officers  or  employees,  except
     increases occurring in the ordinary course of business consistent with past
     practices  or as  required  by  applicable  Law;  (E) any  entry  into  any
     agreement,  commitment or  transaction  by the Company which is material to
     the Company,  except for agreements,  commitments or  transactions  entered
     into in the ordinary  course of business;  (F) any change by the Company in
     accounting  methods,   principles  or  practices,  except  as  required  or
     permitted by GAAP; (G) any write-off or write-down of, or any determination
     to write-off or write-down, any asset of the Company or any portion thereof
     which write-off,  write-down or determination  exceeds $50,000 individually
     or $150,000 in the  aggregate;  or (H) any  agreements by the Company to do
     any of the things described in the preceding  clauses (A) through (G) other
     than as expressly contemplated or provided for herein.

                                       13
<PAGE>

          (ii) Except as  disclosed  in the Company  Filed SEC Reports or in the
     Company Disclosure Schedule and liabilities incurred in the ordinary course
     of business since the date of the most recent financial statements included
     in the Company Filed SEC Reports,  as of the date of this Agreement,  there
     are no liabilities  or  obligations of the Company of any kind  whatsoever,
     whether  accrued,  contingent,  or otherwise,  that would be required to be
     reflected or reserved for on the most recent  balance  sheet of the Company
     included  in the  Company  Filed SEC  Reports  except  for  liabilities  or
     obligations  (i) arising in the ordinary  course of business after December
     31, 2001 or (ii) which have not had or could not  reasonably be expected to
     have, individually or in the aggregate, a Company Material Adverse Effect.

     (i) Litigation

     As of the date  hereof,  except  as  specified  in the  Company  Disclosure
Schedule, (i) there is no suit, claim, action,  proceeding (at law or in equity)
or investigation pending or, to the knowledge of the Company, threatened against
the Company before any court or other Governmental  Entity, and (ii) the Company
is not subject to any outstanding order, writ, judgment,  injunction,  decree or
arbitration  order or award that, in any such case  described in clauses (i) and
(ii), has had or could  reasonably be expected to have,  individually  or in the
aggregate,  a Company Material Adverse Effect. As of the date hereof,  there are
no suits,  claims,  actions,  proceedings or  investigations  pending or, to the
knowledge  of the Company,  threatened,  seeking to prevent,  hinder,  modify or
challenge the transactions contemplated by this Agreement.

     (j) Proxy Statement and Schedule 13E-3

     The  information  supplied  by the  Company  for  inclusion  in  the  Proxy
Statement and the Schedule 13E-3,  if required,  will not, at the time the Proxy
Statement  is  first  mailed  to  the  shareholders  of the  Company  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 or necessary in order to make
the statements  therein, in the light of the circumstances under which they were
made, not misleading.  If, at any time prior to the Effective Time, any event or
circumstance  relating to the Company or its  officers  or  directors  should be
discovered by the Company, which would cause the Proxy Statement or the Schedule
13E-3, if required,  to contain any untrue  statement of a material fact or omit
to state any material fact  required to be stated  therein or necessary in order
to make the statements  therein,  in the light of the circumstances  under which
they were made, not misleading, the Company will promptly inform Parent thereof.
The Proxy  Statement,  the Schedule 13E-3, if required,  and all other documents
that the Company is responsible  for filing with the SEC in connection  with the
Merger will comply as to form and  substance in all material  respects  with the
applicable  requirements  of the  Exchange  Act and the  rules  and  regulations
thereunder.

                                       14
<PAGE>

     (k) Real Property; Other Assets

     The Company has  heretofore  made  available  to Parent  true,  correct and
complete  copies of all  leases,  subleases  and  other  agreements  (the  "Real
Property  Leases")  under which the Company uses or occupies or has the right to
use or occupy,  now or in the future, any real property or facility (the "Leased
Real  Property"),  including  all  modifications,   amendments  and  supplements
thereto.  Except in each case where the failure could not reasonably be expected
to have,  individually or in the aggregate,  a Company  Material Adverse Effect:
(A) the Company has a valid and subsisting  leasehold interest in each parcel of
Leased Real Property free and clear of all Liens and each Real Property Lease is
in full force and effect; (B) all rent and other sums and charges payable by the
Company as tenant  thereunder  are  current  in all  material  respects;  (C) no
termination  event or condition or uncured  default of a material  nature on the
part of the Company or, to the Company's knowledge,  the landlord,  exists under
any Real Property Lease;  and (D) the Company is the sole  undisputed  lessee of
each Leased Real Property,  is in actual  possession  thereof and is entitled to
quiet  enjoyment  thereof in accordance  with the terms of the  applicable  Real
Property  Lease.  The Company  does not own,  lease or occupy any real  property
other than the Leased Real Property.  The Company does not lease any Leased Real
Property  from any  Majority  Shareholder  or any Person  that is an  Affiliate,
"associate"  or  "immediate  family  member"  (as such terms are  defined in the
Exchange  Act) of any  Majority  Shareholder.  The Company does not own any real
property.

     (l) Conduct of Business; Licenses; Permits

     All   federal,   state,   local   and   foreign   governmental   approvals,
authorizations,  certificates,  filings, franchises,  licenses, notices, permits
and rights  ("Permits")  necessary for the Company to own,  lease or operate its
properties  and assets and to carry on its business as now  conducted  have been
obtained  or made,  and there has  occurred  no default  under any such  Permit,
except for the lack of Permits  and for  defaults  under  Permits  which lack or
default  could  not  reasonably  be  expected  to have,  individually  or in the
aggregate, a Company Material Adverse Effect. Except as disclosed in the Company
Filed SEC  Reports or in the  Company  Disclosure  Schedule,  the  Company is in
compliance with all applicable  statutes,  laws,  ordinances,  rules, orders and
regulations of any Governmental  Entity,  except for non-compliance  which could
not reasonably be expected to have,  individually or in the aggregate, a Company
Material Adverse Effect.

     (m) Employee Benefit Plans

     The Company  Disclosure  Schedule  sets forth a true,  correct and complete
list of all the  employee  benefit  plans (as that  phrase is defined in Section
3(3)  of the  Employee  Retirement  Income  Security  Act of  1974,  as  amended
("ERISA")) maintained or contributed to for the benefit of any current or former
employee, officer or director of the Company (the "Company ERISA Plans") and any
other  benefit or  compensation  plan,  program  or  arrangement  maintained  or
contributed  to for the  benefit of any current or former  employee,  officer or
director of the Company (the Company  ERISA Plans and such plans being  referred
to as "Company  Plans").  The Company has furnished or made  available to Parent
and its  representatives  a true,  correct and complete  copy of every  document
pursuant to which each Company Plan is  established  or operated  (including any
summary plan descriptions),  a written description of any Company Plan for which
there is no written  document,  and all  annual  reports  (including  Form 5500,
5500-C or 5500-R filings),  financial  statements and actuarial  valuations with
respect to each Company Plan since the commencement of such Company Plan. Except
as specified in the Company Disclosure Schedule:

                                       15
<PAGE>

          (i) none of the Company ERISA Plans is a  "multiemployer  plan" within
     the meaning of ERISA;

          (ii) none of the Company Plans promises or provides for retiree health
     or life insurance benefits to any person;

          (iii) none of the Company Plans provides for payment of a benefit, the
     increase of a benefit  amount,  the payment of a contingent  benefit or the
     acceleration  of the  payment  or  vesting  of a  benefit  by reason of the
     execution  of  this  Agreement  or the  consummation  of  the  transactions
     contemplated by this Agreement;

          (iv) the Company has no obligation to adopt,  nor is  considering  the
     adoption  of, any new  Company  Plan or,  except as  required  by Law,  the
     amendment of an existing Company Plan;

          (v) each Company  ERISA Plan  intended to be qualified  under  Section
     401(a) of the Code has received a favorable  determination  letter from the
     Internal  Revenue  Service  ("IRS") that it is so qualified and nothing has
     occurred since the date of such letter that could reasonably be expected to
     affect the qualified status of such Company ERISA Plan;

          (vi) each Company Plan, has been operated in accordance with its terms
     and the requirements of all applicable Law;

          (vii) the Company has not  incurred  any direct or indirect  liability
     under,  arising out of or by operation  of Title IV of ERISA in  connection
     with the  termination  of, or  withdrawal  from,  any Company ERISA Plan or
     other  retirement  plan or  arrangement,  and no fact or event  exists that
     could reasonably be expected to give rise to any such liability;

          (viii) the aggregate  accumulated  benefit obligations of each Company
     ERISA Plan  subject to Title IV of ERISA (as of the date of the most recent
     actuarial  valuation  prepared for such Company ERISA Plan and based on the
     discount rate and other  actuarial  assumptions  used in such valuation) do
     not exceed the fair market value of the assets of such  Company  ERISA Plan
     (as of the date of such valuation); and

          (ix) the  Company is not aware of any claims  relating  to the Company
     Plans, other than routine claims for benefits;

     provided,  however,  that the failure of the  representations  set forth in
clauses (v), (vi),  (vii) and (ix) to be true and correct shall not be deemed to
be a breach of any such representation  unless such failures could reasonably be
expected to have,  individually or in the aggregate,  a Company Material Adverse
Effect.

                                       16
<PAGE>

     (n) Absence of Changes in Benefit Plans

     Except as  disclosed  in the  Company  Filed SEC  Reports or in the Company
Disclosure  Schedule,  since the date of the most  recent  financial  statements
included in the Company Filed SEC Reports, the Company has not adopted or agreed
to adopt any collective bargaining agreement or any Company Plan.

     (o) Taxes

     Except as specified in the Company Disclosure Schedule:

          (i) Except where the failure to do so could not reasonably be expected
     to have,  individually  or in the  aggregate,  a Company  Material  Adverse
     Effect,  the  Company  (and any  affiliated  or unitary  group of which the
     Company was a member) has (A) timely  filed all federal,  state,  local and
     foreign returns, declarations,  reports, estimates, information returns and
     statements  ("Returns") required to be filed by or for it in respect of any
     Taxes (as  hereinafter  defined) and has caused such Returns as so filed to
     be true, correct and complete,  (B) established reserves that are reflected
     in Company's most recent financial statements included in the Company Filed
     SEC Reports and that as so  reflected  are  adequate for the payment of all
     Taxes not yet due and payable with respect to the results of  operations of
     the Company through the date hereof,  and (C) timely withheld and paid over
     to the proper taxing authorities all Taxes and other amounts required to be
     so withheld and paid over. The Company (and any affiliated or unitary group
     of which the Company was a member) has timely paid all Taxes that are shown
     as  being  due on the  Returns  referred  to in the  immediately  preceding
     sentence.

          (ii) (A)  There  has been no  taxable  period  since  1994 for which a
     Return of the Company has been  examined by the IRS,  (B) all  examinations
     described  in clause  (A) have been  completed  without  the  assertion  of
     material  deficiencies,  and (C) except for alleged deficiencies which have
     been finally and irrevocably resolved,  the Company has not received formal
     or informal  notification  that any deficiency for any Taxes, the amount of
     which  could  reasonably  be  expected  to  have,  individually  or in  the
     aggregate, a Company Material Adverse Effect, has been or will be proposed,
     asserted or assessed  against the Company by any federal,  state,  local or
     foreign taxing authority or court with respect to any period.

          (iii) The Company has not executed or entered into with the IRS or any
     other taxing  authority (A) any agreement or other  document that continues
     in force and effect beyond the  Effective  Time and that extends or has the
     effect of  extending  the  period  for  assessments  or  collection  of any
     federal,  state, local or foreign Taxes, (B) any closing agreement or other
     similar  agreement  (nor has the Company  received  any  ruling,  technical
     advice memorandum or similar determination)  affecting the determination of
     Taxes  required to be shown on any Return not yet filed,  or (C)  requested
     any  extension of time to be granted to file after the  Effective  Time any
     return required by applicable law to be filed by it.

                                       17
<PAGE>

          (iv) The Company has not made an election  under Section 341(f) of the
     Code  or  agreed  to  have  Section  341(f)(2)  of the  Code  apply  to any
     disposition  of a subsection  (f) asset (as such term is defined in Section
     341(f)(4)  of the Code)  owned by the  Company.  None of the  assets of the
     Company  is  required  to be  treated  as being  owned by any other  Person
     pursuant to the "safe harbor"  leasing  provisions of Section  168(f)(8) of
     the Internal Revenue Code of 1954 as formerly in effect.

          (v)  The  Company  is not a  party  to,  is not  bound  by nor has any
     obligation  under  any  tax  sharing  agreement  or  similar  agreement  or
     arrangement.

          (vi) The Company  has not agreed to make,  nor is it required to make,
     any material  adjustment  under  Section  481(a) of the Code by reason of a
     change in accounting method or otherwise.

          (vii) The  Company  is not,  and has not 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)(1)(A)(ii) of
     the Code.

          (viii) No  security  interests  have  been  imposed  upon or  asserted
     against any assets of the Company as a result of or in connection  with any
     failure or alleged  failure to pay any Tax, except liens for Taxes that are
     not yet due and payable.

          (ix)  The  Company  is not nor  will  it  become  obligated  to make a
     payment, the deduction of which may be disallowed by reason of Section 280G
     of the Code.

          (x) The  Company has  custody of copies of all  Returns  described  in
     Section 3.01(o)(i)(A),  and of all workpapers, computer files, spreadsheets
     and other data and  information  used to prepare such Returns and that will
     be needed to prepare  all Returns  that must be filed  within 60 days after
     the Closing Date.

          (xi) For purposes of this  Agreement,  "Taxes" shall mean all federal,
     state, local, foreign income, property, sales, excise, employment, payroll,
     franchise,  withholding and other taxes,  tariffs,  charges,  fees, levies,
     imposts,   duties,   licenses  or  other  assessments  of  every  kind  and
     description, together with any interest and any penalties, additions to tax
     or additional amounts imposed by any taxing authority.

     (p) Intellectual Property

          (i) The Company  Disclosure  Schedule sets forth all United States and
     foreign: (A) patents and patent applications,  (B) trademarks, trade names,
     brand names and corporate names, and all service marks,  registrations  and
     applications   thereof,   (C)  internet  domain,   name  registrations  and
     applications  and (D) copyright  registrations  and  applications  owned or
     licensed by the Company in each case  described in clauses (A) through (D),
     used by the  Company  in  connection  with  the  conduct  of the  Company's
     business,  specifying as to each item, as applicable: (w) the nature of the
     item, including the title; (x) the owner of the item; (y) the jurisdictions
     in which the item is issued or registered or in which the  application  for
     issuance or registration has been filed; and (z) the issuance, registration
     or application numbers and dates.

                                       18
<PAGE>

          (ii) For purposes of this Agreement, "Intellectual Property" means all
     of the following as they exist in all  jurisdictions  throughout the world,
     in each case, to the extent owned by, licensed to, or otherwise used by the
     Company:  (A)  patents,  patent  applications,   and  other  patent  rights
     (including    any    divisions,    continuations,    continuations-in-part,
     substitutions,  or reissues  thereof,  whether or not patents are issued on
     any  such  applications  and  whether  or not  any  such  applications  are
     modified, withdrawn, or resubmitted);  (B) trademarks, service marks, trade
     dress, trade names, brand names, Internet domain names, designs,  logos, or
     corporate names, whether registered or unregistered,  and all registrations
     and applications for registration  thereof;  (C) copyrights,  including all
     renewals and  extensions,  copyright  registrations  and  applications  for
     registration,  and non-registered  copyrights; (D) trade secrets, concepts,
     ideas,  designs,  research,  processes,  procedures,  techniques,  methods,
     know-how, data, compilations of data, mask works, discoveries,  inventions,
     modifications,  extensions,  improvements,  and other proprietary technical
     and  business   information  (whether  or  not  patentable  or  subject  to
     copyright, mask work, or trade secret protection) (the "Trade Secrets") and
     (E) computer software  programs,  including  without  limitation all source
     code,  object code,  software for web,  Internet  and intranet  sites,  and
     documentation related thereto (the "Software").


          (iii)  The  Intellectual  Property  includes  all of the  intellectual
     property  rights  owned or  licensed  by the  Company  that are  reasonably
     necessary  to conduct  the  Company's  business  as it is now or  currently
     contemplated to be conducted. Except as specified in the Company Disclosure
     Schedule,  (A) the Company has good, marketable and exclusive title to, and
     the valid and enforceable  power and unqualified  right to make, have made,
     use, sell, offer to sell,  license,  lease,  import,  transfer or otherwise
     exploit  the  Intellectual  Property  free and clear of all Liens,  (B) the
     Company has the right to bring  actions for  infringement  of  Intellectual
     Property  owned by the  Company,  (C) no Person or  entity  other  than the
     Company has any right or interest of any kind or nature in or with  respect
     to the  Intellectual  Property or any portion thereof or any rights to use,
     market or exploit the Intellectual  Property or any portion thereof, (D) no
     Person has a right to  receive a royalty  or similar  payment in respect of
     any  Intellectual  Property owned by the Company,  whether  pursuant to any
     contractual  agreements entered into by the Company or otherwise and (E) to
     the Knowledge of the Company no Person has  challenged  the validity of any
     Intellectual  Property.  Except  as  disclosed  in the  Company  Disclosure
     Schedule,  the  Company  is not  currently,  nor will be as a result of the
     execution  and  delivery  of  this  Agreement  or the  consummation  of the
     transactions  contemplated  hereby,  in  breach  of  any  provision  of any
     agreement that relates to any  Intellectual  Property other than any breach
     which,  individually  or in the aggregate  with other  breaches,  would not
     result in a Company Material Adverse Effect.

     (q) Software

          (i) The Company  Disclosure  Schedule  sets forth a true,  correct and
     complete list of all Software,  including  without  limitation all programs
     used in the testing and  development  phase and all predecessor and earlier
     versions  of any  computer  programs,  owned  by the  Company  (the  "Owned
     Software"), and a true, correct and complete list of all Software not owned
     by the  Company,  but in which  the  Company  has  rights  (by  license  or

                                       19
<PAGE>

     otherwise) from another Person ( the "Licensed Software"). The right of the
     Company to use Licensed Software that is material to the Company's business
     as it is now or  currently  contemplated  to be  conducted  is solely under
     written  license  agreements or other Material  Contracts  specified in the
     Company Disclosure Schedule.

          (ii) The Company is in actual possession of the source code and object
     code for each  computer  program  included in the Owned  Software,  and the
     Company is in  possession  of all other  documentation,  including  without
     limitation  all related  engineering  specifications,  program flow charts,
     installation and user manuals and know-how  necessary for the effective use
     of the Software as currently  used in the Company's  business or as offered
     or represented to the Company's customers or potential customers. All Owned
     Software   released   for   commercial   distribution   to  third   parties
     substantially conforms to all published  specifications therefor and to all
     technical and other written materials provided by the Company to a licensee
     in connection with such Owned Software. The Software constitutes all of the
     computer  programs  necessary  to conduct  the  Company's  business  as now
     conducted,   and  includes  all  of  the  computer  programs  used  in  the
     development,  marketing, licensing, sale or support of the products and the
     services presently offered by the Company.

          (iii) The Company  Disclosure  Schedule sets forth a true, correct and
     complete  list,  by computer  program,  of (A) all  Persons  other than the
     Company that have been  provided with the source code or have a right to be
     provided  with the  source  code  (including  any such right that may arise
     after the occurrence of any specified event or circumstance, either with or
     without  the  giving of notice or  passage  of time or both) for any of the
     Owned Software and (B) all source code escrow agreements relating to any of
     the Owned  Software  (setting  forth as to any such  escrow  agreement  the
     source code subject thereto and the names of the escrow agent and all other
     Persons  who  are  actual  or  potential   beneficiaries   of  such  escrow
     agreement).  Except as specified  in the Company  Disclosure  Schedule,  no
     Person (other than the Company and any Person that is a party to a contract
     referred  to in clause (v) of the first  sentence of Section  3.01(s)  that
     restricts  such Person from  disclosing  any  information  concerning  such
     source code) is in  possession  of, or has or has had access to, any source
     code for any computer program included in the Owned Software.

          (iv) To the  Knowledge  of the  Company  there are no  defects  in any
     computer program  included in the Software that would materially  adversely
     affect  the   functioning   thereof  in   accordance   with  any  published
     specifications therefor. The Company Disclosure Schedule sets forth a true,
     correct  and  complete  list  of  any  current  material   developments  or
     maintenance  efforts with respect to the Owned Software,  including without
     limitation  the  development  of new  computer  programs,  enhancements  or
     revisions to existing  computer programs included in the Owned Software and
     software  fixes in progress  for any Person to whom or to which the Company
     has sold, licensed,  leased, transferred or otherwise furnished Software or
     related products or services.

          (v) The Company does not market and has not  marketed,  and it has not
     supported and is not obligated to support, any Licensed Software.

                                       20
<PAGE>

          (vi) Except as specified in the Company Disclosure Schedule, no Person
     other than the  Company  has any right or interest of any kind or nature in
     or with respect to the Owned Software or any portion  thereof or any rights
     to sell,  license,  lease,  transfer,  use or  otherwise  exploit the Owned
     Software or any portion thereof.

          (vii)  Except as set forth in the  Company  Disclosure  Schedule,  all
     employees,  agents, consultants,  distributors and licensees of the Company
     who have had access to any of the Trade Secrets or source code, object code
     and access codes for the Owned Software ("Confidential Software") have been
     put on written notice of the  confidential  and  proprietary  nature of the
     Trade Secrets and the Confidential Software and have been required to enter
     into a written  agreement  ("Confidentiality  Contract")  with the  Company
     acknowledging  the confidential  nature of and agreeing not to disclose the
     Trade  Secrets or  Confidential  Software  other than as  permitted by such
     Confidentiality Contract.

     (r) No Infringement

     Except  as  specified  in the  Company  Disclosure  Schedule,  neither  the
existence  nor  the  sale,  license,   lease,   transfer,   use,   reproduction,
distribution,  development, modification or other exploitation by the Company or
any of its respective  successors or assigns of any Intellectual  Property is or
was, or is currently  contemplated to be, sold, licensed,  leased,  transferred,
used,  reproduced,  distributed,  developed,  modified or otherwise exploited by
such Persons, does, did or will (i) infringe on any patent, trademark, copyright
or other right of any other Person, (ii) constitute a misuse or misappropriation
of any trade secret, know-how,  process,  proprietary information or other right
of any other Person,  or (iii) entitle any other Person to any interest therein,
or right to compensation from the Company or any of its respective successors or
assigns, by reason thereof, except for infringements,  misuse,  misappropriation
or other acts or omissions  that,  individually  or in the aggregate,  could not
reasonably  be expected to have a Company  Material  Adverse  Effect.  Except as
specified in the Company Disclosure  Schedule,  the Company has not received any
complaint,  assertion,  threat or  allegation  or  otherwise  has  notice of any
lawsuit,  claim,  demand,  proceeding or investigation  involving matters of the
type contemplated by the immediately preceding sentence or is aware of any facts
or  circumstances  that could  reasonably  be  expected to give rise to any such
lawsuit, claim, demand, proceeding or investigation.  Except as specified in the
Company  Disclosure  Schedule,  there are no  restrictions on the ability of the
Company or any of its respective successors or assigns to sell, license,  lease,
transfer,   use,  reproduce,   distribute,   modify  or  otherwise  exploit  any
Intellectual  Property.  Except as specified in the Company Disclosure Schedule,
no Person has infringed,  violated or misappropriated or now infringes, violates
or misappropriates the Intellectual Property.

     (s) Contracts

     The  Company has made  available  to Parent and its  representatives  true,
correct  and  complete  copies of all of the  following  contracts  to which the
Company  is a  party  or by  which  it is  bound  (collectively,  the  "Material
Contracts"):  (i) contracts with any current  officer or director of the Company
or with any  Person  owning,  beneficially  or  otherwise,  more than 10% of the
Company  Shares  outstanding  as of the date of this  Agreement;  (ii) contracts
pursuant  to which the  Company  licenses or  sublicenses  other  Persons to use
Intellectual  Property and pursuant to which other Persons license or sublicense
the Company to use  Intellectual  Property;  (iii) contracts (A) for the sale of

                                       21
<PAGE>

any of the assets of the  Company,  other  than  contracts  entered  into in the
ordinary  course  of  business  or  (B)  for  the  grant  to any  Person  of any
preferential rights to purchase any of its assets; (iv) contracts which restrict
the  Company  from  competing  in any line of business or with any Person in any
geographical  area or which  restrict any other Person from  competing  with the
Company in any line of business or in any geographical area; (v) contracts which
restrict the Company from disclosing any information concerning or obtained from
any other  Person  or which  restrict  any  other  Person  from  disclosing  any
information  concerning or obtained from the Company;  (vi)  indentures,  credit
agreements,  security agreements,  mortgages,  guaranties,  promissory notes and
other  contracts  relating to the  borrowing  of money;  (vii)  contracts  which
account, or which are expected to account,  for more than 5% of the consolidated
revenues  of the  Company  during its most  recent  fiscal  year and its current
fiscal year; and (viii) all other agreements,  contracts or instruments  entered
into  outside of the  ordinary  course of business or which are  material to the
Company.  Except as specified  in the Company  Disclosure  Schedule,  all of the
Material  Contracts  are in full force and  effect and are the legal,  valid and
binding  obligation of the Company,  enforceable  against it in accordance  with
their  respective   terms,   subject  to  applicable   bankruptcy,   insolvency,
reorganization,  moratorium  and similar laws  affecting  creditors'  rights and
remedies generally and subject,  as to enforceability,  to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).  Except as specified in the Company Disclosure Schedule, the Company is
not in breach or default in any material  respect  under any  Material  Contract
nor,  to the  Knowledge  of the  Company,  is any  other  party to any  Material
Contract in breach or default thereunder in any material respect.

     (t) Environmental Matters

     Except as specified in the Company Disclosure  Schedule and except as could
not reasonably be expected to have,  individually or in the aggregate, a Company
Material Adverse Effect: (A) the Company has not violated or is not in violation
of any  Environmental  Law;  (B) none of the  properties  leased by the  Company
(including   without  limitation  soils  and  surface  and  ground  waters)  are
contaminated   with  any  hazardous   substance  in  quantities   which  require
investigation or remediation  under  Environmental  Laws; (C) the Company is not
liable  for any  off-site  contamination;  (D) the  Company  does  not  have any
liability or remediation  obligation under any Environmental  Law; (E) no assets
of  the  Company  are  subject  to  pending  or   threatened   Liens  under  any
Environmental   Law;  (F)  the  Company  has  all  Permits  required  under  any
Environmental  Law  ("Environmental   Permits");  and  (G)  the  Company  is  in
compliance with its Environmental Permits.

     (u) Labor Matters

          (i)  Except as  specified  in the  Company  Disclosure  Schedule,  the
     Company is not a party to any  employment,  labor or collective  bargaining
     agreement,  and there are no  employment,  labor or  collective  bargaining
     agreements  which  pertain to  employees  of the  Company.  The Company has
     heretofore  made  available to Parent true,  complete and correct copies of
     the employment, labor and collective bargaining agreements set forth in the
     Company Disclosure Schedule,  together with all amendments,  modifications,
     supplements or side letters affecting the duties, rights and obligations of
     any party thereunder.

                                       22
<PAGE>

          (ii)  No  employees  of the  Company  are  represented  by  any  labor
     organization and, to the Knowledge of the Company, no labor organization or
     group of employees of the Company has made a pending demand for recognition
     or certification.  There are no representation or certification proceedings
     or  petitions  seeking a  representation  proceeding  presently  pending or
     threatened  in  writing to be  brought  or filed  with the  National  Labor
     Relations Board or any other labor relations  tribunal or authority and, to
     the Knowledge of the Company,  there are no organizing activities involving
     the Company  pending with any labor  organization  or group of employees of
     the Company.

          (iii) Except as specified in the Company  Disclosure  Schedule,  there
     are no (A) unfair labor practice charges,  grievances or complaints pending
     or  threatened  in  writing  by or on  behalf of any  employee  or group of
     employees  of the  Company  which,  if resolved  against the Company  could
     reasonably be expected to have, individually or in the aggregate, a Company
     Material Adverse Effect,  or (B) complaints,  charges or claims against the
     Company pending,  or threatened in writing to be brought or filed, with any
     Governmental  Entity or arbitrator  based on, arising out of, in connection
     with, or otherwise  relating to the employment or termination of employment
     of any  individual by the Company  which,  if resolved  against the Company
     could reasonably be expected to have,  individually or in the aggregate,  a
     Company Material Adverse Effect.

          (iv) The  Company is not aware of any  employee  of the Company who is
     obligated under any contract (including licenses,  covenants or commitments
     of any nature) or other  agreement,  or subject to any judgment,  decree or
     order of any court or administrative agency, that would interfere with such
     employee's  duties to the Company or that would conflict with the Company's
     business as currently conducted. The Company does not believe it is or will
     be necessary to utilize any  inventions of any of the  Company's  employees
     made prior to their  employment by the Company except for  inventions  that
     have been assigned to the Company.

     (v) Brokers

     No  broker,  finder or  investment  banker is  entitled  to any  brokerage,
finder's or other fee or  commission  in  connection  with the Merger based upon
arrangements  made by or on behalf of the Company,  except that  Ehrhardt  Keefe
Steiner &  Hottman,  P.C.  ("EKS&H")  shall be  entitled  to a fee of $50,000 in
connection  with the delivery of the opinion  required by Section  6.03(c).  The
Company has  heretofore  furnished  to Parent a complete and correct copy of all
agreements  between the  Company and EKS&H  pursuant to which such firm would be
entitled to any payment relating to the Merger.

     (w) Voting Requirements

     The Requisite Shareholder Vote is the only vote of the holders of any class
or  series  of the  Company's  capital  stock or other  securities  required  in
connection  with the  consummation  by the  Company  of the Merger and the other
transactions contemplated hereby to be consummated by the Company.

                                       23
<PAGE>

3.02 Representations and Warranties of Parent and Merger Sub
     -------------------------------------------------------

     (a) Organization and Qualification

     Each of Parent and  Merger Sub is a  corporation  duly  organized,  validly
existing and in good standing under the Laws of its respective  jurisdiction  of
incorporation and has the requisite  corporate power and authority to own, lease
and  operate  its  properties  and to carry on its  business  as it is now being
conducted, except where the failure to be duly organized, validly existing or in
good standing, or to have such requisite corporate power and authority,  has not
had or resulted in a Parent Material  Adverse Effect.  Each of Parent and Merger
Sub  has  all  necessary  governmental  licenses,  permits,  authorizations  and
approvals to own,  lease and operate its properties and to carry on its business
as it is  currently  being  conducted,  except  where the  failure  to have such
governmental  licenses,  permits,  authorizations  and approvals have not had or
resulted in a Parent Material  Adverse Effect.  Each of Parent and Merger Sub is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business  conducted by it or the  character of the  properties
owned or leased by it makes such qualification  necessary,  other than where the
failure to be so duly qualified and in good standing have not had or resulted in
a Parent  Material  Adverse  Effect.  For purposes of this  Agreement,  the term
"Parent  Material  Adverse  Effect"  means  any  change,  effect,  condition  or
exception that, individually or when taken together with all other such changes,
effects, events, conditions or exceptions,  has prevented or materially delayed,
or could reasonably be expected to prevent or materially delay, the consummation
of the transactions contemplated by this Agreement, including without limitation
the  payment  of the  Merger  Consideration  for  Company  Shares  converted  in
accordance  with Section  2.02(a) or the receipt  thereof by the holders of such
Company Shares.

     (b) Authority; No Conflicts; Consents and Approvals

          (i) Each of Parent and Merger Sub has all  necessary  corporate  power
     and  authority  to execute  and  deliver  this  Agreement,  to perform  its
     obligations   hereunder  and  to  consummate   the  Merger  and  the  other
     transactions  contemplated  hereby.  The  execution  and  delivery  of this
     Agreement  by Parent  and  Merger  Sub and the  consummation  by Parent and
     Merger  Sub of the  transactions  contemplated  hereby  have  been duly and
     validly  authorized  by  all  necessary  corporate  action,  and  no  other
     proceedings  on the part of Parent or Merger Sub are necessary to authorize
     this Agreement or to consummate the transactions contemplated hereby (other
     than, with respect to the Merger, the filing and recordation of appropriate
     merger documents as required by the CBCA). This Agreement has been duly and
     validly  executed and delivered by Parent and Merger Sub and,  assuming the
     due  authorization,  execution and delivery by the Company and the Majority
     Shareholders,  constitutes a valid and binding obligation of each of Parent
     and Merger Sub enforceable against Parent and Merger Sub in accordance with
     its terms.

          (ii) Except as specified in the disclosure  letter delivered by Parent
     to Company on the date  received  in Agreed  form (the  "Parent  Disclosure
     Schedule"),  the execution and delivery of this Agreement by each of Parent
     and Merger Sub do not, and the  performance of this Agreement by Parent and
     Merger Sub will not,  (A)  conflict  with or  violate  the  certificate  of

                                       24
<PAGE>

     articles of incorporation, or bylaws, of Parent or Merger Sub, (B) conflict
     with or violate any Law  applicable to Parent or Merger Sub or any of their
     respective  Subsidiaries  or by which  any  property  or asset of Parent or
     Merger Sub or any of their respective Subsidiaries is bound or affected, or
     (C) result in any breach of or  constitute a default (or an event that with
     notice or lapse of time or both would become a default)  under,  or give to
     others any rights of termination,  amendment,  acceleration or cancellation
     of, or require payment under, or result in the loss of any material benefit
     under or the  creation of a lien or other  encumbrance  on any  property or
     asset of  Parent  or  Merger  Sub or any of their  respective  Subsidiaries
     pursuant to, or trigger any right of first refusal under,  any note,  bond,
     mortgage, indenture, contract, agreement, lease, license, permit, franchise
     or other  instrument  or obligation to which Parent or Merger Sub or any of
     their  respective  Subsidiaries is a party or by which Parent or any of its
     Subsidiaries or any of their respective properties is bound, except, in the
     case of clauses (B) and (C), for any conflict or breach that has not had or
     resulted  in,  and will not have or result  in, a Parent  Material  Adverse
     Effect and except, in the case of clause (C), for any consents or approvals
     required  for the  performance  of this  Agreement by Parent and Merger Sub
     that will have been received or waived at or prior to the Effective Time.

          (iii) The execution  and delivery of this  Agreement by each of Parent
     and Merger Sub do not, and the  performance of this Agreement by Parent and
     Merger Sub will not, require any consent, approval, authorization or permit
     of, or filing with or notification to, any Governmental Entity,  except (A)
     for  applicable  requirements  of  the  Exchange  Act  and  the  rules  and
     regulations  thereunder,  and the filing  and  recordation  of  appropriate
     merger  documents  as required by the CBCA (B) as  specified  in the Parent
     Disclosure   Schedule   and  (C)  for  such  other   consents,   approvals,
     authorizations, permits, filings or notifications, which if not obtained at
     or prior to the  Effective  Time or made,  have not had or resulted in, and
     will not have or result in, a Parent Material Adverse Effect.

     (c) Operations of Merger Sub

     Merger Sub is a direct wholly owned Subsidiary of Parent, was formed solely
for the  purpose  of holding  Company  Shares  and has  engaged  in no  business
activities  other than in connection  with the holding of Company Shares and the
performance of its obligations hereunder.

     (d) Financing

     Parent has sufficient financial capacity, and will cause Merger Sub to have
sufficient  financial  capacity,  to consummate the Merger and the  transactions
contemplated hereby in accordance with the terms of this Agreement.

     (e) Proxy Statement and Schedule 13E-3

     The information supplied by Parent for inclusion in the Proxy Statement and
the Schedule  13E-3,  if required,  will not, at the time the Proxy Statement is
first  mailed to the  shareholders  of the  Company 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 or necessary in order to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading.  If,  at any  time  prior  to  the  Effective  Time,  any  event  or
circumstance relating to Parent or any of its Subsidiaries,  or their respective
officers or  directors,  should be  discovered  by Parent  which would cause the
Proxy  Statement  or the  Schedule  13E-3,  if  required,  to contain any untrue

                                       25
<PAGE>

statement of a material  fact or omit to state any material  fact required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the  circumstances  under which they were made, not misleading,  Parent
will  promptly  inform the Company and the Majority  Shareholders  thereof.  All
documents that Parent is responsible  for filing with the SEC in connection with
the Merger will comply as to form and  substance in all material  respects  with
the applicable  requirements of the Exchange Act at the time the Proxy Statement
is first mailed to the shareholders of the Company and at the Effective Time.

     (f) Brokers

     No  broker,  finder or  investment  banker is  entitled  to any  brokerage,
finder's or other fee or commission from the Company or any of its  Subsidiaries
in connection  with the Merger based upon  arrangements  made by or on behalf of
Parent or Merger Sub.

     (g) Litigation

     As of the  date  hereof,  except  as  specified  in the  Parent  Disclosure
Schedule, (i) there is no suit, claim, action,  proceeding (at law or in equity)
or  investigation  pending  or, to the  knowledge  of the Parent or Merger  Sub,
threatened against Parent or Merger Sub or any of their Subsidiaries  before any
court or other Governmental Entity, and (ii) neither the Parent,  Merger Sub nor
any of their Subsidiaries is subject to any outstanding  order, writ,  judgment,
injunction,  decree  or  arbitration  order or  award  that,  in any  such  case
described in clauses (i) and (ii),  has had or could  reasonably  be expected to
have,  individually or in the aggregate, a Parent Material Adverse Effect. As of
the  date  hereof,  there  are  no  suits,  claims,   actions,   proceedings  or
investigations pending or, to the knowledge of the Parent,  threatened,  seeking
to prevent,  hinder,  modify or challenge the transactions  contemplated by this
Agreement.

                   IV. Conduct of Business Pending the Merger
                       --------------------------------------

4.01 Conduct of Business of the Company Pending the Merger
     -----------------------------------------------------

     Except as contemplated  by this Agreement,  during the period from the date
of this Agreement to the Effective  Time, the Company shall act and carry on its
businesses only in the ordinary course of business and, to the extent consistent
therewith,  use  reasonable  efforts to  preserve  intact its  current  business
organizations,  keep  available  the  services of its current key  officers  and
employees  and  preserve  the  goodwill of those  engaged in  material  business
relationships with them, and to that end, without limiting the generality of the
foregoing, Company shall not without the prior consent of Parent:

          (i) (A) declare,  set aside or pay any dividends on, or make any other
     distributions  (whether in cash,  stock or  property) in respect of, any of
     its outstanding  capital stock (other than, with respect to a Subsidiary of
     Company, to its corporate parent),  (B) split, combine or reclassify any of
     its  outstanding  capital  stock or issue or authorize  the issuance of any

                                       26
<PAGE>

     other securities in respect of, in lieu of or in substitution for shares of
     its outstanding capital stock, or (C) purchase, redeem or otherwise acquire
     any shares of outstanding capital stock or any rights,  warrants or options
     to acquire any such  shares,  except,  in the case of clause  (C),  for the
     acquisition  of Company  Shares from  holders of Company  Stock  Options or
     Warrant in full or partial  payment of the exercise  price  payable by such
     holder upon exercise of Company Stock Options or Warrant;

          (ii) issue,  sell, grant,  pledge or otherwise  encumber any shares of
     its  capital  stock,   any  other  voting   securities  or  any  securities
     convertible into or exchangeable for, or any rights, warrants or options to
     acquire, any such shares,  voting securities or convertible or exchangeable
     securities,   other  than  upon  the  exercise  of  Company  Stock  Options
     outstanding on the date of this Agreement;

          (iii) amend its articles of incorporation,  bylaws or other comparable
     charter or organizational documents;

          (iv) directly or indirectly  acquire,  make any investment in, or make
     any capital  contributions to, any Person other than in the ordinary course
     of business;

          (v) directly or  indirectly  sell or  otherwise  dispose of any of its
     properties or assets that are material to its business, except for sales or
     dispositions in the ordinary course of business;

          (vi) (A) incur any  indebtedness  for borrowed  money or guarantee any
     such indebtedness of another Person,  other than  indebtedness  owing to or
     guarantees of  indebtedness  owing to the Company or any direct or indirect
     wholly owned Subsidiary of the Company or (B) make any loans or advances to
     any other  Person,  other than to the  Company or to any direct or indirect
     wholly owned  Subsidiary of the Company and other than routine  advances to
     employees,  except, in the case of clause (A), for short-term borrowings in
     respect of trade creditors or vendors in the ordinary course of business or
     under existing credit facilities described in the Company Filed SEC Reports
     in the ordinary course of business;

          (vii) grant or agree to grant to any employee any increase in wages or
     bonus,  severance,  profit  sharing,  retirement,   deferred  compensation,
     insurance  or  other  compensation  or  benefits,   or  establish  any  new
     compensation or benefit plans or  arrangements,  or amend or agree to amend
     any  existing  Company  Plans,  except as may be  required  under  existing
     agreements or by Law and normal,  regularly  scheduled increases in respect
     of non-officer employees consistent with past practices;

          (viii) enter into or amend any  employment,  consulting,  severance or
     similar agreement with any individual,  except with respect to new hires in
     the ordinary course of business consistent with past practice;

          (ix) adopt a plan of  complete  or partial  liquidation,  dissolution,
     merger,  consolidation,  restructuring,  recapitalization or other material
     reorganization  or any agreement  relating to an  Acquisition  Proposal (as
     hereinafter  defined) (other than as expressly  permitted  pursuant to this
     Agreement);

                                       27
<PAGE>

          (x) make any tax  election  or settle or  compromise  any  income  tax
     liability  of  Company  or of  any  of  its  Subsidiaries  involving  on an
     individual basis more than $10,000;

          (xi)  make any  change  in any  method  of  accounting  or  accounting
     practice or policy, except as required by any changes in generally accepted
     accounting principles;

          (xii)  enter into any  agreement,  understanding  or  commitment  that
     restrains,  limits or impedes  the  Company's  ability  to compete  with or
     conduct any  business or line of business,  except for any such  agreement,
     understanding or commitment entered into in the ordinary course of business
     consistent with past practice;

          (xiii) form any Subsidiary; or

          (xiv)  authorize  any of,  or  commit  or agree  to take  any of,  the
     foregoing actions in respect of which it is restricted by the provisions of
     this Section 4.01.

4.02 Notification of Certain Matters
     -------------------------------

     (a)  Notification of Certain Events.  Parent will give prompt notice to the
Company  and the  Majority  Shareholders,  and  the  Company  and  the  Majority
Shareholders  will  give  prompt  notice to  Parent,  of (i) the  occurrence  or
nonoccurrence  of any event the  occurrence or  nonoccurrence  of which would be
reasonably  likely to cause (A) any  representation  or warranty of Parent,  the
Company or the  Majority  Shareholders,  as the case may be,  contained  in this
Agreement to be untrue or inaccurate in any material respect or (B) any material
covenant,  condition  or  agreement  of  Parent,  the  Company  or the  Majority
Shareholders, as the case may be, contained in this Agreement not to be complied
with or satisfied  and (ii) any material  failure of Parent,  the Company or the
Majority  Shareholders,  as the case  may be,  to  comply  with or  satisfy  any
covenant,  condition  or  agreement  to be  complied  with  or  satisfied  by it
hereunder;  provided,  however, that the delivery of any notice pursuant to this
Section 4.02 will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.

     (b)  Notification of Acquisition  Proposals.  Except to the extent that the
Company is legally obligated to keep such information confidential,  the Company
will give prompt written notice to Parent of any Acquisition Proposal. Except to
the  extent  that the  Company  is legally  obligated  to keep such  information
confidential,  the  Company  will  notify  Parent  promptly  if any  Acquisition
Proposal is made and will, in any such notice to Parent,  indicate in reasonable
detail the identity of the Person making such Acquisition Proposal and the terms
and conditions of such Acquisition Proposal.

                            V. Additional Agreements
                               ---------------------

5.01 Shareholders Meeting
     --------------------

     In accordance with the Exchange Act, the CBCA and the Company's Amended and
Restated  Articles of  Incorporation  and Amended and Restated  Bylaws,  each as
amended to date,  the Company will promptly after the date of this Agreement use
commercially  reasonable  efforts  to seek  adoption  of this  Agreement  by the
Requisite Shareholder Vote. The Company will use commercially reasonable efforts
to call a meeting of its shareholders (the "Shareholders  Meeting"),  to be held
as soon as is reasonably  practicable after the date hereof,  for the purpose of
considering and voting upon the adoption of this Agreement.

                                       28
<PAGE>

5.02 Preparation of Proxy Statement and Schedule 13E-3;  Recommendation of Board
     of Directors; Shareholder Vote
     ---------------------------------------------------------------------------

     (a) As promptly as practicable  after the execution of this Agreement,  the
Company  will  prepare  and  cause  to be filed  with the SEC a proxy  statement
(together  with any  amendments  thereof  or  supplements  thereto,  the  "Proxy
Statement") to solicit proxies from the  shareholders of the Company in favor of
the  adoption  of this  Agreement.  If required  by the SEC,  Parent  and/or the
Majority  Shareholders  will  cause  to be  filed  with  the  SEC a  Rule  13e-3
Transaction  Statement on Schedule 13E-3 (the "Schedule 13E-3"). Each of Parent,
Merger Sub and the Company  will  furnish  all  information  concerning  Parent,
Merger Sub or the  Company as such party may  reasonably  request in  connection
with such actions and the  preparation  of the Proxy  Statement and the Schedule
13E-3  (if  required).  The  Company,  Merger  Sub and  Parent  will  use  their
respective  commercially  reasonable  efforts  to  respond  promptly  to all SEC
comments with respect to the Proxy  Statement  and Schedule  13E-3 (if required)
and,  subject to  compliance  with SEC rules and  regulations,  the Company will
cause the Proxy  Statement  to be mailed to the  Company's  shareholders  at the
earliest practicable date.

     (b) The Proxy Statement will include the recommendation of the Board, other
than the Majority  Shareholders,  that this  Agreement  and the Merger should be
approved  and declared  advisable  and the  recommendation  of a majority of the
members of the Company's  Board,  other than the Majority  Shareholders,  to the
shareholders of the Company to adopt this Agreement; provided, however, that the
Board may, at any time prior to the Effective Time,  withdraw,  modify or change
any such  recommendation  to the extent that the Board determines in good faith,
after  consultation  with  independent  legal  counsel (who may be the Company's
regularly  engaged legal  counsel),  that the failure to so withdraw,  modify or
change such  recommendation  would result in a breach of its fiduciary duties to
the Company's  shareholders  (excluding  Parent and Merger Sub) under applicable
Law;  provided  further,  that nothing in this  Section  5.02(b) will affect the
Company's  obligation  to seek the Requisite  Shareholder  Vote  (regardless  of
whether the recommendation of the Board has been withdrawn, modified or changed)
unless this Agreement has previously  been terminated in accordance with Article
VII.

5.03 Access to Information; Confidentiality
     --------------------------------------

     (a) From the date of this Agreement to the Effective Time, the Company will
(i) provide Parent (and Parent's officers,  directors,  employees,  accountants,
consultants,  legal  counsel,  agents and other  representatives  (collectively,
"Representatives"))  access at reasonable  times upon reasonable prior notice to
its officers, employees, agents, properties, offices and other facilities and to
its books and records and (ii) furnish promptly such information  concerning its
business, properties,  contracts, assets, liabilities and personnel as Parent or
Parent's Representatives may reasonably request.

     (b) Each  party to this  Agreement  agrees  to,  and  agrees  to cause  its
Representatives  to treat and hold as confidential  all information  relating to
the other  party  hereto in  accordance  with the  terms and  conditions  of the
Confidentiality  Agreement,  dated as of July 26, 2001,  between  Parent and the
Company.

                                       29
<PAGE>

     (c) No  investigation  pursuant  to  this  Section  5.03  will  affect  any
representation  or  warranty  in  this  Agreement  of any  party  hereto  or any
condition to the obligations of the parties hereto.

5.04 Further Actions; Consents; Filings
     ----------------------------------

     On the terms and  subject to the  conditions  hereof,  each of the  parties
hereto will use its commercially  reasonable efforts to (a) take, or cause to be
taken, all appropriate action and do, or cause to be done, all things necessary,
advisable or  appropriate  under  applicable  Law or otherwise to consummate and
make  effective  the  Merger  and the other  transactions  contemplated  by this
Agreement  as soon as  practicable,  (b) obtain from  Governmental  Entities any
consents,  licenses,  permits,  waivers,  approvals,  authorizations  or  orders
required  to be  obtained  or made by  Parent  or the  Company  or any of  their
Subsidiaries  in connection  with the  authorization,  execution and delivery of
this Agreement and the  consummation  of the Merger,  and (c) make all necessary
filings,  and thereafter  make any other required  submissions,  with respect to
this  Agreement,  the Merger  and the other  transactions  contemplated  by this
Agreement  that are required  under the  Exchange  Act and any other  applicable
federal or state  securities  Laws,  and any other  applicable  Law. The parties
hereto will cooperate with each other in connection  with the making of all such
filings,  including by providing  copies of all such  documents to the nonfiling
party and its  advisors  prior to filing and, if  requested,  by  accepting  all
reasonable  additions,  deletions or changes suggested in connection  therewith.
Subject to the terms and conditions hereof, each party hereto, at the reasonable
request of another party hereto, will execute and deliver such other instruments
and do and perform  such other acts and things as may be  necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.

5.05 Indemnification
     ---------------

     (a) Indemnification of Directors and Officers

          (i)  The  Articles  of  Incorporation  and  Bylaws  of  the  Surviving
     Corporation,  and the articles of  incorporation  and bylaws or  comparable
     organizational  documents of each Subsidiary of the Surviving  Corporation,
     will contain  provisions with respect to  indemnification  that are no less
     favorable  than those set forth in the  Amended  and  Restated  Articles of
     Incorporation and Amended and Restated Bylaws of the Company on the date of
     this Agreement, which provisions will not be amended, repealed or otherwise
     modified  for a period of four years from and after the  Effective  Time in
     any manner that would affect adversely the rights thereunder of individuals
     that at the Effective  Time were  directors or officers of the Company,  in
     respect of  actions or  omissions  occurring  at or prior to the  Effective
     Time, unless such modification will be required by Law.

                                       30
<PAGE>

          (ii) The Surviving  Corporation  will cause to be maintained in effect
     tail policies of directors' and officers'  liability insurance for a period
     of at least three years from the Effective  Time. If no such tail policy is
     available,  then for a period of three years after the Effective  Time, the
     Surviving Corporation shall use commercially reasonable efforts to cause to
     be maintained  in effect  policies of  directors'  and officers'  liability
     insurance  with  coverage in amount and scope at least as  favorable as the
     Company's  existing  policies with respect to claims  arising from facts or
     events that occurred prior to the Effective Time; provided,  however,  that
     the  Surviving  Corporation  shall not be  required  to pay any premium for
     directors' and officers'  liability  insurance that would exceed the amount
     being paid by the Company as of the date hereof.

          (iii) From and after the Effective  Time,  the  Surviving  Corporation
     will, to the fullest extent required or permitted under the CBCA, indemnify
     and hold harmless,  including the  advancement of defense costs as provided
     in Section  5.05(b) below,  each present and former  director or officer of
     the Company  (collectively,  the "Company Indemnified Parties") against all
     costs and expenses (including attorneys' fees),  judgments,  fines, losses,
     claims, damages, liabilities and settlement amounts paid in connection with
     any claim,  action,  suit,  proceeding or  investigation  (whether  arising
     before or after the Effective Time),  based on the fact that such Person is
     or was a  director  or  officer of the  Company  or any  Subsidiary  of the
     Company  and  arising  out of or  pertaining  to  any  action  or  omission
     occurring at or before the Effective  Time,  including  without  limitation
     actions  taken in  connection  with,  or  pursuant  to,  the  terms of this
     Agreement,  provided,  however, that the foregoing indemnity will not apply
     to any  act or  failure  to act  which a court  of  competent  jurisdiction
     determines  in an order or  decision  not  subject  to  appeal  constituted
     misappropriation  of cash or other  property  of the  Company or any of its
     Subsidiaries.

          (iv) The Company and the Surviving  Corporation  agree that all rights
     to  indemnification  under this  Section  5.05(a)  (including  the right to
     advancement  of expenses  incurred in defense of any Claim  provided  under
     Section 5.05(b) below),  existing in favor of a Company  Indemnified  Party
     shall survive the Merger and shall  continue in full force and effect for a
     period of not less than  four  years  from the  Effective  Time;  provided,
     however,  that all  rights to  indemnification  in  respect  of any  Claims
     asserted or made against any Company Indemnified Parties within such period
     shall continue until the disposition of such Claims.

     (b) Conduct of Indemnification Proceedings

     Without  limiting any of the  foregoing  indemnity  obligations  of Section
5.05(a), in the event any such claim, action, suit,  proceeding or investigation
(a "Claim") is brought  against a Company  Indemnified  Party (the  "Indemnified
Parties")  (whether  arising before or after the Effective  Time), (i) the party
required  to  provide   indemnification   pursuant  to  Section   5.05(a)   (the
"Indemnifying  Party"),  shall  assume and direct all  aspects of the defense of
such Claim,  including the settlement thereof, (ii) the Indemnifying Party shall
retain and direct,  and shall pay the  reasonable  fees and  expenses of counsel
reasonably  satisfactory to the  Indemnified  Party,  promptly after  statements
therefor are received, provided, that in respect of fees and expenses of Counsel
to  the   Company   Indemnified   Parties  in  respect  of  a  Claim  for  which
indemnification  is being sought under Section 5.05(a) above,  the  Indemnifying
Party will pay any expenses in advance of the final  disposition  of such action
or proceeding to each  Indemnified  Party to the fullest extent  permitted under

                                       31
<PAGE>


the CBCA, upon receipt from the Indemnified  Party to whom expenses are advanced
of an  undertaking  to repay such advances if required under the CBCA, and (iii)
the  Indemnified  Party will  cooperate  in the defense of any such  Claim.  The
Indemnified  Party shall have a right to  participate  in (but not  control) the
defense  of any  such  Claim  with  its  own  counsel  at its  own  expense.  No
Indemnifying Party shall be liable for any settlement effected without its prior
written  consent,  which  shall not be  unreasonably  withheld  or  delayed.  No
Indemnifying  Party will settle any such matter unless (i) the Indemnified Party
gives  prior  written  consent,  which  shall not be  unreasonably  withheld  or
delayed,  or (ii) the terms of the settlement provide that the Indemnified Party
will have no  responsibility  for the  discharge  of any  settlement  amount and
impose  no  other  obligations  or  duties  on the  Indemnified  Party  and  the
settlement  discharges all rights against the Indemnified  Party with respect to
such  matter.  Any  Indemnified  Party  wishing to claim  indemnification  under
Section 5.05(a), upon learning of any Claim, shall notify the Indemnifying Party
and shall provide the Company (or the Surviving Corporation, after the Effective
Date) with an  undertaking  as  contemplated  by Section  7-109-104 of the CBCA;
provided, that failure to provide notice of a Claim shall not relieve a party of
its indemnity  obligations under Section 5.05(a) unless such failure  prejudices
such party. No Indemnifying  Party will be obligated pursuant to Section 5.05(a)
to pay the fees and expenses of more than one counsel  (plus  appropriate  local
counsel) for all Indemnified  Parties in any single action except to the extent,
as determined by counsel to the  Indemnified  Parties,  that there may be one or
more legal defenses  available to one Indemnified  Party that are different from
or in addition to those available to the other  Indemnified  Parties that would,
in the judgment of such  counsel,  prohibit such counsel from  representing  all
Indemnified  Parties under the rules of professional  ethics, in which case such
additional  counsel  (including  local  counsel) as may be required to avoid any
such conflict or likely conflict may be retained by the  Indemnified  Parties at
the expense of the Indemnifying Parties.

5.06 Public Announcements
     --------------------

     Parent and the Company  will  consult  with each other  before  issuing any
press  release or otherwise  making any public  statements  with respect to this
Agreement  or the Merger  and will not issue any such press  release or make any
such public statement without the prior consent of the other (which consent will
not be  unreasonably  withheld  or  delayed),  except as either  such  party may
determine is required by Law,  provided that  statements  made by the Company to
its employees, customers or suppliers will not be deemed to be public statements
for purposes of this Section 5.06.

5.07 No-Shop
     -------

     Until the earlier of the Effective Time or termination of this Agreement in
accordance  with Section 7.01, the Company shall not, and shall not authorize or
permit  any  of  its  affiliates,  officers,  directors,  employees,  agents  or
representatives  (including without limitation any investment banker,  financial
advisor,  attorney or  accountant  retained  by the  Company),  to,  directly or
indirectly (x) solicit,  initiate or encourage,  including without limitation by
way of  furnishing  information,  or take any other  action to  facilitate,  any
inquiries or the making of any proposal which constitutes,  or may reasonably be
expected  to lead  to,  any  Acquisition  Proposal,  or (y)  participate  in any
discussions  or  negotiations  regarding  any  Acquisition  Proposal;  provided,

                                       32
<PAGE>

however,  that nothing in this Agreement shall prohibit the Company or the Board
from  furnishing  information  to, or entering  into,  maintaining or continuing
discussions  or  negotiations   with,  any  person  that  makes  an  unsolicited
Acquisition  Proposal  after the date hereof,  if, and to the extent  that,  the
Board,  after  consultation  with and based upon the advice of independent legal
counsel,  determines in good faith that (i) such  Acquisition  Proposal would be
more  favorable  to  the  Company's   shareholders   (other  than  the  Majority
Shareholders)  than the Merger,  and (ii) the failure to take such action  would
result  in  a  breach  by  the  Board  of  its  fiduciary  duties  to  Company's
shareholders  (other than the Majority  Shareholders) under applicable law, and,
prior to  furnishing  any  non-public  information  to such person,  the Company
receives from such person an executed confidentiality  agreement with provisions
no less  favorable  to the  Company  than the letter  agreement  relating to the
furnishing  of  confidential  information  of Company to Parent  referred  to in
Section 5.03(b). For purposes of this Agreement, the term "Acquisition Proposal"
shall mean any proposal or offer from any Person,  including without  limitation
any request for  information  relating to any  acquisition or purchase of all or
any material portion of the capital stock of the Company or a significant amount
of the assets of the Company  outside the ordinary  course of its business,  any
merger,  consolidation  or other  business  combination  with the Company or any
other  tender  or  exchange  offer  or  other  similar  extraordinary   business
transaction  involving or otherwise  relating to the Company.  The Company shall
provide notice of any Acquisition Proposal as provided in Section 4.02(b).

5.08 [Intentionally Omitted]
      ---------------------

5.09 Employment and Employee Benefits Matters
     ----------------------------------------

     (a)  Parent  shall,  and  shall  cause  its  Subsidiaries,  as  applicable,
following the Effective Time (including the Surviving Corporation) to, except as
otherwise agreed by the Parent and the Company, hire and retain all employees of
the Company who are  employees of the Company at the  Effective  Time  ("Covered
Employees").

     (b) If Covered  Employees  are  included  in any  benefit  plan  (including
without limitation provision for vacation) of Parent or its Subsidiaries, Parent
agrees that the Covered  Employees  shall  receive  credit as  employees  of the
Company and its  Subsidiaries  for service prior to the Effective  Time with the
Company and its  Subsidiaries  to the same extent such service was counted under
similar  Company Plans for purposes of  eligibility,  vesting,  eligibility  for
retirement  (but  not for  benefit  accrual)  and,  with  respect  to  vacation,
disability and severance, benefit accrual.

     (c)  Notwithstanding  anything to the contrary contained herein,  except as
provided in Section  5.09(a) from and after the  Effective  Time,  the Surviving
Corporation  will have sole  discretion over the hiring,  promotion,  retention,
firing and other terms and  conditions  of the  employment  of  employees of the
Surviving  Corporation.  Except as  otherwise  provided  in this  Section  5.09,
nothing herein shall prevent Parent or the Surviving  Corporation  from amending
or terminating any Company Plan in accordance with its terms.

     (d) Within a reasonable  period  following the Effective Time,  Parent will
issue non-qualified options to purchase Parent's Class B Common Stock, par value
$.01 per share, to certain officers and managers of the Company. The identity of
such  Persons and the amount of options to be granted to such  Persons  shall be
determined through  negotiations between Parent and the Company. The other terms

                                       33
<PAGE>

and provisions of such options  (exercise  price,  method of payment of exercise
price,  vesting  and  similar  terms  and  provisions)  shall be  determined  in
accordance with Parent's 2000 Stock  Option/Stock  Incentive Plan. Key employees
of the Company,  as agreed upon by Parent and the  Company,  will be eligible to
participate  in, and will be  considered  for annual stock option  grants under,
Parent's 2000 Stock Option/Stock Issuance Plan.

                          VI. Conditions to the Merger
                              ------------------------

6.01 Conditions to the Obligations of Each Party
     ----------------------------------------

     The  obligations  of the Company,  Parent and Merger Sub to consummate  the
Merger are subject to the  satisfaction  or waiver  (where  permissible)  of the
following conditions:

     (a) Shareholder Approval

     The Requisite Shareholder Vote shall have been received.

     (b) No Injunctions or Restraints

     No Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether  temporary,  preliminary or permanent) that is
then in effect  and has the effect of making  the  Merger  illegal or  otherwise
prohibiting  consummation  of the Merger;  provided,  however,  that each of the
parties to this Agreement shall use its commercially reasonable efforts to cause
any such Order to be vacated or lifted.

6.02 Conditions to the Obligations of Parent and Merger Sub
     ------------------------------------------------------

     The  obligations  of Parent  and Merger  Sub to  consummate  the Merger are
subject to the  satisfaction  or waiver  (where  permissible)  of the  following
additional conditions:

     (a) Representations and Warranties

     The  representations  and  warranties  of  the  Company  and  the  Majority
Shareholders  contained in this Agreement shall be true and correct on and as of
the Closing Date as though such  representations and warranties had been made on
and as of the Closing Date (other than representations and warranties made as of
a specified  date which shall speak as of such date),  without  giving effect to
any  qualification or limitation  based on materiality  (whether by reference to
Company Material  Adverse Effect or otherwise),  and Parent and Merger Sub shall
have  received a certificate  on behalf of Company by an  authorized  officer of
Company to such effect.

     (b) Covenants

     The Company shall have performed or complied in all material  respects with
all covenants  required by this Agreement to be performed or complied with by it
on or prior to the Effective  Time, and Parent shall have received a certificate
signed on behalf of the Company by an officer of the Company to that effect.

                                       34
<PAGE>

     (c) No Material Adverse Change

     Since the date of this  Agreement,  the Company shall not have  experienced
any change,  event or occurrence that has had or could reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.

     (d) No Litigation

     There shall not be pending or threatened  any suit,  action or  proceeding,
seeking to restrain  or prohibit  the Merger or seeking to obtain from Parent or
the Company or any of their respective  affiliates in connection with the Merger
any material  damages,  or seeking any other relief that,  following the Merger,
would materially limit or restrict the ability of Parent and its Subsidiaries to
own and conduct both the assets and businesses owned and conducted by Parent and
its  Subsidiaries  prior to the Merger and the assets and  businesses  owned and
conducted by Company prior to the Merger.

     (e) Consents

     All  consents,  authorizations,  orders  and  approvals  of (or  filings or
registrations  with) any Governmental  Entity or any other Person required to be
obtained or made prior to the Effective  Time in connection  with the execution,
delivery and  performance of this Agreement  (including  without  limitation the
consents of the holders of Company Stock Options and the Warrant contemplated by
Section  2.05) shall have been  obtained  or made,  except for the filing of the
articles of merger pursuant to Section 1.02 and except where the failure to have
obtained or made such consents,  authorizations,  orders, approvals,  filings or
registrations  could not reasonably be expected to have,  individually or in the
aggregate,  a Parent Material Adverse Effect or a material adverse effect on the
Surviving Corporation.

     (f) Key-man Life Insurance

     Parent shall have  obtained,  or caused Merger Sub to obtain,  key-man life
insurance  on the life of William D. Cronin in an amount to be  mutually  agreed
upon, but not to exceed $5,000,000.

     (g) Completion of Review of Company

     Parent  shall be  satisfied,  in its sole  discretion,  with its ability to
conduct a business,  legal and  accounting  due  diligence  with  respect to the
Company and its access to the  officers,  books,  records and  properties of the
Company and Parent shall be satisfied, in its sole discretion,  with the results
of such  due  diligence  review  of the  Company;  provided,  however,  that the
condition set forth in this Section 6.02(g) shall be deemed  satisfied if, on or
prior to the  thirtieth  (30th) day  following the execution and delivery of the
Agreement  by the  parties  hereto,  Parent has not  delivered  to the Company a
notice  indicating  that (i) Parent is not satisfied with its ability to conduct
such due diligence  review and/or (ii) Parent is not satisfied  with the results
of such due diligence review.

                                       35
<PAGE>

     (h)  Amendments  to Existing  Company  Employment  Agreements;  Non-Compete
Agreements

     Each of WDC, MMC, Gary B.  Mendenhall and Jim Wantman will have (i) amended
their existing  employment  agreements  with the Company,  or waived  applicable
provisions of such employment  agreements,  such that (A) none of Parent, Merger
Sub or the Company will be required to make any severance,  change of control or
similar  payments  in  connection  with or as a result  of the  Merger,  (B) any
"evergreen"   provision   contained  in  such  employment   agreements  will  be
ineffectual at the Effective Time, and (C) neither Parent nor Merger Sub will be
under any obligation to renew any such employment  agreements,  and (ii) entered
into a non-compete  agreement  with Parent and Merger Sub  substantially  in the
form attached hereto as Exhibit A.

6.03 Conditions to Obligations of the Company
     ----------------------------------------

     The  obligations of the Company to consummate the Merger are subject to the
satisfaction  or  waiver  (where   permissible)  of  the  following   additional
conditions:

     (a) Representations and Warranties

     The  representations  and  warranties  of each of  Parent  and  Merger  Sub
contained in this  Agreement  shall be true and correct on and as of the Closing
Date as though such  representations  and  warranties had been made on and as of
the  Closing  Date  (other  than  representations  and  warranties  made as at a
specified date which shall speak as of such date),  without giving effect to any
qualification  or  limitation  based on  materiality  (whether by reference to a
Parent  Material  Adverse  Effect or  otherwise),  except  where the  matters in
respect of which such  representations  and  warranties of Parent and Merger Sub
are not  true  and  correct,  in the  aggregate,  have  not had  and  could  not
reasonably  be expected  to have a Parent  Material  Adverse  Effect and Company
shall have received a  certificate  signed on behalf of Parent and Merger Sub by
an authorized officer of Parent and Merger Sub to such effect.

     (b) Covenants

     Parent and Merger Sub shall have  performed  or  complied  in all  material
respects  with all  covenants  required by this  Agreement  to be  performed  or
complied  with by it on or prior to the  Effective  Time,  and the Company shall
have  received  a  certificate  of the Parent and Merger Sub signed on behalf of
Parent  and  Merger  Sub by an  officer of each of Parent and Merger Sub to that
effect.

     (c) Opinion of Financial Advisor

     The Board has received the written opinion of EKS&H,  dated as of a date no
later than the date that the definitive  Proxy Statement is first mailed or sent
to the  shareholders of the Company,  to the effect that, as of the date of this
Agreement,  the Merger  Consideration is fair to the shareholders of the Company
(excluding the Majority  Shareholders)  from a financial point of view, and such
opinion has not been  withdrawn.  A copy of such  opinion has been  delivered to
Parent.

                                       36
<PAGE>

     (d) Consents

     All  consents,  authorizations,  orders  and  approvals  of (or  filings or
registrations  with) any Governmental  Entity or any other Person required to be
obtained or made prior to the Effective  Time in connection  with the execution,
delivery  and  performance  of this  Agreement  (except for the  consents of the
holders of Company Stock Options and the Warrant  contemplated  by Section 2.04)
and any other  consents or approvals  required from any Affiliate of the Company
or a Majority  Shareholder  shall  have been  obtained  or made,  except for the
filing of the  Articles of Merger  pursuant to Section 1.02 and except where the
failure  to  have  obtained  or  made  such  consents,  authorizations,  orders,
approvals,  filings or  registrations  could not reasonably be expected to have,
individually  or in the  aggregate,  a material  adverse effect on the business,
condition (financial or otherwise), assets, properties, results of operations or
prospects of Parent or the Surviving Corporation.

                     VII. Termination, Amendment and Waiver
                          ---------------------------------

7.01 Termination
     -----------

     (a) Events Giving Rise to Right to Terminate Agreement.

     This Agreement may be terminated and the transactions  contemplated  hereby
may be  abandoned  at any time  prior  to the  Effective  Time,  notwithstanding
approval and adoption thereof by the shareholders of Company,  in any one of the
following circumstances:

          (i) By  mutual  written  consent  duly  authorized  by the  Boards  of
     Directors of the Parent and the Company.

          (ii) By the Parent or the  Company,  if the  Effective  Time shall not
     have occurred on or before July 31, 2002, otherwise than as a result of any
     material  breach of this  Agreement  by the party  seeking  to effect  such
     termination.

          (iii) By the Parent or the  Company,  if any federal or state court of
     competent  jurisdiction or other  Governmental  Entity shall have issued an
     order, decree or ruling, or taken any other action permanently restraining,
     enjoining  or  otherwise  prohibiting  the Merger and such  order,  decree,
     ruling or other action shall have become final and non-appealable, provided
     that neither party may terminate  this  Agreement  pursuant to this Section
     7.01(a)(iii)  if it has not complied  with its  obligations  under  Section
     5.04.

          (iv) By the Parent or the Company,  if the Shareholders  Meeting shall
     have been held and this Agreement  shall not have been approved and adopted
     by the  Requisite  Shareholder  Vote at such  Shareholders  Meeting  or any
     adjournment or continuance thereof.

          (v) By the Company, if it shall have received an Acquisition  Proposal
     and shall have  advised the Parent in writing that the  Company's  Board of
     Directors, after consultation with and based upon the advice of independent
     legal  counsel,  determined  in good  faith  that  failure  to accept  such
     Acquisition  Proposal would result in a breach by the Board of Directors of
     the Company of its  fiduciary  duties to the Company's  shareholders  under

                                       37
<PAGE>

     applicable  Law;  provided,  however,  that  this  Agreement  shall  not be
     terminated  pursuant  to  this  Section  7.01(a)(v)  unless  prior  to such
     termination  the  Company  shall have made the payment to the Parent of the
     Fee required to be paid pursuant to Section 7.01(b).

          (vi) By the  Parent,  if  either  (x) the  Board of  Directors  of the
     Company  shall have (A)  withdrawn,  modified  or  amended  in any  adverse
     respect its approval or recommendation of this Agreement, the Merger or the
     other  transactions   contemplated   hereby,  (B)  approved,   endorsed  or
     recommended to its shareholders an Acquisition Proposal, or (C) resolved to
     do any of the  foregoing  or (y) EKS&H  withdraws,  modifies or changes the
     opinion  referred  to in Section  6.03(c) in a manner  adverse to Parent or
     Merger Sub.

          (vii) By the Parent,  if (A) the Company or the Majority  Shareholders
     shall  have  failed  to  comply  in any  material  respect  with any of the
     covenants and agreements contained in this Agreement to be complied with or
     performed by such party at or prior to such date of  termination,  and such
     failure  continues  for 20  business  days after the actual  receipt by the
     Company of a written  notice from Parent setting forth in detail the nature
     of  such  failure,  or (B) a  representation  or  warranty  of the  Company
     contained  in this  Agreement  shall have been untrue in any respect on the
     date when made (or in the case of any  representations  and warranties that
     are made as of a different date, as of such different date) and the matters
     in respect of which such  representation or warranty shall have been untrue
     has had or could  reasonably be expected to have a Company Material Adverse
     Effect.

          (viii) By the Company if (A) Parent or Merger Sub shall have failed to
     comply in any material  respect with any of the  covenants  and  agreements
     contained in this  Agreement to be complied with or preformed by such party
     at or prior to such date of  termination,  and such failure  continues  for
     twenty  (20)  Business  Days  after the  actual  receipt by the Parent of a
     written notice from the Company  setting forth in detail the nature of such
     failure,  or (B) a representation or warranty of Parent or Merger Sub shall
     have been  untrue in any  respect on the date when made (or, in the case of
     any representations and warranties that are made as of a different date, as
     of  such  different  date)  and  the  matters  in  respect  of  which  such
     representation  or  warranty  shall  have  been  untrue  has  had or  could
     reasonably be expected to have a Parent Material Adverse Effect.

          (ix) By the Parent if the PHNS Option Agreement is terminated.

     (b) Termination Fee.

     If this Agreement is terminated pursuant to:

          (i) Section 7.01(a)(v); or
              ------------------

          (ii) Section 7.01(a)(vi)
              --------------------

                                       38
<PAGE>


     then, in such event, Company shall pay to Parent prior to such termination,
     if such termination is pursuant to Section 7.01(a)(v),  or promptly (but in
     no event  later than  three  business  days after the first of such  events
     shall  have  occurred),   if  such   termination  is  pursuant  to  Section
     7.01(a)(vi) a fee of $420,000 (the "Fee"), which amount shall be payable in
     immediately  available  funds;  provided,  however,  that in the event of a
     termination   of  this   Agreement   pursuant  to  clause  (y)  of  Section
     7.01(a)(vi),  the Fee will not be payable if (1) Company and Parent have no
     other cause to  terminate  this  Agreement  pursuant to Section  7.01(a)(v)
     (without regard to the payment of the Fee pursuant to the proviso  thereof)
     or  clause  (x) of  Section  7.01(a)(vi),  as the case may be,  and (2) the
     opinion  referred to in Section 6.03 is not  withdrawn due to any direct or
     indirect action of, or any omission by, the Company.

     (c) Topping Fee.

     If (i) this  Agreement is terminated  pursuant to Section  7.01(a)(iv)  and
(ii) not later than one year from the date of such  termination  (A) the Company
consummates a merger, acquisition, consolidation, recapitalization, liquidation,
dissolution  or  similar   transaction   involving,   or  any  sale  of  all  or
substantially  all of the assets or equity  securities  of, the  Company and its
Subsidiaries  (a  "Business  Combination"),  or (B) the  Company  enters into an
agreement providing for a Business  Combination,  which Business  Combination is
ultimately consummated,  irrespective of when such consummation occurs, then the
Company will promptly pay the Fee to the Parent in immediately available funds.

7.02 Effect of Termination
     ---------------------

     In the event of the termination and abandonment of this Agreement  pursuant
to Section 7.01(a) hereof,  this Agreement (except for the provisions of Section
5.03, 5.05,  5.06,  paragraph (b) of Section 7.01, this Section 7.02 and Article
VIII) shall forthwith become void and cease to have any force or effect, without
any  liability  on  the  part  of any  party  hereto  or any of its  Affiliates;
provided,  however, that nothing in this Section 7.02 shall relieve any party to
this  Agreement  of  liability  for any  willful or  intentional  breach of this
Agreement.

7.03 Amendment
     ---------

     Subject to the applicable  provisions of the CBCA, at any time prior to the
Effective  Time,  the  parties  hereto may modify or amend  this  Agreement,  by
written  agreement  executed and  delivered by duly  authorized  officers of the
respective  parties  and by  Majority  Shareholders  holding a  majority  of the
Company Shares owned by the Majority  Shareholders;  provided,  however, that if
this Agreement is approved and adopted at the Shareholders Meeting, no amendment
shall be made which would reduce the amount or change the type of  consideration
into which each  Company  Share  shall be  converted  upon  consummation  of the
Merger.  This  Agreement  may not be amended  except by an instrument in writing
signed on behalf of each of the parties.

7.04 Waiver
     ------

     At any time prior to the  Effective  Time,  the  parties may (a) extend the
time for the  performance  of any of the  obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other parties contained in this Agreement or in any document  delivered pursuant
to this Agreement,  or (c) subject to Section 7.03, waive compliance with any of
the agreements or conditions of the other parties  contained in this  Agreement.

                                       39
<PAGE>

Any  agreement  on the part of a party to any such  extension or waiver shall be
valid only if set forth in an  instrument  in  writing  signed on behalf of such
party.  The failure of any party to this  Agreement  to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.

7.05 Procedures for Termination, Amendment or Waiver
     -----------------------------------------------

     A termination of this  Agreement  pursuant to Section 7.01, an amendment of
this  Agreement  pursuant to Section 7.03 or an extension or waiver  pursuant to
Section  7.04 shall,  in order to be  effective,  require in the case of Parent,
Merger Sub or Company,  action by its Board of Directors or the duly  authorized
designee of its Board of Directors.

7.06 Expenses
     --------

     Except as otherwise set forth herein,  all Expenses  incurred in connection
with this Agreement and the transactions  contemplated by this Agreement will be
paid by the party  incurring  such  Expenses,  whether  or not the Merger or any
other  transaction  is  consummated.  "Expenses" as used in this  Agreement will
include all reasonable  out-of-pocket expenses (including without limitation all
reasonable  fees and  expenses  of  counsel,  accountants,  investment  bankers,
experts and  consultants  to a party  hereto and its  Affiliates)  incurred by a
party or on its  behalf in  connection  with or  related  to the  authorization,
preparation,  negotiation,  execution and  performance  of this  Agreement,  the
preparation,  printing,  filing  and  mailing  of the  Proxy  Statement  and the
Schedule 13E-3, the solicitation of shareholder  approvals and all other matters
related to the closing of the Merger and the other transactions  contemplated by
this Agreement. Notwithstanding any other provision hereof, if this Agreement is
terminated  pursuant to Section  7.01(a)(v) or (vi) and Parent would be entitled
to receive the Fee,  then all  Expenses of Parent and Merger Sub will be paid by
the Company.

                              VIII. Miscellaneous
                                    -------------

8.01 No Survival of Representations and Warranties
     ---------------------------------------------

     The  representations  and warranties of the Company in this Agreement or in
any instrument  delivered  pursuant to this Agreement  shall terminate as of the
Effective Time

8.02 Notices
     -------

     All notices,  requests,  claims, demands and other communications hereunder
will be in writing  and will be deemed to be  delivered  (a) when  delivered  in
person,  (b) when  received if sent by  facsimile or e-mail if a copy is sent by
United States mail (certified mail,  return receipt  requested) or by nationally
recognized  overnight courier service (provided,  however,  that such notice was
delivered  prior to 5:00 p.m.,  local time, on a Business Day;  otherwise,  such
notice will be deemed  delivered on the next Business Day), (c) one Business Day
after  having been  dispatched  by a  nationally  recognized  overnight  courier
service,  or (d) on the fifth  Business Day after  deposit in the United  States
mail, if mailed by registered or certified mail (postage prepaid, return receipt
requested),  in each case to the respective  parties at the following  addresses
(or at such other  address for a party as will be specified in a notice given in
accordance  with this Section  8.02),  in each case with a copy (which shall not
constitute notice) to the Persons indicated:

                                       40
<PAGE>

         if to Parent or Merger Sub:

                           Provider HealthNet Services Inc.
                           15851 Dallas Parkway, Suite 925
                           Addison, Texas  75001-3355
                           E-mail:  rkk@phns.com
                           Facsimile:  (972) 385-2445
                           Attention:  Richard K. Kneipper

         with copies to:

                           Jones, Day, Reavis & Pogue
                           2727 North Harwood
                           Dallas, Texas  75201
                           E-mail:  slfluckiger@jonesday.com
                           Facsimile No.:  (214) 969-5100
                           Attention:  Stephen L. Fluckiger, Esq.

         if to the Company:

                           MedGrup Corporation
                           1824 Woodmoor Drive, Suite 102
                           Monument, Colorado  80132
                           E-mail:  bcronin@medgrup.com
                           Facsimile No.:  (719) 481-1525
                           Attention:  William D. Cronin

         with copies to:

                           Overton, Babiarz & Associates, P.C.
                           7720 Belleview Avenue, Suite 200
                           Englewood, Colorado  80111
                           E-mail:  djbabiarz@obapc.com
                           Facsimile No.:  (303) 779-6006
                           Attention:  David J. Babiarz, Esq.

         if to the Majority Shareholders:

                           c/o William D. Cronin
                           1824 Woodmoor Drive, Suite 102
                           Monument, Colorado  80132
                           E-mail:  bcronin@medgrup.com
                           Facsimile No.:  (719) 481-1525

                                       41
<PAGE>

8.03 Definitions
     -----------

     (a)  "Affiliate"
          -----------
     of a specified  Person means a Person that directly or  indirectly  through
one or more  intermediaries  controls,  is  Controlled  by,  or is under  common
Control with such  specified  Person,  provided,  however,  that as used in this
Agreement with respect to the Company,  the term  "Affiliate"  will only include
the  Subsidiaries  of the  Company;  provided  further,  that  as  used  in this
Agreement  with  respect to Parent,  the term  "Affiliate"  will not include the
Company or any of the Subsidiaries of the Company;

     (b) "Business Day"
          -------------
     means any day on which the principal offices of the SEC in Washington, D.C.
are open to  accept  filings,  or,  in the case of  determining  a date when any
payment is due, any day on which banks are not required or  authorized  to close
in the City of New York;

     (c) "Control"
         ---------
     (including the terms "Controlled by" and "under common Control with") means
the possession,  directly or indirectly or as trustee or executor,  of the power
to direct or cause the  direction  of the  management  and policies of a Person,
whether through the ownership of voting securities,  as trustee or executor,  by
contract or credit arrangement or otherwise;

     (d) "Environmental Laws"
         --------------------
     means any law, rule, regulation,  code, ordinance, order, decree, judgment,
injunction,  notice or binding agreements issued, promulgated or entered into by
any Governmental Entity, relating in any way to the environment, preservation or
reclamation of natural resources, the management,  release or threatened release
of any hazardous material or to health and safety matters;

     (e) "to the Knowledge"
         ------------------
     of any Person means, when referring to an individual,  the actual knowledge
of such  individual,  and when  referring to any other Person,  means the actual
knowledge of such Person's  officers and its board of directors or managers,  as
appropriate,  in each case without  undertaking any specific  investigation  for
purposes of making any representation or warranty in this Agreement;

     (f) "Person"
         --------
     means  an  individual,   corporation,   partnership,  limited  partnership,
syndicate, limited liability company, joint venture, person (including,  without
limitation,  a "person"  as defined in Section  13(d)(3) of the  Exchange  Act),
trust, association or entity or Governmental Entity; and

     (g) "Subsidiary" or "Subsidiaries"
         ------------------------------
      of any Person means any corporation,  partnership,  joint
venture,  limited  liability  company or other legal entity of which such Person
(either alone or through or together with any other Subsidiary)  owns,  directly
or indirectly, more than 50% of the stock or other equity interests, the holders
of which  are  generally  entitled  to vote  for the  election  of the  board of
directors or other  governing  body of such  corporation  or other legal entity,
provided,  however,  that for purposes of the representations and the warranties
of Parent in Section 3.02,  and the covenants and other  agreements of Parent in
Articles  IV and V,  except as  otherwise  specifically  provided  therein,  the
"Subsidiaries" of Parent will not include the Company or any Subsidiaries of the
Company.

                                       42
<PAGE>

8.04 Interpretation
     --------------

     Unless the context  otherwise  requires,  (i) all  references  to Sections,
Schedules  or  Exhibits  are to  Sections,  Schedules  or Exhibits of or to this
Agreement,  (ii) each term defined in this Agreement has the meaning assigned to
it, (iii) each accounting  term not otherwise  defined in this Agreement has the
meaning assigned to it in accordance with GAAP, (iv) "or" is disjunctive but not
necessarily  exclusive,  (v) words in the  singular  include the plural and vice
versa,  (vi) all references to "$" or dollar amounts will be to lawful  currency
of the United States of America, (vii) all references to the masculine, feminine
or neuter gender shall be deemed to include the others, and (viii) references to
"including" shall be interpreted to mean "including but not limited to."

8.05 Entire Agreement; Assignment
     ----------------------------

     This Agreement (including the Company Disclosure Schedule and the Exhibits)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, between the parties,  with respect to the subject matter hereof.  This
Agreement will not be assigned by any party without the prior written consent of
the other  parties  hereto,  except that Parent and Merger Sub may assign all or
any of their  rights  and  obligations  hereunder  to any  direct  wholly  owned
subsidiary of Parent;  provided,  however,  that no such assignment will relieve
the assigning party of its obligations hereunder.

8.06 Parties in Interest
     -------------------

     This Agreement will be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement,  express or implied, is intended to
or will confer upon any other Person any right,  benefit or remedy of any nature
whatsoever  under or by reason of this  Agreement,  other than  Section  5.05(a)
(which is intended to be for the benefit of the Persons  covered thereby and may
be enforced by such Persons).

8.07 Governing Law
     -------------

     This  Agreement  will be governed by and construed in  accordance  with the
Laws of the  State of  Colorado  (without  giving  effect  to  conflict  of laws
principles)  as  to  all  matters,  including  validity,  construction,  effect,
performance and remedies.

8.08 Headings
     --------

     The  descriptive  headings  contained  in this  Agreement  are included for
convenience  of  reference  only and will not  affect in any way the  meaning or
interpretation of this Agreement.

8.09 Counterparts
     ------------

     This  Agreement  may be executed  and  delivered  (including  by  facsimile
transmission) in one or more counterparts,  and by each party hereto in separate
counterparts,  each of which when executed and delivered will be deemed to be an
original  but all of  which  taken  together  will  constitute  one and the same
agreement.

                                       43
<PAGE>

8.10 Consent to Jurisdiction
     -----------------------

     (a) Each party hereby irrevocably and unconditionally  submits,  for itself
and its property,  to the exclusive  jurisdiction  of the courts of the State of
Colorado and the United States  District  Court for the District of Colorado (as
applicable,  the "Court"),  and any appellate  court from any such court, in any
suit, action or proceeding arising out of or relating to this Agreement,  or for
recognition or enforcement of any judgment  resulting from any such suit, action
or proceeding, and each party hereby irrevocably and unconditionally agrees that
all claims in respect of any such suit,  action or  proceeding  may be heard and
determined in the Court.

     (b) It will be a condition  precedent  to each  party's  right to bring any
such suit,  action or proceeding  that such suit,  action or proceeding,  in the
first instance,  be brought in the Court (unless such suit, action or proceeding
is brought  solely to obtain  discovery or to enforce a  judgment),  and if each
such court  refuses to accept  jurisdiction  with  respect  thereto,  such suit,
action or proceeding may be brought in any other court with jurisdiction.

     (c) No party may move to (i) transfer any such suit,  action or  proceeding
from the Court to another  jurisdiction,  (ii) consolidate any such suit, action
or proceeding  brought in the Court with a suit, action or proceeding in another
jurisdiction unless such motion seeks solely and exclusively to consolidate such
suit,  action or proceeding in the Court, or (iii) dismiss any such suit, action
or proceeding  brought in the Court for the purpose of bringing or defending the
same in another jurisdiction.

     (d) Each  party  hereby  irrevocably  and  unconditionally  waives,  to the
fullest extent it may legally and  effectively do so, (i) any objection which it
may now or  hereafter  have to the  laying  of  venue  of any  suit,  action  or
proceeding  arising out of or relating to this Agreement in the Court,  (ii) the
defense of an  inconvenient  forum to the  maintenance  of such suit,  action or
proceeding  in the Court,  and (iii) the right to object,  with  respect to such
suit, action or proceeding, that such court does not have jurisdiction over such
party.  Each  party  irrevocably  consents  to  service of process in any manner
permitted  by law.  Notwithstanding  the  foregoing,  this Section 8.10 will not
apply to any suit,  action or proceeding by a party seeking  indemnification  or
contribution  pursuant  to this  Agreement  or  otherwise  in respect of a suit,
action or proceeding against such party by a third party if such suit, action or
proceeding by such party seeking  indemnification  or contribution is brought in
the same court as the suit, action or proceeding against such party.

8.11 Waiver of Jury Trial
     --------------------

     Each of Parent,  Merger  Sub,  the Company  and the  Majority  Shareholders
hereby irrevocably  waives all right to trial by jury in any action,  proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Parent,  Merger Sub, the Company or
the Majority  Shareholders in the negotiation,  administration,  performance and
enforcement thereof.

                                       44
<PAGE>

8.12 Severability
     ------------

     If any term or other  provision of this  Agreement  is invalid,  illegal or
incapable  of being  enforced  by any rule of Law or  public  policy,  all other
conditions and provisions of this  Agreement  will  nevertheless  remain in full
force and effect as long as the economic or legal substance of the Merger is not
affected in any manner materially  adverse to any party. Upon such determination
that any term or other  provision  is  invalid,  illegal or  incapable  of being
enforced,  the  parties  hereto  will  negotiate  in good  faith to modify  this
Agreement  so as to effect  the  original  intent of the  parties  as closely as
possible in a mutually acceptable manner in order that the Merger be consummated
as originally contemplated to the fullest extent possible.

8.13 Enforcement
     -----------

     The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance  with their
specific terms or were  otherwise  breached.  It is accordingly  agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this  Agreement  and to enforce  specifically  the terms and  provisions of this
Agreement in any court of the United States located in the Northern  District of
Texas,  this being in addition to any other remedy to which they are entitled at
law or in equity.



                            [Signature Page Follows]

                                       45
<PAGE>



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



                                            PROVIDER HEALTHNET SERVICES INC.


                                            By: /s/ Richard K. Kneipper
                                                -----------------------------
                                                Richard K. Kneipper
                                                Chief Administrative Officer



                                                   MGC ACQUISITION CORP.


                                            By: /s/ Richard K. Kneipper
                                                -----------------------------
                                                Richard K. Kneipper
                                                President



                                            MEDGRUP CORPORATION


                                            By: /s/ William D. Cronin
                                                -----------------------------
                                                William D. Cronin
                                                Chief Executive Officer

                                       46

<PAGE>



                                  Schedule 1.05


(a)      Directors of Surviving Corporation

         Richard K. Kneipper
         William D. Cronin
         James Wantman

(b)      Officers of Surviving Corporation

         President and CEO - William D. Cronin
         CFO and Vice President - James Wantman
         Vice President and Treasurer - John Frenzel
         Vice President and Secretary - Richard K. Kneipper



<PAGE>

                                                                       Exhibit A
                                                                       ---------


                    FORM OF CONFIDENTIALITY, NON-SOLICITATION
                          AND NON-COMPETITION AGREEMENT


     This Confidentiality,  Non-Solicitation and Non-Competition Agreement (this
"Agreement") is made and entered into on this ___ day of __________, 2002, among
_______________,  an individual residing in the State of _______  ("Executive"),
Provider HealthNet Services Inc., a Delaware corporation ("Parent"), and MedGrup
Corporation, a Colorado corporation (the "Company").

     WHEREAS,  pursuant  to the  Agreement  and  Plan  of  Merger  (the  "Merger
Agreement") dated as of March __, 2002, among Parent,  MGC Acquisition  Corp., a
Colorado  corporation and a wholly owned subsidiary of Parent ("Merger Sub") and
the Company,  Merger Sub will merge with and into the Company,  with the Company
being the surviving corporation and becoming a wholly owned subsidiary of Parent
(the "Merger").

     WHEREAS,  prior to and continuing  after the  effectiveness  of the Merger,
Executive serves as an integral member of the Company's management team.

     WHEREAS,  Parent  and  Merger  Sub would not be  willing  to enter into the
Merger  Agreement  without  Executive  agreeing to be bound by the terms of this
Agreement.

     WHEREAS,  the  execution  and  delivery  of this  Agreement  is a condition
precedent to the  obligations  of Parent and Merger Sub to consummate the Merger
and the other transactions contemplated by the Merger Agreement.

     NOW THEREFORE,  in  consideration  of the foregoing and the mutual promises
contained herein, the sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:

                                 I. Definitions
                                    -----------

1.01 Confidential Information
     ------------------------

     "Confidential  Information" means any confidential  information relating to
Parent's  or  the  Company's  business  plan,  systems,  operations,  processes,
procedures,  computer  programs  and data bases,  drawings,  sketches,  records,
development  data and  reports,  technical  and  engineering  data and  reports,
software  applications  or  designs,  business  engineering  and  re-engineering
designs and plans, plan designs, quality control specifications, costs analysis,
flow charts,  process sheets,  know-how,  or other  confidential  information or
intellectual   property  relating  to  technical  matters;   together  with  any
information  relating  to  sales,  financial  structures,   contracts  or  other
agreements, financial information, margins, pricing, marketing data, customer or
corporate partner data, personnel data, business plans, acquisition or corporate
partner plans, and other  information of like nature.  Confidential  Information
further includes all of the foregoing  information that Executive has learned in
the past or learns in the future during the course of Executive's

<PAGE>

employment  by the Company or any  affiliate  (as defined  under the  Securities
Exchange Act of 1934, as amended) of Parent or the Company,  whether or not such
information  is marked or otherwise  designated  as  confidential.  Confidential
Information  does not include any information that (a) is or becomes part of the
public  domain  or is or  becomes  publicly  available  without  breach  of this
Agreement by Executive;  (b) is lawfully acquired by Executive from a source not
under any  obligation  regarding  the  disclosure  of such  information;  (c) is
disclosed to any third party by or with the  permission of Parent or the Company
without  confidentiality  restrictions;  or (d) is developed  by an  independent
Person  who  has  not  received,   directly  or  indirectly,   any  Confidential
Information from Executive, Parent, the Company or otherwise.

1.02 Business
     --------

     "Business"  means the business of providing  information  technology,  data
processing,  and business process and related  services to healthcare  providers
and other healthcare  organizations that Parent or the Company is engaged in, or
have  substantive  plans  to  engage  in,  as of  the  date  of  termination  of
Executive's employment by the Company.

1.03 Territory
     ---------

     "Territory" means the 48 contiguous states of the United States of America.

1.04 Person
     ------

     "Person"  means an  individual,  firm,  corporation,  partnership,  limited
liability company, joint venture,  association,  joint stock company,  trust, or
unincorporated  organization,  or a federal,  state, city, municipal, or foreign
government or an agency or political  subdivision  thereof, or any other type of
entity or third party.

  II. Terms of Confidentiality, Non-Solicitation and Non-Competition Agreement
      ------------------------------------------------------------------------

2.01 Confidentiality Agreement
     -------------------------

     Executive  covenants and agrees that he will not,  directly or  indirectly,
use,  divulge,  disclose  or  make  available  or  accessible  any  Confidential
Information  to or for any  Person  other than the  Company  or at the  specific
direction,  and with the  knowledge  and  written  consent of another  executive
officer, of the Company. Nothing in this Agreement, however, prohibits Executive
from disclosing  Confidential  Information  when required to do so pursuant to a
valid subpoena.  Executive  agrees that in the event he, or any Person with whom
Executive is affiliated or employed as an officer,  employee,  owner, consultant
or agent of any kind,  receives a subpoena that would require him to divulge, in
whole or in part,  Confidential  Information,  he will  immediately  contact the
Company in order to allow the Company the  opportunity to intervene if necessary
to protect against the disclosure of Confidential Information.

                                       A-2
<PAGE>

2.02 Non-Solicitation of Employees
     -----------------------------

     Executive agrees and covenants not to, directly or indirectly, for a period
of two (2) years  following the  termination  of  Executive's  employment by the
Company,  solicit,  induce,  or attempt to solicit or induce any persons who are
employees  of  Parent,  the  Company  or its  affiliates  as of the date of such
termination  to (a) leave the  employ of Parent or the  Company  or (b) accept a
position of employment or other  involvement,  directly or indirectly,  with any
Person with whom  Executive is affiliated  or employed as an officer,  employee,
owner, consultant or agent of any kind.

2.03 Covenant Not to Compete
     -----------------------

     Executive  agrees for a period of three (3) years following the termination
of Executive's  employment by the Company,  he will not, directly or indirectly,
(a)  engage  in any  capacity  whatsoever,  whether  as owner,  officer,  agent,
principal,  partner, consultant,  investor, lender or otherwise, in the Business
in the Territory,  either individually or in affiliation with any Person; or (b)
be the  record  or  beneficial  owner of more  than  three  percent  (3%) of the
outstanding  capital stock or voting  securities  (or  obligations or securities
convertible  into  capital  stock or voting  securities)  of any Person  that is
engaged,  directly or indirectly,  in the Business in the Territory or that is a
direct or  indirect  owner or  affiliate  of any other  Person  that is engaged,
directly or indirectly, in the Business in the Territory.

                               III. Miscellaneous
                                    -------------

3.01 Waiver
     ------

     The waiver of the breach of any term or  condition of this  Agreement  will
not be deemed to  constitute  the waiver of any other  breach of the same or any
other term or condition.

3.02 Governing Law
     -------------

     This  Agreement  will be governed by and construed in  accordance  with the
laws  of the  State  of  Texas  (without  giving  effect  to  conflict  of  laws
principles)  as  to  all  matters,  including  validity,  construction,  effect,
performance and remedies.

3.03 Severability
     ------------

     If any provision of this  Agreement is held invalid or  unenforceable,  the
remainder of this  Agreement will  nevertheless  remain in full force and effect
and if any provision is held invalid or unenforceable with respect to particular
circumstances, it will nevertheless remain in full force and effect in all other
circumstances.

3.04 Reformation
     -----------

     Notwithstanding the provisions of Section 2.03 of this Agreement, it is the
intent of the parties that the  provisions  of Section 2.03 be given the fullest
force and effect permissible by law. In the event any portion of Section 2.03 is
deemed  by a court to be  overly  restrictive  as to time,  scope of  restricted
activity,  and  geographic  territory,  the  court  shall  reform  the  unlawful
provision  to the maximum  time,  scope of  restricted  activity  or  geographic
territory as would be in conformance  with the law under the facts as they exist
at the time of enforcement.

                                       A-3
<PAGE>

3.05 Specific Performance
     --------------------

     Executive acknowledges and agrees that any breach of Sections 2.01, 2.02 or
2.03 of this  Agreement  will  result in  irreparable  damage to Parent  and the
Company  for  which  there  will be no  adequate  remedy at law,  and  Executive
consents  to an  injunction  in favor of Parent or the  Company  by any court of
competent jurisdiction enjoining any such breach, without prejudice to any other
right or remedy to which Parent or the Company may be entitled.



                            [Signature Page Follows]

                                       A-4
<PAGE>



     IN WITNESS  WHEREOF,  the Parties have executed this Agreement this ___ day
of __________, 2002.



                                   PROVIDER HEALTHNET SERVICES INC.


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________



                                   MEDGRUP CORPORATION


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________



                                   EXECUTIVE

                                   _____________________________________________

                                   Name:________________________________________


                                       A-5