Document:

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         ASSET PURCHASE AGREEMENT, dated as of March 20, 2000, among
CLAIMSNET.COM INC., a Delaware corporation with offices at 12801 N. Central
Expressway, Suite 1515, Dallas, Texas 75243 (the "Purchaser");
HEALTHEXCHANGE.COM, INC., a Delaware corporation and a wholly-owned subsidiary
of the Purchaser with offices at 12801 N. Central Expressway, Suite 1515,
Dallas, Texas 75243 ("HEcom"); and VHX COMPANY, a Nevada corporation with
offices at Suite 950, 2970 Clairmont Road, Atlanta, Georgia 30329 (the
"Seller").

                                  INTRODUCTION

         The Purchaser desires to acquire, through HEcom, substantially all the
properties and assets and the portion of the business and goodwill of Seller
specified herein in exchange for (i) shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock, par value $.001 per share (the
"Purchaser Series A Preferred Stock"), of the Purchaser, (ii) shares of Series B
8% Cumulative Convertible Redeemable Preferred Stock, par value $.001 per share
(the "Purchaser Series B Preferred Stock" and, together with the Purchaser
Series A Preferred Stock, the "Purchaser Preferred Stock"), (iii) shares of
common stock, par value $.001 per share, of the Purchaser (the "Purchaser Common
Stock"), (iv) cancellation of the Bridge Note (as hereinafter defined), (v)
cancellation of the Deposit Note (as hereinafter defined), and (vi) the
assumption by HEcom of certain obligations and liabilities of Seller as
hereinafter provided, and Seller desires to effect such exchange and thereafter
to dissolve and completely liquidate.

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         The parties hereto, intending to be legally bound, hereby agree as
follows:

I.       DEFINITIONS

         Accrued Benefits. Includes the value of disability, pre-retirement, and
death benefits, and all supplements, subsidized, and optional forms of benefits.

         Accrued Liabilities. Includes a pro rata contribution to each Employee
Benefit Plan or with respect to each such obligation or arrangement for that
portion of a plan year or other applicable period which commences prior to, and
ends after, the date of the Closing; Accrued Liabilities for any portion of a
plan year or other applicable period shall be determined by multiplying the
liability for the entire such year or period by a fraction, the numerator of
which is the number of days preceding the date of the Closing in such year or
period and the denominator of which is the number of days in such year or
period, as the case may be.

         Bridge Note. The 8% Secured Note, dated March 3, 2000, from the Seller
to the Purchaser, as amended through the date of the Closing.

         Closing. As defined in Section 4.02 hereof.

         Code. Internal Revenue Code of 1986, as amended, or its predecessor
statute.

         Deposit Note. The Secured Note, dated the date hereof, in the principal
amount of $1.0 million, from the Seller to the Purchaser, a form of which is
attached hereto as Exhibit 5.11.

         Employment Agreements. The employment agreement, dated as of the date
of the Closing, between HEcom and Eric Hillerbrand, the employment agreement,
dated as of the date of the Closing, between HEcom and Jeff Muscarella, and the
employment agreement, dated as of the date of the Closing, between HEcom and Nan
P. Smith, collectively.

         Employee Benefit Plan. As defined in Section 3(3) of ERISA.

         ERISA. The Employee Retirement Income Security Act of 1974, as amended.

         Escrow Account. The escrow established by the Escrow Agreement.

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         Escrow Agent. The escrow agent appointed to administer the Escrow
Account pursuant to the Escrow Agreement; initially Abrams, Garfinkel & Rosen,
New York, New York.

         Escrow Agreement. The Escrow Agreement, dated as of the date of
Closing, among Purchaser, HEcom, Seller, and the Escrow Agent, a form of which
is attached hereto as Exhibit 5.13D.

         Exchange Act. Securities Exchange Act of 1934, as amended, including
the rules and regulations of the SEC thereunder.

         Excluded Assets.  As defined in Section 4.01(a) hereof.

         Excluded Liabilities. Any (a) tax or other obligation or liability
arising out of, or based upon, or in connection with any Transaction Agreement
or incurred by Seller or any stockholder of Seller by reason of the preparation
of any Transaction Agreement (including without limitation any obligation or
liability to holders of Seller Common Stock who demand and perfect any rights
they may have to demand appraisal of their shares pursuant to the laws of the
State of Nevada), (b) obligation or liability under any contract, agreement,
instrument, lease, license, understanding or arrangement which is assigned by
Seller to HEcom (i) if failure to obtain a required consent to assignment by
Seller to HEcom deprives the Purchaser or HEcom of the enjoyment of any of
Seller's rights thereunder, (ii) if such contract, agreement, lease, license,
understanding, or arrangement is not assigned by Seller to HEcom as a result of
Section 4.01(e) hereof or otherwise, or (iii) if a party is in default
thereunder as of the date hereof or as of the date of the closing, (c)
obligations other than those set forth in Schedule 4.01(a)(v) hereof, and (d)
obligation or liability arising out of, based upon or in connection with any
item referred in clauses (a) through (c) of this definition.

         Hazardous Substances. Any hazardous waste, as defined by 42 U.S.C.
Section 6903(5), any hazardous substance, as defined by 42 U.S.C. Section
9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section
9601(33), and all toxic substances, hazardous materials, or other chemical
substances regulated by any other law, rule, or regulation.

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         HEcom. As defined in the introductory paragraph hereof.

         Intangibles. Any patent, patent application, trademark, trademark
application, trade name, service mark, license, copyright, franchise, or other
intangible property or asset.

         Last Purchaser Balance Sheet. The consolidated balance sheet, and the
notes thereto, of Purchaser as of the Last Purchaser Balance Sheet Date.

         Last Purchaser Balance Sheet Date. September 30, 1999.

         Last Purchaser Financial Statements. The consolidated financial
statements of the Purchaser at and for the nine months ended September 30, 1999.

         Last Seller Balance Sheet. The consolidated balance sheet, and the
notes thereto, of Seller as of the Last Seller Balance Sheet Date.

         Last Seller Balance Sheet Date. November 30, 1999.

         Last Seller Financial Statements. The consolidated financial statements
of the Seller at and for the 11 months ended November 30, 1999.

         Participate In. As defined in Section 7.09 hereof.

         Pension Plan. As defined in Section 3(2) of ERISA.

         Performance Milestones. As defined in the Purchaser Series A Preferred
Stock Certificate of Designation and the Purchaser Series B Preferred Stock
Certificate of Designation, collectively. Purchaser. As defined in the
introductory paragraph hereof.

         Purchaser Common Stock. As defined in the introduction hereto.

         Purchaser Indemnities. The Purchaser, the Purchaser Subsidiaries, and
their respective officers, directors, employees, counsel, agents, and
stockholders, in each case past, present, or as they may exist at any time after
the date of this Agreement, and each person, if any, who controls, controlled,
or will control any of them within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities Exchange Act.

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         Purchaser Preferred Stock. As defined in the introduction hereto.

         Purchaser Series A Preferred Stock Certificate of Designation. The
Certificate of Designation, a form of which is attached hereto as Exhibit 3.02A,
which sets forth the designation thereof and the powers, preferences, and
relative participating, optional, voting or other special rights, and the
qualifications, limitations, or restrictions of the Purchaser Series A Preferred
Stock.

         Purchaser Series B Preferred Stock Certificate of Designation. The
Certificate of Designation, a form of which is attached hereto as Exhibit 3.02B,
which sets forth the designation thereof and the powers, preferences, and
relative participating, optional, voting or other special rights, and the
qualifications, limitations, or restrictions of the Purchaser Series B Preferred
Stock.

         Purchaser SEC Documents. The final prospectus contained in the
Registration Statement on Form S-1 under the Securities Act (Registration No.
333-72687) as filed with the SEC, as supplemented by all documents filed by the
Purchaser with the SEC prior to the date of the Closing pursuant to Section 13,
14(a), or 15(d) under the Exchange Act.

         Purchaser Series A Preferred Stock. As defined in the introduction
hereto.

         Purchaser Series B Preferred Stock. As defined in the introduction
hereto.

         Purchaser Subsidiaries. As defined in Section 3.01 hereof.

         Purchaser Voting Agreement. As defined in Section 8.10 hereof.

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         Release. As defined in 42 U.S.C. Section 9601(22).

         Release Time. As defined in Section 7.01 hereof.

         SEC. United States Securities and Exchange Commission.

         Securities Act. Securities Act of 1933, as amended, including the rules
and regulations of the SEC thereunder.

         Seller. As defined in the introductory paragraph hereof.

         Seller Common Stock. Common stock, par value $0.00025 per share, of
Seller.

         Seller Subsidiaries. As defined in Section 2.01 hereof.

         Seller Voting Agreement. As defined in Section 7.13 hereof.

         Takeover Proposal. As defined in Section 7.06 hereof.

         Tax Returns. Any return, report, document, statement, or form required
to be filed (whether on a consolidated, combined, separate, or unitary basis)
with respect to any Taxes (including any schedules required to be attached
thereto), including, without limitation, information returns, claims for refund,
amended returns, and declarations of estimated Tax.

         Taxes. All taxes, charges, fees, levies, penalties, or other
assessments imposed by any United States federal, state, local, or foreign
taxing authority, including any interest, penalties, or additions thereto.

         Trailing Average Closing Price. The average of the closing sale prices
of the Purchaser Common Stock as quoted on the Nasdaq SmallCap Market on each
trading day during the ten trading day period terminating on the date
immediately prior to the date of this Agreement.

         Transaction Agreements. Collectively, this Agreement, the Employment
Agreements, the Purchaser Voting Agreement, the Seller Voting Agreement, the
Deposit Note, and the Escrow Agreement.

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II.      REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller hereby represents and warrants to the Purchaser and to HEcom as
follows:

         Section 2.01 Organization and Qualification.

         Seller owns, either directly or through one or more wholly-owned
subsidiaries, all the outstanding shares of capital stock of the corporations
listed in Schedule 2.01 hereto (the "Seller Subsidiaries"). Other than the
Seller Subsidiaries and other than as otherwise designated in Schedule 2.01
hereto, neither Seller nor any Seller Subsidiary has a subsidiary or affiliate
corporation or owns any interest in any other enterprise (whether or not such
enterprise is a corporation). Schedule 2.01 also correctly sets forth as to
Seller and as to each Seller Subsidiary its place of incorporation, principal
place of business, jurisdictions in which it is qualified to do business, and
the business which it presently conducts and which it contemplates conducting;
and as to each Seller Subsidiary its authorized capitalization, its shares of
capital stock outstanding, and the record and beneficial owner of those shares.
Each of the Seller and each of the Seller Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of its
respective jurisdiction of incorporation, with all requisite power and
authority, and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities and all
courts and tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in which it is now engaged and the business in
which it contemplates engaging. Each of the Seller and each of the Seller
Subsidiaries is duly qualified to transact the business in which it is engaged
and is in good standing as a foreign corporation in every jurisdiction in which
its ownership, leasing, licensing, or use of property or assets or the conduct
of its business makes such qualification necessary. To date, no business or
operations have been conducted by or through any Seller Subsidiary.

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         Section 2.02 Capitalization.

         The authorized capital stock of Seller consists of 200,000,000 shares
of Seller Common Stock, of which 31,037,714 shares are outstanding, 22,500,000
shares of Class B Cumulative Convertible Preferred Stock, par value $0.40 per
share, of which 16,249,999 shares are outstanding, and 50,000,000 shares of an
undesignated class of preferred stock, par value $0.40 per share, of which no
shares are outstanding. Each of such outstanding shares of Seller Common Stock
and each outstanding share of capital stock of each Seller Subsidiary is validly
authorized and issued, fully paid, and nonassessable, has not been issued and is
not owned or held in violation of any preemptive or similar right of
stockholders, and is owned of record and, to the best knowledge of the Seller,
beneficially by stockholders identified in Schedule 2.02A, in each case free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts other than those created by
stockholders of the Seller or with respect to their property, but to which
neither the Seller nor the officers or directors thereof is a party, except as
set forth in Schedule 2.02B hereto. Except as set forth in Schedule 2.02C
hereto, (a) there is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of Seller or of any Seller Subsidiary or any security or
other instrument convertible into, or exercisable or exchangeable for, capital
stock of Seller or of any Seller Subsidiary, and (b) there is outstanding no
security or other instrument convertible into, or exercisable or exchangeable
for, capital stock of Seller or of any Seller Subsidiary.

         Section 2.03 Financial Condition.

         Seller has delivered to the Purchaser true and correct copies of the
following, initialled by the President and a Vice President of Seller: audited
consolidated balance sheet of Seller as of December 31, 1998; the audited
consolidated statement of income and consolidated statement of retained
earnings, and consolidated statement of cash flows of Seller for the year ended
December 31, 1998; the unaudited consolidated balance sheet of the Seller at
November 30, 1999; and the unaudited consolidated statement of income of the
Seller for the 11 months ended November 30, 1999. Each such consolidated balance
sheet presents fairly the financial condition, assets, liabilities, and
stockholders' equity of Seller and the Seller Subsidiaries as of its date; each
such consolidated statement of income and consolidated statement of retained
earnings presents fairly the results of operations of Seller and the Seller
Subsidiaries for the period indicated; and each such consolidated statement of
cash flows presents fairly the information purported to be shown therein. The
financial statements referred to in this Section 2.03 have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance with the books and records
of Seller and the Seller Subsidiaries. Except as set forth in Schedule 2.03
hereto, since December 31, 1998 and since November 30, 1999:

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                  (a) There has at no time been a material adverse change in the
         financial condition, results of operations, business, properties,
         assets, liabilities, or, to the best knowledge of Seller, future
         prospects of Seller or any Seller Subsidiary; and each of Seller and
         each of the Seller Subsidiaries has operated consistently in all
         material respects with the results of operations referred to in Last
         Seller Financial Statements.

                  (b) Neither Seller nor any Seller Subsidiary has authorized,
         declared, paid, or effected any dividend or liquidating or other
         distribution in respect of its capital stock or any direct or indirect
         redemption, purchase, or other acquisition of any stock of Seller or
         any Seller Subsidiary, except for the liquidation contemplated by
         Section 4.04 hereof.

                  (c) The operations and business of Seller and each Seller
         Subsidiary have been conducted in all material respects only in the
         ordinary course of business consistent with past practices.

                  (d) There has been no accepted purchase order or quotation,
         arrangement, or understanding for future sale of the products or
         services of Seller or of any Seller Subsidiary which in the reasonable
         expectation of Seller or any Seller Subsidiary will not be profitable.

                  (e) Neither Seller nor any Seller Subsidiary has suffered an
         extraordinary loss (whether or not covered by insurance) or waived any
         right of substantial value.

                  (f) Neither Seller nor any Seller Subsidiary has paid or
         incurred any tax, other liability, or expense resulting from the
         preparation of, or the transactions contemplated by, the Transaction
         Agreements, it being understood that stockholders of the Seller shall
         have paid or will pay all such taxes (including sales and use taxes
         resulting from the Transaction Agreements or the transactions
         contemplated thereby and in connection therewith), liabilities, and
         expenses.

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There is no fact known to Seller or any Seller Subsidiary which materially
adversely affects or in the future (as far as Seller or any Seller Subsidiary
can foresee) may materially adversely affect the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Seller, of any Seller Subsidiary, or of HEcom; provided, however, that Seller
and the Seller Subsidiaries express no opinion as to political or economic
matters of general applicability. No Seller Subsidiary owns or holds any
properties or assets, is liable for any liabilities, or has conducted any
business or operations.

         Section 2.04 Tax and Other Liabilities.

         Neither Seller nor any Seller Subsidiary has any liability of any
nature, accrued or contingent, including without limitation liabilities for
Taxes and liabilities to customers or suppliers, other than the following:

                  (a) Liabilities for which full provision has been made on the
         Last Seller Balance Sheet; and

                  (b) Other liabilities arising since the Last Seller Balance
         Sheet Date and prior to the Closing (as defined in Section 4.02) in the
         ordinary course of business (which shall not include liabilities to
         customers on account of defective products or services) which are not
         inconsistent with the representations and warranties of Seller or any
         other provision of this Agreement.

Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Seller Balance Sheet are sufficient for all
accrued and unpaid Taxes of Seller and the Seller Subsidiaries, whether or not
due and payable and whether or not disputed, under tax laws, as in effect on the
Last Seller Balance Sheet Date or now in effect, for the period ended on such
date and for all fiscal periods prior thereto. The execution, delivery, and
performance by Seller of such of the Transaction Agreements as to which it is or
shall be party will not cause any Taxes to be payable (other than by Seller or
by stockholders of Seller or any Seller Subsidiary) or cause any lien, charge,
or encumbrance to secure any Taxes to be created either immediately or upon the
nonpayment of any Tax (other than on the properties or assets of stockholders of
Seller or any Seller Subsidiary). The Internal Revenue Service has audited and
settled or the statute of limitations has run upon all federal income Tax
Returns of Seller and the Seller Subsidiaries for all taxable years up to and
including the taxable year ended December 31, 1995. Each of Seller and each of
the Seller Subsidiaries has filed all federal, state, local, and foreign Tax
Returns required to be filed by it or has filed an extension with respect
thereto; has delivered to the Purchaser a true and correct copy of each such
return which was filed for the years ended December 31, 1997 and 1998,
initialled by the chief executive officer of Seller; has paid (or has
established on the Last Seller Balance Sheet a reserve for) all Taxes,
assessments, and other governmental charges payable or remittable by it or
levied upon it or its properties, assets, income, or franchises which are due
and payable; and has delivered to the Purchaser a true and correct copy, so
initialled, of any report as to adjustments received by it from any taxing
authority during the past six years and a statement, so initialled, as to any
litigation, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect with respect to any such
report or the subject matter of such report. Except as disclosed in Schedule
2.04, (i) no agreement extending the time for assessment of any Taxes has been
granted that currently is in effect, (ii) no protests are pending with respect
to any Taxes, and (iii) there are no liens for Taxes (other than for Taxes that
are not yet due and payable).

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         Section 2.05 Litigation and Claims.

         Except as set forth in Schedule 2.05 hereof, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, to the best knowledge of Seller threatened, or in
prospect (or any basis therefor known to Seller or any Seller Subsidiary) with
respect to Seller, any Seller Subsidiary, or any of its respective businesses,
properties, or assets, a determination adverse thereto which could have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Seller and the Seller Subsidiaries (excluding those
constituting Excluded Assets) taken as a whole. Neither Seller nor any Seller
Subsidiary is affected by any present or threatened strike or other labor
disturbance nor to the knowledge of Seller or any Seller Subsidiary is any union
attempting to represent any employee of Seller or of any Seller Subsidiary as
collective bargaining agent. To the best knowledge of Seller, neither Seller nor
any Seller Subsidiary is in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree, except for such violations or
defaults which shall not have a material adverse effect on the Seller and the
Seller Subsidiaries, taken as a whole; nor, to the best knowledge of Seller, is
Seller or any Seller Subsidiary required to take any action in order to avoid
such violation or default.

         Section 2.06 Properties.

         Each of Seller and each of the Seller Subsidiaries has good title to
all other properties and assets used in its business or owned by it (except such
real and other properties and assets, including Intangibles, as are held
pursuant to leases or licenses described in Schedule 2.07 or Schedule 2.09
hereto), free and clear of all liens, mortgages, security interests, pledges,
charges, and encumbrances, except such as are listed in Schedule 2.06 hereto.
Neither Seller nor any Seller Subsidiary owns any real property, and no Seller
Subsidiary owns, leases, or licenses any other property or asset.

                  (a) To the best of the Seller's knowledge, all accounts and
         notes receivable reflected on the Last Seller Balance Sheet, or arising
         since the Last Seller Balance Sheet Date, have been collected, or are
         and will be good and collectible, in each case at the aggregate
         recorded amounts thereof without right of recourse, defense, deduction,
         return of goods, counterclaim, offset, or set off on the part of the
         obligor, and, if not collected, can reasonably be anticipated to be
         paid within 90 days of the date incurred, net of any reserve for bad
         accounts reflected on the Last Seller Balance Sheet.

                  (b) All inventory of Seller and of each Seller Subsidiary is
         usable and fit for the particular purpose for which it is intended.

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                  (c) Except for properties which individually or in the
         aggregate are not material, attached as Schedule 2.06(c) is a true and
         complete list of all real and other properties and assets owned by
         Seller and the Seller Subsidiaries or leased or licensed by Seller or
         by any Seller Subsidiary from or to a third party (including inventory,
         but not including Intangibles), including with respect to such
         properties and assets owned by Seller or by any Seller Subsidiary a
         statement of cost, book value, and (except for land) reserve for
         depreciation of each item for tax purposes, and net book value of each
         item for financial reporting purposes, and, with respect to such
         properties and assets leased or licensed by Seller or by any Seller
         Subsidiary, a description of such lease or license. All such real and
         other properties and assets (including Intangibles) owned by Seller or
         by any Seller Subsidiary are reflected on the Last Seller Balance Sheet
         (except for acquisitions and dispositions or sales in the ordinary
         course of business subsequent to the Last Seller Balance Sheet Date and
         prior to the Closing which are either noted in Schedule 2.06(c) or are
         approved in writing by the Purchaser). All real and other tangible
         properties and assets owned, leased, or licensed by Seller by any
         Seller Subsidiary are in good and usable condition (reasonable wear and
         tear which is not such as to affect adversely the operation of the
         business of Seller and of such Seller Subsidiary taken as a whole
         excepted).

                  (d) No real property leased or licensed by Seller or by any
         Seller Subsidiary lies in an area which is, or to the knowledge of
         Seller or any Seller Subsidiary will be, subject to zoning, use, or
         building code restrictions which would prohibit, and no state of facts
         relating to the actions or inaction of another person or entity or his
         or its ownership, leasing, licensing, or use of any real or personal
         property exists or will exist which would prevent, the continued
         effective leasing, licensing, or use of such real property in the
         business in which Seller or such Seller Subsidiary is now engaged or
         the business in which it contemplates engaging.

                  (e) The real and other properties and assets (including
         Intangibles) owned by Seller and each Seller Subsidiary or leased or
         licensed by Seller or such Seller Subsidiary from a third party
         constitute all such properties and assets which are necessary to the
         business of Seller or such Seller Subsidiary as presently conducted or
         as it contemplates conducting.

                           (f) Neither Seller nor any Seller Subsidiary has
         caused or permitted its respective businesses, properties, or assets to
         be used to generate, manufacture, refine, transport, treat, store,
         handle, dispose of, transfer, produce, or process any Hazardous
         Substance except in compliance with all applicable laws, rules,
         regulations, orders, judgments, and decrees, and has not caused or
         permitted the Release of any Hazardous Substance on or off the site of
         any property of Seller or any Seller Subsidiary.

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         Section 2.07 Contracts and Other Instruments.

         Schedule 2.07 sets forth all contracts, agreements, instruments,
leases, licenses, arrangements, or understandings with respect to Seller and
each Seller Subsidiary that are material to the Seller and the Seller
Subsidiaries taken as a whole, identifying whether the matter disclosed therein
relates to Seller or to a Seller Subsidiary named therein. Seller has furnished
to the Purchaser (a) the certificate of incorporation (or other charter
document) and by-laws of Seller and each Seller Subsidiary and all amendments
thereto, as presently in effect, certified by the Secretary of the corporation
and (b) the following: (i) true and correct copies of all contracts, agreements,
and instruments referred to in Schedule 2.07; (ii) true and correct copies of
all leases and licenses referred to in Schedule 2.06 or Schedule 2.08; and (iii)
true and correct written descriptions of all supply, distribution, agency,
financing, or other arrangements or understandings referred to in Schedule 2.07.
Except as described in Schedule 2.07, neither Seller, any Seller Subsidiary,
nor, to the knowledge of Seller or any Seller Subsidiary, any other party to any
such contract, agreement, instrument, lease, or license is now or, in the
reasonable judgment of Seller, expects in the future to be in violation or
breach of, or in default with respect to complying with, any material term
thereof, and, assuming the due authorization, execution, and delivery thereof by
the other parties thereto, each such contract, agreement, instrument, lease, or
license is in full force and is the legal, valid, and binding obligation of the
parties thereto and, subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors' rights generally, is enforceable
as to them in accordance with its terms. Each such supply, distribution, agency,
financing, or other arrangement or understanding is a valid and continuing
arrangement or understanding; except as set forth in Schedule 2.07, neither
Seller, any Seller Subsidiary, nor any other party to any such arrangement or
understanding has given notice of termination or taken any action inconsistent
with the continuance of such arrangement or understanding; and the execution,
delivery, and performance by the Seller and the Seller Subsidiaries of the
Transaction Agreements to which it is or shall be a party will not prejudice any
such arrangement or understanding in any way. Each of Seller and each of the
Seller Subsidiaries enjoys peaceful and undisturbed possession in all material
respects under all leases and licenses under which it is operating. Neither
Seller nor any Seller Subsidiary is party to or bound by any contract,
agreement, instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had or, to the knowledge of
Seller or any Seller Subsidiary, may in the future have a material adverse
effect on the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Seller, any Seller Subsidiary, or
HEcom. Neither Seller nor any Seller Subsidiary has engaged in within the last
five years, is engaging in, or intends to engage in any transaction with, or has
had within the last five years, now has, or intends to have any contract,
agreement, instrument, lease, license, arrangement, or understanding with, any
stockholder, any director, officer, or employee of Seller or of any Seller
Subsidiary (except for employment agreements listed in Schedule 2.07 and
employment and compensation arrangements described in Schedule 2.08(a), in each
case with such directors, officers, and employees who are not relatives or
affiliates described in the next clause), any relative or affiliate of any
stockholder or of any such director, officer, or employee, or any other
corporation or enterprise in which any stockholder, any such director, officer,
or employee, or any such relative or affiliate then had or now has a 5% or
greater equity or voting or other substantial interest, other than those
described in Schedule 2.07. The stock ledgers and stock transfer books and the
minute book records of Seller and the Seller Subsidiaries relating to all
issuances and transfers of stock by Seller and the Seller Subsidiaries and all
proceedings of the stockholders and the Board of Directors and committees
thereof of Seller and the Seller Subsidiaries since their respective
incorporations made available to the Purchaser's counsel are the original stock
ledgers and stock transfer books and minute book records of Seller and the
Seller Subsidiaries or exact copies thereof. Neither Seller nor any Seller
Subsidiary is in violation or breach of, or in default with respect to, any term
of its certificate of incorporation or other charter document or by-laws.
Neither Seller nor any Seller Subsidiary is a member of a customer or user
organization or of a trade association other than as specified in Schedule 2.07.

                                      -13-
<PAGE>

         Section 2.08 Employees.

                  (a) Neither Seller nor any Seller Subsidiary has, or
contributes to, any pension, profit-sharing, option, other incentive plan, or
any other type of Employee Benefit Plan or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Schedule
2.08(a). Seller has furnished to the Purchaser: (i) true and correct copies of
all documents evidencing plans, obligations, or arrangements referred to in
Schedule 2.08(a) (or true and correct written summaries of such plans,
obligations, or arrangements to the extent not evidenced by documents) and true
and correct copies of all documents evidencing trusts, summary plan
descriptions, and any other summaries or descriptions relating to any such
plans; (ii) the two most recent annual reports (Form 5500's), if any, including
all schedules thereto and the most recent annual and periodic accounting of
related plan assets with respect to each Employee Benefit Plan; and (iii) the
two most recent actuarial valuations with respect to each Pension Plan subject
to Title IV of ERISA.

                  (b) If any Employee Benefit Plan of Seller or of any Seller
Subsidiary were to be terminated on the day prior to the date of the Closing,
(i) no liability under Title IV of ERISA would be incurred by Seller, any Seller
Subsidiary, or HEcom and (ii) all Accrued Benefits to such day prior to the date
of the Closing (whether or not vested) would be fully funded in accordance with
the assumptions contained in the regulations of the Pension Benefit Guaranty
Corporation governing the funding of terminated defined benefit plans. All
Accrued Liabilities (for contributions or otherwise) of Seller or any Seller
Subsidiary as of the date of the Closing to each Employee Benefit Plan and with
respect to each obligation to or customary arrangement with employees for
bonuses, incentive compensation, vacations, severance pay, insurance, or other
benefits have been paid or accrued for all periods ending prior to the date of
the Closing and no payment to any Employee Benefit Plan or with respect to any
such obligation or arrangement since the Last Seller Balance Sheet Date has been
disproportionately large compared to prior payments.

                  (c) There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
penalty has been or may be imposed with respect to any Employee Benefit Plan of
Seller or of any Seller Subsidiary. No Employee Benefit Plan or related trust
has any liability of any nature, accrued or contingent, including without
limitation liabilities for Taxes, other than for routine payments to be made in
due course to participants and beneficiaries, except as set forth in Schedule
2.08(c). Each Employee Benefit Plan which is a group health plan within the
meaning of Section 4980 B(g)(ii) of the Code is and has been maintained in full
compliance with the applicable requirements of Section 4980 B(f) of the Code.
Other than the health care continuation requirements of Section 4980 B(f) of the
Code, neither Seller nor any Seller Subsidiary has any obligation to provide
post-retirement medical benefits or life insurance coverage to any present or
former employees. There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or
in prospect (or any basis therefor known to Seller or any Seller Subsidiary)
with respect to any Employee Benefit Plan or related trust or with respect to
any fiduciary, administrator, or sponsor (in its capacity as such) of any
Employee Benefit Plan. No Employee Benefit Plan or related trust and no such
obligation or arrangement is in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree nor is Seller, any Seller
Subsidiary, any Employee Benefit Plan of Seller or any Seller Subsidiary, or any
related trust required to take any action in order to avoid violation or
default. No event has occurred or is threatened or about to occur which would
constitute a prohibited transaction under Section 406 of ERISA.

                                      -14-
<PAGE>

                  (d) Each Pension Plan maintained for the employees of Seller
or of any Seller Subsidiary has been qualified, from its inception, under
Section 401(a) of the Code and any related trust has been an exempt trust for
such period under Section 501 of the Code. Each such Pension Plan has been
operated in accordance with its terms. No investigation or review by the
Internal Revenue Service is currently pending or, to the knowledge of Seller or
any Seller Subsidiary, is contemplated in which the Internal Revenue Service has
asserted or may assert that any such Pension Plan is not qualified under Section
401(a) of the Code or that any related trust is not exempt under Section 501 of
the Code. No assessment of any federal taxes has been made or, to the knowledge
of Seller or any Seller Subsidiary, is contemplated against Seller, any Seller
Subsidiary, or any related trust of any such Pension Plan and nothing has
occurred which would result in the assessment of unrelated business taxable
income under the Code. Form 5500's have been timely filed with respect to all
Pension Plans of Seller and the Seller Subsidiaries. No event has occurred or,
to the knowledge of Seller or any Seller Subsidiary, is threatened or about to
occur which would constitute a reportable event within the meaning of Section
4043(b) of ERISA. No notice of termination has been filed by the plan
administrator pursuant to Section 4041 of ERISA or issued by the Pension Benefit
Guaranty Corporation pursuant to Section 4042 of ERISA with respect to any
Pension Plan of Seller and the Seller Subsidiaries.

                  (e) Neither Seller nor any Seller Subsidiary currently
contributes to or since September 16, 1980 has effectuated either a complete or
partial withdrawal from any multiemployer Pension Plan within the meaning of
Section 3(37) of ERISA.

                  (f) Schedule 2.08(f) contains a true and correct statement of
the names, relationship with Seller or any Seller Subsidiary, present rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and aggregate compensation
for the fiscal year ended December 31, 1999 of (i) each director, officer, or
other employee of Seller or of any Seller Subsidiary whose aggregate
compensation for the fiscal year ended December 31, 1999 exceeded $25,000 or
whose aggregate compensation presently exceeds the rate of $25,000 per annum and
(ii) all sales agents, dealers, or distributors of Seller or of any Subsidiary.
Except as set forth in Schedule 2.08(f), since December 31, 1999, neither Seller
nor any Seller Subsidiary has changed the rate of compensation of any of its
directors, officers, employees, agents, dealers, or distributors, nor has any
Employee Benefit Plan or program been instituted or amended to increase benefits
thereunder.

                                      -15-
<PAGE>

         Section 2.09 Patents, Trademarks, Et Cetera.

         Neither Seller nor any Seller Subsidiary owns or has pending, or is
licensed under, any Intangibles, other than as described in Schedule 2.09
hereto, all of which are in good standing and uncontested. Schedule 2.09
accurately sets forth with respect to Intangibles owned by Seller or by any
Seller Subsidiary, where appropriate, a statement of cost, book value and
reserve for depreciation of each item for tax purposes, and net book value of
each item for financial reporting purposes, and with respect to Intangibles
licensed by Seller or by any Seller Subsidiary from or to a third party, a
description of such license. Neither any director, officer, or employee of
Seller or of any Seller Subsidiary, any stockholder of Seller of any Seller
Subsidiary, any relative or affiliate of any such stockholder or of any such
director, officer, or employee, nor any other corporation or enterprise in which
any stockholder, any such director, officer, or employee, or any such relative
or affiliate had or now has a 5% or greater equity or voting or other
substantial interest, possesses any Intangible which relates to the business of
Seller or of any Seller Subsidiary. Schedule 2.09 sets forth all trademarks used
by Seller to identify its products and indicates whether such trademark is
protected by registration in the name of Seller on either the principal or
supplemental register in the United States Patent and Trademark Office. There is
no right under any Intangible necessary to the business of Seller or of any
Seller Subsidiary as presently conducted or as it contemplates conducting,
except such as are so designated in Schedule 2.09. To the best knowledge of
Seller and each Seller Subsidiary, neither Seller nor any Subsidiary has
infringed, is infringing, or has received notice of infringement with asserted
Intangibles of others. To the knowledge of Seller or any Seller Subsidiary,
there is no infringement by others of Intangibles of Seller or of any
Subsidiary. As far as Seller or any Seller Subsidiary can foresee, there is no
Intangible of others which may materially adversely affect the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Seller or of any Seller Subsidiary.

         Section 2.10 Questionable Payments.

         Neither Seller, any Seller Subsidiary, any director, officer, agent,
employee, or other person associated with or acting on behalf of Seller or any
Seller Subsidiary, nor any stockholder of Seller or any Seller Subsidiary has,
directly or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on the
books or records of Seller or any Seller Subsidiary; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.

                                      -16-
<PAGE>

         Section 2.11 Authority to Sell.

         Seller has all requisite power and authority to execute, deliver, and
perform each of the Transaction Agreements to which it is or shall be party. All
necessary corporate proceedings of Seller or any Seller Subsidiary have been
duly taken to authorize the execution, delivery, and performance by Seller of
each of the Transaction Agreements to which Seller is or shall be party, except
for required corporate action by the stockholders of Seller or any Seller
Subsidiary. This Agreement has been duly authorized, executed, and delivered by
Seller, constitutes the legal, valid, and binding obligations of Seller, and,
subject to applicable bankruptcy, insolvency, and other laws affecting the
enforcement of creditors' rights generally, is enforceable as to Seller in
accordance with its terms. Each of the Transaction Agreements to which Seller is
or shall be party other than this Agreement has been duly authorized, and at
Closing will be duly executed and delivered by Seller, will constitute the
legal, valid, and binding obligation of Seller, and will be enforceable as to
Seller in accordance with its respective terms, subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally. Except as set forth in Sections 5.09 and 5.10, no
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by Seller or
any Seller Subsidiary for the execution, delivery, or performance by Seller of
any Transaction Agreement to which it is party. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which Seller or any Seller Subsidiary is a party, or to which it or any of
its respective businesses, properties, or assets are subject, is required for
the execution, delivery, or performance of any Transaction Agreement to which
Seller is or shall be a party (except such consents referred to in Schedule
2.11); and the execution, delivery, and performance of the Transaction
Agreements will not (if the consents referred to in Schedule 2.11 are obtained
prior to the Closing) violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under, entitle any party to rights and privileges
that such party was not receiving or entitled to receive immediately before this
Agreement was executed under, or create any obligation on the part of Seller or
any Seller Subsidiary that it was not paying or obligated to pay immediately
before this Agreement or any other Transaction Agreement was executed under, any
term of any such contract, agreement, instrument, lease, license, arrangement,
or understanding, or (if the conditions in Sections 5.09 and 5.10 are satisfied)
violate or result in a breach of any term of the certificate of incorporation
(or other charter document) or by-laws of Seller or any Seller Subsidiary, or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on Seller or any Seller Subsidiary or to
which it or any of its respective businesses, properties, or assets are subject.
Upon the Closing, HEcom will have good title to all properties (other than real
properties) and assets used in the business of Seller or owned by Seller (except
such real and other properties and assets as are held pursuant to leases or
licenses described in Schedule 2.07 or Schedule 2.09 and except for the Excluded
Assets), free and clear of all liens, mortgages, security interests, pledges,
charges, and encumbrances (except such as are listed in Schedule 2.06).

                                      -17-
<PAGE>

         Section 2.12 Non-Distributive Intent.

         Except in connection with the liquidation of the Seller as contemplated
by Section 4.04 hereof, Seller is acquiring the shares of Purchaser Preferred
Stock and the shares of Purchaser Common Stock to be issued hereunder for its
own account (and not for the account of others) for investment and not with a
view to the distribution thereof. Seller will not sell or otherwise dispose of
such shares (whether pursuant to a liquidating dividend or otherwise) without
registration under the Securities Act or an exemption therefrom, and the
certificate or certificates representing such shares may contain a legend to the
foregoing effect. By virtue of its position, Seller has access to the kind of
financial and other information about the Purchaser as would be contained in a
registration statement filed under the Securities Act. Seller understands that
it may not sell or otherwise dispose of such shares in the absence of either a
registration statement under the Securities Act or an exemption from the
registration provisions of the Securities Act.

         Section 2.13 Completeness of Disclosure.

         No representation or warranty by Seller in this Agreement contains or
on the date of the Closing will contain an untrue statement of material fact or
omits or on the Closing Date will omit to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading.

III.     REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

         The Purchaser represents and warrants to Seller as follows:

         Section 3.01 Organization.

         The Purchaser owns, either directly or through one or more wholly-owned
subsidiaries, all the outstanding shares of capital stock of the corporations
listed in Schedule 3.01 hereto (the "Purchaser Subsidiaries"). Other than the
Purchaser Subsidiaries, neither Purchaser nor any Purchaser Subsidiary has a
subsidiary or affiliate corporation or owns any interest in any other enterprise
(whether or not such enterprise is a corporation). Schedule 3.01 also correctly
sets forth as to the Purchaser and as to each Purchaser Subsidiary its place of
incorporation, principal place of business, jurisdictions in which it is
qualified to do business, and the business which it presently conducts and which
it contemplates conducting; and as to each Purchaser Subsidiary its authorized
capitalization, its shares of capital stock outstanding, and the record and
beneficial owner of those shares. Each of the Purchaser and each of the
Purchaser Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of its respective jurisdiction of incorporation,
with all requisite power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and tribunals, to own, lease, license,
and use its properties and assets and to carry on the business in which it is
now engaged and the business in which it contemplates engaging. Each of the
Purchaser and each of the Purchaser Subsidiaries is duly qualified to transact
the business in which it is engaged and is in good standing as a foreign
corporation in every jurisdiction in which its ownership, leasing, licensing, or
use of property or assets or the conduct of its business makes such
qualification necessary.

                                      -18-
<PAGE>

         Section 3.02 Validity of Shares; Terms of Purchaser Preferred Stock.

         The shares of Purchaser Preferred Stock and Purchaser Common Stock to
be delivered pursuant to this Agreement, when issued in accordance with the
terms and provisions of this Agreement, will be validly authorized and issued,
fully paid, and nonassessable. The designation of the Purchaser Series A
Preferred Stock and the Purchaser Series B Preferred Stock to be issued at the
Closing, and the respective powers, preferences, and relative participating,
optional, or other special rights, and the respective qualifications,
limitations, or restrictions thereof, are set forth in the Purchaser Series A
Preferred Stock Certificate of Designation and the Purchaser Series B Preferred
Stock Certificate of Designation, respectively, the forms of which are attached
hereto as Exhibit 3.02A and Exhibit 3.02B respectively.

         Section 3.03 Authority to Buy.

         Each of the Purchaser and HEcom has all requisite power and authority
to execute, deliver, and perform each of the Transaction Agreements to which it
is or shall be party. All necessary corporate proceedings of the Purchaser and
HEcom have been duly taken by the Purchaser and HEcom to authorize the
execution, delivery, and performance of the Transaction Agreements to which the
Purchaser and HEcom, respectively, are or shall be party. This Agreement has
been duly authorized, executed, and delivered by the Purchaser and HEcom, is the
legal, valid, and binding obligation of the Purchaser and HE.com, and is
enforceable as to them in accordance with its terms, subject to applicable
bankruptcy, insolvency, and other laws affecting creditors' rights generally.
Each of the Transaction Agreements other than this Agreement has been duly
authorized by such of the Purchaser and HEcom as are to be party thereto, and,
at the Closing, will be duly executed and delivered by such of the Purchaser and
HEcom as are party to be thereto, and shall be the legal, valid, and binding
obligation of the Purchaser, HEcom, or the Purchaser and HEcom, as applicable,
and shall be enforceable as to them in accordance with its respective terms.
Except as set forth in Sections 6.09 and 6.10, no consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by Purchaser or any Purchaser Subsidiary for
the execution, delivery, or performance by Purchaser or HEcom of any Transaction
Agreement to which it is or shall be party. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which Purchaser or any Purchaser Subsidiary is a party, or to which it or any
of its respective business, properties, or assets are subject, is required for
the execution, delivery, or performance of any Transaction Agreement to which
Purchaser or HEcom is or shall be a party (except such consents referred to in
Schedule 3.03); and the execution, delivery, and performance of the Transaction
Agreements will not (if the consents referred to in Schedule 3.03 are obtained
prior to the Closing) violate, result in breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under, entitle any party to rights and privileges
that such party was not receiving or entitled to receive immediately before this
Agreement was executed under, or create any obligation on the part of Purchaser
or any Purchaser Subsidiary that it was not paying or obligated to pay
immediately before this Agreement or any other Transaction Agreement was
executed under, any term of any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or (if the conditions in Sections 6.09
and 6.10 are satisfied) violate or result in a breach of any term of the
certificate of incorporation (or other charter document) or by-laws of Purchaser
or any Purchaser Subsidiary, or violate, result in a breach of, or conflict with
any law, rule, regulation, order, judgment, or decree binding on Purchaser or
any Purchaser Subsidiary or to which it or any of its respective businesses,
properties, or assets are subject.

                                      -19-
<PAGE>

         Section 3.04 Capitalization.

         The authorized capital stock of Purchaser consists of (i) 40,000,000
shares of Purchaser Common Stock, of which 6,625,000 shares are outstanding, and
(ii) 4,000,000 shares of preferred stock, par value $.001 per share, of which no
shares are outstanding. Each of the outstanding shares of Purchaser Common Stock
and each outstanding share of capital stock of each Purchaser Subsidiary is
validly authorized and issued, fully paid, and nonassessable, has not been
issued and is not owned or held in violation of any preemptive or similar right
of stockholders, and is in each case free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and voting
trusts other than those created by stockholders of Purchaser or with respect to
their property but to which neither the Purchaser, nor the officers or directors
thereto is a party. Except as set forth in the Purchaser SEC Documents, (a)
there is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of Purchaser or of any Purchaser Subsidiary or any security or
other instrument convertible into, or exchangeable or exercisable for capital
stock of Purchaser or of any Purchaser Subsidiary, and (b) there is outstanding
no security or other instrument convertible into, or exercisable or exchangeable
for, capital stock of Purchaser or of any Purchaser Subsidiary.

         Section 3.05 Financial Condition.

         Purchaser has delivered to the Seller true and correct copies of the
following: audited consolidated balance sheets of Purchaser as of December 31,
1996, 1997, and 1998; the audited consolidated statement of income, consolidated
statement of retained earnings, and consolidated statement of cash flows of
Purchaser for the period ended December 31, 1996 and for the years ended
December 31, 1997 and 1998; unaudited consolidated balance sheets of Purchaser
as of March 31, 1998 and 1999, June 30, 1998 and 1999, and September 30, 1998
and 1999; the unaudited consolidated statement of income, consolidated statement
of retained earnings, and consolidated statement of cash flows of Purchaser for
the periods ended March 31, 1998 and 1999, June 30, 1998 and 1999, and September
30, 1998 and 1999. Each such consolidated balance sheet presents fairly the
consolidated financial condition, assets, liabilities, and stockholders' equity
of Purchaser and the Purchaser Subsidiaries as of its date; each such
consolidated statement of income and consolidated statement of retained earnings
presents fairly the consolidated results of operations of Purchaser and the
Purchaser Subsidiaries for the period indicated; and each such consolidated
statement of cash flows presents fairly the information purported to be shown
therein. The financial statements referred to in this Section 3.05 have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and are in accordance with
the books and records of Purchaser and the Purchaser Subsidiaries. Since
December 31, 1998 and September 30, 1999, except as set forth in the Purchaser
SEC Documents:

                                      -20-
<PAGE>

                  (a) There has at no time been a material adverse change in the
         financial condition, results of operations, business, properties,
         assets, liabilities, or, to the best knowledge of Purchaser and HEcom,
         future prospects of Purchaser or any Purchaser Subsidiary; and each of
         Purchaser and each of the Purchaser Subsidiaries has operated
         consistently in all material respects with the results of operations
         referred to in Last Purchaser Financial Statements.

                  (b) Neither Purchaser nor any Purchaser Subsidiary has
         authorized, declared, paid, or effected any dividend or liquidating or
         other distribution in respect of its capital stock or any direct or
         indirect redemption, purchase, or other acquisition of any stock of
         Purchaser or any Purchaser Subsidiary.

                  (c) The operations and business of Purchaser and each
         Purchaser Subsidiary have been conducted in all material respects only
         in the ordinary course of business consistent with past practice.

                  (d) There has been no accepted purchase order or quotation,
         arrangement, or understanding for future sale of the products or
         services of Purchaser or of any Purchaser Subsidiary which in the
         reasonable expectation of Purchaser will not be profitable.

                  (e) Neither Purchaser nor any Purchaser Subsidiary has
         suffered an extraordinary loss (whether or not covered by insurance) or
         waived any right of substantial value.

                  (f) Neither Purchaser nor any Purchaser Subsidiary has paid or
         incurred any tax, other liability, or expense resulting from the
         preparation of, or the transactions contemplated by, the Transaction
         Agreements.

There is no fact known to Purchaser or any Purchaser Subsidiary which materially
adversely affects or in the future (as far as Purchaser or any Purchaser
Subsidiary can foresee) may materially adversely affect the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of Purchaser or of any Purchaser Subsidiary, including HEcom;
provided, however, that Purchaser and HEcom express no opinion as to political
or economic matters of general applicability.

                                      -21-

<PAGE>

         Section 3.06 Tax and Other Liabilities.

         Neither Purchaser nor any Purchaser Subsidiary has any liability of any
nature, accrued or contingent, including without limitation liabilities for
Taxes and liabilities to customers or suppliers, other than the following:

                  (a) Liabilities for which full provision has been made on the
         Last Purchaser Balance Sheet; and

                  (b) Other liabilities arising since the Last Purchaser Balance
         Sheet Date and prior to the Closing (as defined in Section 4.02) in the
         ordinary course of business (which shall not include liabilities to
         customers on account of defective products or services) which are not
         inconsistent with the representations and warranties of Purchaser or
         any other provision of this Agreement.

Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Purchaser Balance Sheet are sufficient for all
accrued and unpaid Taxes of Purchaser and the Purchaser Subsidiaries, whether or
not due and payable and whether or not disputed, under tax laws, as in effect on
the Last Purchaser Balance Sheet Date or now in effect, for the period ended on
such date and for all fiscal periods prior thereto. The execution, delivery, and
performance by Purchaser and HEcom of such of the Transaction Agreements to
which it is party will not cause any Taxes to be payable (other than by Seller
or stockholders of Seller or any Seller Subsidiary) or cause any lien, charge,
or encumbrance to secure any Taxes to be created either immediately or upon the
nonpayment of any Tax (other than on the properties or assets of stockholders of
Seller or any Seller Subsidiary). The Internal Revenue Service has audited and
settled or the statute of limitations has run upon all federal income tax
returns of Purchaser and the Purchaser Subsidiaries for all taxable years up to
and including the taxable year ended December 31, 1995. Each of Purchaser and
each of the Purchaser Subsidiaries has filed all federal, state, local, and
foreign Tax Returns required to be filed by it or has filed an extension with
respect thereto; has delivered to the Seller a true and correct copy of each
such return which was filed since inception, initialled by the chief executive
officer of Purchaser; has paid (or has established on the Last Purchaser Balance
Sheet a reserve for) all Taxes, assessments, and other governmental charges
payable or remittable by it or levied upon it or its properties, assets, income,
or franchises which are due and payable; and has delivered to the Seller a true
and correct copy, so initialled, of any report as to adjustments received by it
from any taxing authority during the past six years and a statement, so
initialled, as to any litigation, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect with respect to
any such report or the subject matter of such report. No agreement extending the
time for assessment of any Taxes has been granted that currently is in effect,
no protests are pending with respect to any Taxes, and there are no liens for
Taxes (other than for Taxes that are not yet due and payable).

                                      -22-
<PAGE>
         Section 3.07 Litigation and Claims.

         Except as set forth in Schedule 3.07 hereto, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any basis therefor known
to Purchaser or any Purchaser Subsidiary) with respect to Purchaser, any
Purchaser Subsidiary, or any of its respective businesses, properties, or
assets, a determination in which adverse to Purchaser or any Purchaser
Subsidiary could have a material adverse effect on the business, prospects,
financial condition, or results of operations thereof. Neither Purchaser nor any
Purchaser Subsidiary is affected by any present or threatened strike or other
labor disturbance nor to the knowledge of Purchaser or any Purchaser Subsidiary
is any union attempting to represent any employee of Purchaser or of any
Purchaser Subsidiary as collective bargaining agent. To the knowledge of
Purchaser and HEcom, neither Purchaser nor any Purchaser Subsidiary is in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree; nor is Purchaser or any Purchaser Subsidiary required to
take any action in order to avoid such violation or default.

         Section 3.08 Properties.

         Each of Purchaser and each of the Purchaser Subsidiaries has good title
to all other properties and assets used in its business or owned by it (except
such real and other properties and assets as are held pursuant to leases or
licenses described in Schedule 3.09 or Schedule 3.11 hereto), free and clear of
all liens, mortgages, security interests, pledges, charges, and encumbrances,
except such as are listed in Schedule 3.08 hereto. Neither Purchaser nor any
Purchaser Subsidiaries owns any real property.

                  (a) All accounts and notes receivable reflected on the Last
         Purchaser Balance Sheet, or arising since the Last Purchaser Balance
         Sheet Date, have been collected, or are and will be good and
         collectible, in each case at the aggregate recorded amounts thereof
         without right of recourse, defense, deduction, return of goods,
         counterclaim, offset, or set off on the part of the obligor, and, if
         not collected, can reasonably be anticipated to be paid within 90 days
         of the date incurred, net of any reserve for bad accounts reflected on
         the Last Purchaser Balance Sheet.

                  (b) All real and other properties and assets (including
         Intangibles) owned by Purchaser or by any Purchaser Subsidiary are
         reflected on the Last Purchaser Balance Sheet (except for acquisitions
         and dispositions or sales on the ordinary course of business subsequent
         to the Last Purchaser Balance Sheet Date and prior to the Closing). All
         real and other tangible properties and assets owned, leased, or
         licensed by Purchaser or by any Purchaser Subsidiary are in good and
         usable condition (reasonable wear and tear which is not such as to
         affect adversely the operation of the business of Purchaser or the
         Seller Purchaser taken as a whole).

                  (c) No real property leased or licensed by Purchaser or by any
         Purchaser Subsidiary lies in an area which is, or to the knowledge of
         Purchaser or any Purchaser Subsidiary will be, subject to zoning, use,
         or building code restrictions which would prohibit, and no state of
         facts relating to the actions or inaction of another person or entity
         or his or its leasing, licensing, or use of any real or personal
         property exists or will exist which would prevent the continued
         effective leasing, licensing, or use of such real property in the
         business in which Purchaser or such Purchaser Subsidiary is now engaged
         or the business in which it contemplates engaging.

                  (d) The real and other properties and assets (including
         Intangibles) owned by Purchaser and each Purchaser Subsidiary or leased
         or licensed by Purchaser or such Purchaser Subsidiary from a third
         party constitute all such properties and assets which are necessary to
         the business of Purchaser or such Purchaser Subsidiary as presently
         conducted or as it contemplates conducting.

                  (e) Neither Purchaser nor any Purchaser Subsidiary has caused
         or permitted its respective businesses, properties, or assets to be
         used to generate, manufacture, refine, transport, treat, store, handle,
         dispose of, transfer, produce, or process any Hazardous Substance,
         except in compliance with all applicable laws, rules, regulations,
         orders, judgments, and decrees, and has not caused or permitted the
         Release of any Hazardous Substance on or off the site of any property
         of Seller or any Subsidiary.

                                      -23-
<PAGE>
         Section 3.09 Contracts and Other Instruments.

         Schedule 3.09 accurately and completely sets forth all material
contracts, agreements, instruments, leases, licenses, arrangements, or
understandings with respect to Purchaser and the Purchaser Subsidiaries taken as
a whole, identifying whether the matter disclosed therein relates to Purchaser
or to a Purchaser Subsidiary named therein. Purchaser has furnished to the
Purchaser (a) the certificate of incorporation (or other charter document) and
by-laws of Purchaser and each Purchaser Subsidiary and all amendments thereto,
as presently in effect, certified by the Secretary of the corporation and (b)
the following: (i) true and correct copies of all contracts, agreements, and
instruments referred to in Schedule 3.09; (ii) true and correct copies of all
leases and licenses referred to in Schedule 3.08 or Schedule 3.11; and (iii)
true and correct written descriptions of all supply, distribution, agency,
financing, or other arrangements or understandings referred to in Schedule 3.08.
Neither Purchaser, any Purchaser Subsidiary, nor to the knowledge of Purchaser
or HEcom any other party to any such contract, agreement, instrument, lease, or
license is now or, in the reasonable judgment of Seller, expects in the future
to be in violation or breach of, or in default with respect to complying with,
any material term thereof, and, assuming the due authorization, execution and
delivery thereof by the other parties thereto, each such contract, agreement,
instrument, lease, or license is in full force and is the legal, valid, and
binding obligation of the parties thereto and, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally, is enforceable as to them in accordance with its terms. Each such
supply, distribution, agency, financing, or other arrangement or understanding
is a valid and continuing arrangement or understanding; neither Purchaser, any
Purchaser Subsidiary, nor any other party to any such arrangement or
understanding has given notice of termination or taken any action inconsistent
with the continuance of such arrangement or understanding; and the execution,
delivery, and performance by Purchaser or HEcom of the Transaction Agreements to
which it is party will not prejudice any such arrangement or understanding in
any way. Each of Purchaser and each of the Purchaser Subsidiaries enjoys
peaceful and undisturbed possession under all leases and licenses under which it
is operating. Neither Purchaser nor any Purchaser Subsidiary is party to or
bound by any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had or,
to the knowledge of Purchaser or any Purchaser Subsidiary, may in the future
have a material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Purchaser or any Purchaser Subsidiary. Except as disclosed in the Purchaser SEC
Documents, neither Purchaser nor any Purchaser Subsidiary has engaged within the
last five years in, is engaging in, or intends to engage in any transaction
with, or has had within the last five years, now has, or intends to have any
contract, agreement, instrument, lease, license, arrangement, or understanding
with, any stockholder, any director, officer, or employee of Purchaser or of any
Purchaser Subsidiary (except for employment agreements listed in Schedule
3.10(a) and employment and compensation arrangements described in the Purchaser
SEC Documents, in each case with such directors, officers, and employees who are
not relatives or affiliates described in the next clause), any relative or
affiliate of any stockholder or of any such director, officer, or employee, or
any other corporation or enterprise in which any stockholder, any such director,
officer, or employee, or any such relative or affiliate then had or now has a 5%
or greater equity or voting or other substantial interest, other than those
listed and so specified in the Purchaser SEC Documents. The stock ledgers and
stock transfer books and the minute book records of Purchaser and the Purchaser
Subsidiaries relating to all issuances and transfers of stock by Purchaser and
the Purchaser Subsidiaries and all proceedings of the stockholders and the Board
of Directors and committees thereof of Purchaser and the Purchaser Subsidiaries
since their respective incorporations made available to the Seller's counsel are
the original stock ledgers and stock transfer books and minute book records of
Purchaser and the Purchaser Subsidiaries or exact copies thereof. Neither
Purchaser nor any Purchaser Subsidiary is in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or other
charter document or by-laws. Neither Purchaser nor any Purchaser Subsidiary is a
member of a customer or user organization or of a trade association other than
as specified in Schedule 3.09 hereof.

                                      -24-
<PAGE>

         Section 3.10  Employees.

                  (a) Neither Purchaser nor any Purchaser Subsidiary has, or
contributes to, any pension, profit-sharing, option, other incentive plan, or
any other type of Employee Benefit Plan or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Schedule
3.10(a). Purchaser has furnished to the Seller: (i) true and correct copies of
all documents evidencing plans, obligations, or arrangements referred to in
Schedule 3.10(a) (or true and correct written summaries of such plans,
obligations, or arrangements to the extent not evidenced by documents) and true
and correct copies of all documents evidencing trusts, summary plan
descriptions, and any other summaries or descriptions relating to any such
plans; (ii) the two most recent annual reports (Form 5500's), if any, including
all schedules thereto and the most recent annual and periodic accounting of
related plan assets with respect to each Employee Benefit Plan; and (iii) the
two most recent actuarial valuations with respect to each Pension Plan subject
to Title IV of ERISA.

                  (b) If any Employee Benefit Plan of Purchaser or of any
Purchaser Subsidiary were to be terminated on the day prior to the date of the
Closing, (i) no liability under Title IV of ERISA would be incurred by Purchaser
or Purchaser Subsidiary and (ii) all Accrued Benefits to such day prior to the
date of the Closing (whether or not vested) would be fully funded in accordance
with the assumptions contained in the regulations of the Pension Benefit
Guaranty Corporation governing the funding of terminated defined benefit plans.
All Accrued Liabilities (for contributions or otherwise) of Purchaser or any
Purchaser Subsidiary as of the date of the Closing to each Employee Benefit Plan
and with respect to each obligation to or customary arrangement with employees
for bonuses, incentive compensation, vacations, severance pay, insurance, or
other benefits have been paid or accrued for all periods ending prior to the
date of the Closing and no payment to any Employee Benefit Plan or with respect
to any such obligation or arrangement since the Last Purchaser Balance Sheet
Date has been disproportionately large compared to prior payments.

                  (c) There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
penalty has been or may be imposed with respect to any Employee Benefit Plan of
Purchaser or of any Purchaser Subsidiary. No Employee Benefit Plan or related
trust has any liability of any nature, accrued or contingent, including without
limitation liabilities for Taxes, other than for routine payments to be made in
due course to participants and beneficiaries, except as set forth in Schedule
3.10(c). Each Employee Benefit Plan which is a group health plan within the
meaning of Section 4980 B(g)(ii) of the Code is and has been maintained in full
compliance with the applicable requirements of Section 4980 B(f) of the Code.
Other than the health care continuation requirements of Section 4980 B(f) of the
Code, neither Purchaser nor any Purchaser Subsidiary has any obligation to
provide post-retirement medical benefits or life insurance coverage to any
present or former employees. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
threatened, or in prospect (or any basis therefor known to Purchaser or any
Purchaser Subsidiary) with respect to any Employee Benefit Plan or related trust
or with respect to any fiduciary, administrator, or sponsor (in its capacity as
such) of any Employee Benefit Plan. No Employee Benefit Plan or related trust
and no such obligation or arrangement is in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree nor is
Purchaser, any Purchaser Subsidiary, any Employee Benefit Plan of Purchaser or
any Purchaser Subsidiary, or any related trust required to take any action in
order to avoid violation or default. No event has occurred or is threatened or
about to occur which would constitute a prohibited transaction under Section 406
of ERISA.

                                      -25-
<PAGE>

                  (d) Each Pension Plan maintained for the employees of
Purchaser or of any Purchaser Subsidiary has been qualified, from its inception,
under Section 401(a) of the Code and any related trust has been an exempt trust
for such period under Section 501 of the Code. Each such Pension Plan has been
operated in accordance with its terms. No investigation or review by the
Internal Revenue Service is currently pending or, to the knowledge of Purchaser
or any Purchaser Subsidiary, is contemplated in which the Internal Revenue
Service has asserted or may assert that any such Pension Plan is not qualified
under Section 401(a) of the Code or that any related trust is not exempt under
Section 501 of the Code. No assessment of any federal taxes has been made or, to
the knowledge of Purchaser or any Purchaser Subsidiary, is contemplated against
Purchaser, any Purchaser Subsidiary, or any related trust of any such Pension
Plan and nothing has occurred which would result in the assessment of unrelated
business taxable income under the Code. Form 5500's have been timely filed with
respect to all Pension Plans of Purchaser and the Purchaser Subsidiaries. No
event has occurred or, to the knowledge of Purchaser or any Purchaser
Subsidiary, is threatened or about to occur which would constitute a reportable
event within the meaning of Section 4043(b) of ERISA. No notice of termination
has been filed by the plan administrator pursuant to Section 4041 of ERISA or
issued by the Pension Benefit Guaranty Corporation pursuant to Section 4042 of
ERISA with respect to any Pension Plan of Purchaser and the Purchaser
Subsidiaries.

                  (e) Neither Purchaser nor any Purchaser Subsidiary currently
contributes to or since September 16, 1980 has effectuated either a complete or
partial withdrawal from any multiemployer Pension Plan within the meaning of
Section 3(37) of ERISA.

                  (f) Schedule 3.10(f) contains a true and correct statement of
the names, relationship with Purchaser or any Purchaser Subsidiary, present
rates of compensation (whether in the form of salary, bonuses, commissions, or
other supplemental compensation now or hereafter payable), and aggregate
compensation for the fiscal year ended December 31, 1999 of (i) each director,
officer, or other employee of Purchaser or of any Purchaser Subsidiary whose
aggregate compensation for the fiscal year ended December 31, 1999 exceeded
$25,000 or whose aggregate compensation presently exceeds the rate of $25,000
per annum and (ii) all sales agents, dealers, or distributors of Purchaser or of
any Purchaser. Since December 31, 1999, neither Purchaser nor any Purchaser
Subsidiary has changed the rate of compensation of any of its directors,
officers, employees, agents, dealers, or distributors, nor has any Employee
Benefit Plan or program been instituted or amended to increase benefits
thereunder.

                                      -26-
<PAGE>

         Section 3.11 Patents, Trademarks, Et Cetera.

         Neither Purchaser nor any Purchaser Subsidiary owns or has pending, or
is licensed under, any Intangibles, other than as described in Schedule 3.11,
all of which are in good standing and uncontested. Schedule 3.11 accurately sets
forth with respect to Intangibles licensed by Purchaser or by any Purchaser
Subsidiary from or to a third party, a description of such license. Neither any
director, officer, or employee of Purchaser or of any Purchaser Subsidiary, any
stockholder of Seller of any Seller Subsidiary, any relative or affiliate of any
such stockholder or of any such director, officer, or employee, nor any other
corporation or enterprise in which any stockholder, any such director, officer,
or employee, or any such relative or affiliate had or now has a 5% or greater
equity or voting or other substantial interest, possesses any Intangible which
relates to the business of Purchaser or of any Purchaser Subsidiary. Set forth
in Schedule 3.11 is a complete list of all trademarks used by Purchaser or its
affiliates to identify its products, and a designation as to whether such
trademark is protected by registration in the name of Purchaser or its
affiliates on the principal or supplemental register in the United States Patent
and Trademark Office. There is no right under any Intangible necessary to the
business of Purchaser or of any Purchaser Subsidiary as presently conducted or
as it contemplates conducting, except such as are so designated in Schedule
3.11. To the best knowledge of Purchaser, neither Purchaser nor any Purchaser
Subsidiary has infringed, is infringing, or has received notice of infringement
with asserted Intangibles of others. To the knowledge of Purchaser or any
Purchaser Subsidiary, there is no infringement by others of Intangibles of
Purchaser or of any Purchaser Subsidiary. As far as Purchaser or any Purchaser
Subsidiary can foresee, there is no Intangible of others which may materially
adversely affect the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Purchaser or of any
Purchaser Subsidiary.

         Section 3.12 Questionable Payments.

         Neither Purchaser, any Purchaser Subsidiary, any director, officer,
agent, employee, or other person associated with or acting on behalf of
Purchaser or any Purchaser Subsidiary, nor any stockholder of Purchaser or any
Purchaser Subsidiary has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Purchaser or any Purchaser
Subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of a
similar or comparable nature, whether lawful or not, to any person or entity,
private or public, regardless of form, whether in money, property, or services,
to obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.

                                      -27-
<PAGE>

         Section 3.13 Completeness of Disclosure.

         No representation or warranty by Purchaser or HEcom in this Agreement
contains or on the date of the Closing will contain an untrue statement of
material fact or omits or on the Closing Date will omit to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading.

         Section 3.14 Continuation of Business.

         Neither Purchaser, HEcom, nor any other Purchaser Subsidiary has any
plan or intention to sell or otherwise to dispose of any of the assets acquired
from Seller pursuant to Section 4.01, except for sales or dispositions made in
the ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Code. Following the closing, Purchaser and HEcom currently intend to
continue the historic business of Seller or use a significant portion of the
assets acquired from Seller pursuant to Section 4.01 in a business.

IV.      THE EXCHANGE

         Section 4.01 Terms of the Exchange.

         On the basis of the representations, warranties, covenants, and
agreements contained in this Agreement and subject to the terms and conditions
of this Agreement:

                  (a) Seller shall sell, assign, transfer, and convey as a going
         concern to HEcom at the Closing all properties and assets of Seller at
         the date of the Closing of every kind and nature whatsoever (other than
         the assets listed in Schedule 4.01(a) hereto (the "Excluded Assets")),
         including the names, trademarks (including the name "HealthExchange,
         Inc." and "HealthExchange.com"), as well as the universal resource
         locator www.healthexchange.com, contractual rights, books and records
         (other than minute books, stock ledgers and stock transfer books),
         business, and goodwill of Seller; and, in consideration therefor, HEcom
         shall:

                         (i) Deliver at the Closing to the Escrow Agent for
                    deposit into the Escrow Account a stock certificate
                    registered in the name of the Seller for 1,200,000 shares of
                    Purchaser Common Stock:

                         (ii) At the Closing cancel the Deposit Note;

                         (iii) At the Closing cancel the Bridge Note;

                         (iv) Deliver at the Closing to the Escrow Agent for
                    deposit into the Escrow Account (A) a stock certificate
                    registered in the name of the Seller for a number of shares
                    of Purchaser Series A Preferred Stock with an aggregate
                    Stated Value (as defined in the Purchaser Series A Preferred
                    Stock Certificate of Designation) equal to $15.35 million
                    less (1) the product of 600,000 and the Trailing Average
                    Closing Price, (2) the product of (a) the principal amount
                    of, and accrued and unpaid interest on, the Bridge Note and
                    (b) 0.5, and (3) the product of (a) the principal amount of,
                    and accrued and unpaid interest on, the Deposit Note and
                    (II) 0.5, and (B) a stock certificate registered in the name
                    of the Seller for a number of shares of Purchaser Series B
                    Preferred Stock with an aggregate Stated Value (as defined
                    in the Purchaser Series B Preferred Stock Certificate of
                    Designation) equal to $15.35 million less (A) the product of
                    600,000 and the Trailing Average Closing Price (2) the
                    product of (a) the principal amount of, and accrued and
                    unpaid interest on, the Bridge Note and (b) 0.5, and (3) the
                    product of (a) the principal amount of, and accrued and
                    unpaid interest on, the Deposit Note and (II) 0.5.

                                      -28-
<PAGE>

                         (v) Assume at the Closing only such obligations and
                    liabilities of Seller (not to exceed $500,000) as are in
                    conformity with the representations and warranties of Seller
                    and are set forth in Schedule 4.01(a)(v) hereof (any
                    obligations and liabilities of Seller not in conformity with
                    the representations and warranties of Seller or not set
                    forth in Schedule 4.01(a)(v) hereof, the "Excluded
                    Liabilities").

                  (b) Except as set forth in Schedule 4.01(a)(v), neither the
         Purchaser nor HEcom shall assume or be responsible for any obligation
         or liability of Seller of any nature, accrued or contingent.

                  (c) The consideration paid by HEcom shall be allocated among
         Seller's assets as set forth in Schedule 4.01(c) hereof.

                  (d) With respect to any properties or assets sold hereunder
         that cannot be physically delivered to HEcom because they are in the
         possession of third parties, or otherwise, Seller shall give
         irrevocable instructions to the party in possession thereof, if such be
         the case, with copies to the Purchaser, that all right, title, and
         interest therein have been vested in HEcom and that the same are to be
         held for HEcom's exclusive use and benefit.

                  (e) To the extent that the assignment by Seller to HEcom of
         any contract, agreement, instrument, lease, license, understanding, or
         arrangement to be assigned to Hecom hereunder shall require the consent
         of a party other than Seller which has not been obtained by the Closing
         and if the Purchaser and HEcom shall nevertheless elect to consummate
         the transactions contemplated by this Agreement, this Agreement shall
         not constitute an agreement to assign the same if an attempted
         assignment without such consent would constitute a breach thereof
         unless the Purchaser before, at, or after the Closing elects in a
         writing delivered to Seller, specifically identifying such absent
         consent, to waive such consent. Nothing in this Section 4.01(e)
         regarding such non-assignment or such election shall limit any rights
         the Purchaser or HEcom may have against Seller as a result of the
         failure to obtain such consent.

         Section 4.02 The Closing.

         The closing of the transactions contemplated by Section 4.01 shall take
place at the offices of Brock Silverstein LLC, counsel to the Purchaser and
HEcom, 800 Third Avenue, 21st Floor, New York, New York 10022, at 10:00 a.m.,
local time, on the fifth business day after the date the conditions in Articles
V and VI have been satisfied. The closing may occur at such different place,
such different time, or such different date or a combination thereof as the
Purchaser and Seller agree in writing. The closing of the transactions
contemplated by Section 4.01, is referred to as the "Closing." If the Closing
shall not take place by April 17, 2000, then the parties not at fault shall, in
addition to all other rights and remedies available at law or in equity against
the defaulting parties, have the right to cancel and terminate this Agreement.

                                      -29-
<PAGE>

         Section 4.03 Transactions at the Closing.

         The following transactions shall take place at the Closing:

                  (a) Seller shall deliver to HEcom all such bills of sale,
         assignments, evidences of consent, certificates representing all the
         outstanding shares of capital stock of the Seller Subsidiaries (other
         than those constituting Excluded Assets) and certificates representing
         all other securities (other than those constituting Excluded Assets)
         (in each case duly endorsed in blank or accompanied by stock or other
         powers duly endorsed in blank, with signatures guaranteed by medallion
         signature guarantee, and with all stock transfer and any other required
         documentary stamps affixed thereto), and other instruments or documents
         as in the opinion of counsel to the Purchaser and HEcom may be
         reasonably necessary or desirable to evidence or perfect the sale,
         assignment, transfer, and conveyance of good title to all other
         properties and assets to be sold to HEcom by Seller hereunder as well
         as the other transaction contemplated by, and in connection with, the
         Transaction Agreements, in each case free and clear of all liens,
         mortgages, security interests, pledges, charges, and encumbrances
         (except such as are listed in Schedule 2.06). Seller shall also deliver
         to HEcom all books and records of Seller (except minute books, stock
         ledgers and stock transfer books, which Seller hereby covenants and
         agrees shall always be available for inspection by the Purchaser and
         HEcom); provided, however, that Seller and its officers, employees,
         counsel, and agents shall be afforded free and full access to its tax
         and accounting records relating to periods prior to the Closing and
         shall be permitted to make extracts from and copies of such records.

                  (b) Subject to Section 4.06 hereof, HEcom shall deliver (i) to
         the Escrow Agent for deposit into the Escrow Account until the date of
         the liquidation of the Seller pursuant to Section 4.04 a certificate
         registered in the name of the Seller for such number of shares of
         Purchaser Common Stock as shall be determined pursuant to section
         4.01(a)(i) hereof, (ii) to the Escrow Agent for deposit into the Escrow
         Account until the date of the liquidation of the Seller pursuant to
         Section 4.04 a certificate registered in the name of the Seller for
         such number of shares of Purchaser Preferred Stock as shall be
         determined pursuant to Section 4.01(a)(iv) hereof, (iii) to the Seller
         a cancellation of the Bridge Note, and (iv) to the Seller a
         cancellation of the Deposit Note.

                                      -30-
<PAGE>

                  (c) HEcom shall deliver to Seller an instrument of assumption
         of the obligations and liabilities of Seller which HEcom has agreed to
         assume pursuant to Section 4.01(a)(v), substantially in the form of
         Exhibit 4.03(c). In addition, HEcom shall deliver a specific instrument
         of assumption of any contractual obligation of Seller which HEcom has
         agreed to assume pursuant to Section 4.01(a)(v) if a party thereto
         (other than Seller) shall condition the assignment thereof to HEcom on
         receipt of such specific instrument.

         Section 4.04 Liquidation of Seller.

         Subject to the effectiveness under the Securities Act of the
Registration Statement referenced in Section 8.09 hereof, within 180 days after
the Closing and at Seller's expense (or as soon thereafter as such Registration
Statement shall become effective under the Securities Act), Seller shall take
all steps necessary for the prompt distribution in liquidation of the shares of
Purchaser Common Stock received at the Closing, the shares of Purchaser
Preferred Stock received at the Closing, the Excluded Assets, and the rights of
Seller under this Agreement. Purchaser shall cooperate with and use its best
efforts to assist Seller in effecting such distribution, which assistance shall
include directing its transfer agent and registrar to participate in such
distribution and paying the costs and expenses of such transfer agent and
registrar. As soon as practicable thereafter, Seller shall, subject to Section
8.09(a) hereof, at its own expense, take all steps necessary to effect the
dissolution of Seller and any then existing Seller Subsidiaries.

         Section 4.05 Indemnity Against Liabilities.

         Seller agrees to indemnify and hold harmless the Purchaser Indemnitees
against any and all losses, liabilities, damages, and expenses whatsoever (which
shall include for all purposes of this Section 4.05, Section 4.06, and Section
9.01, but not be limited to reasonable counsel fees and any and all expenses
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with

                  (a) (i) any breach of any representation, warranty, covenant,
         or agreement of Seller contained in this Agreement or any other
         Transaction Agreement, (ii) any obligation or liability of Seller or
         any Seller Subsidiary of any nature, accrued or contingent, not assumed
         by the Purchaser or HEcom in accordance with Section 4.01(a)(v) and not
         reimbursed to HEcom and Purchaser pursuant to the Escrow Agreement and

                                      -31-
<PAGE>

                  (b) if the Closing takes place, any act, alleged act,
         omission, or alleged omission occurring at or prior to the Closing
         (including without limitation any which arise out of, are based upon,
         or are in connection with any of the transactions contemplated by any
         Transaction Agreement).

The foregoing agreement to indemnify shall be in addition to any liability
Seller may otherwise have, including liabilities arising under this Agreement.

         Section 4.06 Adjustments to Consideration Delivered by Purchaser and
HEcom.

                  (a) Subject to paragraphs (b) and (c) of this Section 4.06 and
without limiting such other rights as the Purchaser Indemnitees may have, if,
prior to the time all shares of Purchaser Common Stock delivered pursuant to
Section 4.01(a)(i), or all shares of Purchaser Preferred Stock delivered
pursuant to Section 4.01(a)(iv), are distributed by Seller pursuant to Section
4.04 hereof, the Purchaser has learned of a breach of any representation,
warranty, covenant, or agreement of Seller contained in this Agreement, the
Purchaser in its discretion can by written notice to Seller deduct from the
number of shares of Purchaser Common Stock otherwise deliverable by HEcom at
such time a number of such shares the value of which (equal to the product of
the number of such shares of Purchaser Common Stock and the Trailing Average
Closing Price) is equal to the aggregate of (a) the amount necessary to cure or
make whole such breach and (b) the amount of losses, liabilities, claims,
damages, and expenses whatsoever (as defined in Section 4.05) incurred or
demonstrably in prospect of being incurred by any Indemnitee arising out of,
based upon, or in connection with such breach. Shares of Purchaser Common Stock
shall be valued for purposes of this Section 4.06 at the Trailing Average
Closing Price.

                  (b) Notwithstanding Section 4.06(a), if, prior to the date 30
calendar days following the date of the Closing, the obligations of the Seller
or any Seller Subsidiary to John Deere Health, Inc. and its affiliates shall not
have been either paid in full by the Seller and the Seller Subsidiaries or
converted into, or exchanged for shares of Seller Common Stock or other equity
securities of Seller, (1) within ten days thereafter the Purchaser and HEcom
shall assume and satisfy such obligations and (2) the Purchaser and Seller shall
irrevocably instruct the Escrow Agent to release from the Escrow Account and
deliver to the Purchaser and HEcom with five days thereafter the number of
shares of Purchaser Common Stock equal to the quotient of (A) the product of (I)
the total amount paid by Purchaser and HEcom to satisfy such obligations to John
Deere Health, Inc. and its affiliates and (II) 2.3, and (B) the Trailing Average
Closing Price. Such shares of Purchaser Common Stock delivered to Purchaser and
HEcom shall be deemed to be excluded and deducted from the consideration paid to
Seller pursuant to this Agreement and shall become authorized, but unissued,
shares of Purchase Common Stock.

                                      -32-
<PAGE>

                  (c) Notwithstanding Sections 4.06(a) and 4.06(b), if, prior to
the date of the liquidation of the Seller pursuant to Section 4.04 hereof, the
obligations of the Seller or any Seller Subsidiary other than to John Deere
Health, Inc. and its affiliates shall not have been either paid in full by the
Seller and the Seller Subsidiaries or converted into, or exchanged for shares of
Seller Common Stock or other equity securities of Seller, (1) within ten days
thereafter the Purchaser and HEcom shall assume and satisfy such obligations up
to a total of $700,000 and (2) the Purchaser and Seller shall irrevocably
instruct the Escrow Agent to release from the Escrow Account and deliver to the
Purchaser and HEcom with five days thereafter the number of shares of Purchaser
Common Stock equal to the quotient of (A) the product of (I) the total amount
paid by Purchaser and HEcom to satisfy such obligations and (II) 1.5, and (B)
the Trailing Average Closing Price. Such shares of Purchaser Common Stock
delivered to Purchaser and HEcom shall be deemed to be excluded and deducted
from the consideration paid to Seller pursuant to this Agreement and shall
become authorized, but unissued, shares of Purchase Common Stock.

         Section 4.07 Tax Treatment.

         The parties intend that the transactions contemplated by this Agreement
(and, in particular, Sections 4.01 and 4.04 hereof) will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations
promulgated under the Code. Each party will use its best efforts to cause the
transactions contemplated by this Agreement (and, in particular, Sections 4.01
and 4.04 hereof) to qualify as a reorganization under the provisions of Section
368(a) of the Code.

V.       CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND HECOM

         The obligations of the Purchaser and HEcom under this Agreement are
subject, at the option of the Purchaser and HEcom, to the following conditions:

         Section 5.01 Accuracy of Representations and Compliance with
Conditions.

         All representations and warranties of Seller contained in each of the
Transaction Agreements to which it is a party shall be accurate in all material
respects when made and, in addition, shall be accurate in all material respects
as of the Closing as though such representations and warranties were then made
in exactly the same language by Seller and regardless of knowledge or lack
thereof on the part of Seller or changes beyond its control; as of the Closing,
Seller shall have performed and complied in all material respects with all
covenants and agreements and satisfied all conditions required to be performed
and complied in all material respects with by it at or before such time by each
of the Transaction Agreements to which it is a party; and the Purchaser shall
have received certificates executed by the chief executive officer and the chief
financial officer of Seller, dated the date of the Closing, to that effect,
substantially in the form of Exhibits 5.01A and 5.01B, respectively.

                                      -33-
<PAGE>

         Section 5.02 Opinion of Counsel.

Seller shall have delivered to the Purchaser and HEcom on the date of the
Closing the opinion of Winthrop & Weinstine, P.A. counsel to Seller, dated as of
such dates, in form and substance satisfactory to counsel for the Purchaser.

         Section 5.03 Due Diligence Review.

         Prior to the date of the Closing, Purchaser and Hecom shall conduct a
due diligence review of the Seller, including a review of the Schedules and the
documents referenced therein of Seller delivered prior to the date hereof and
prior to the date of the Closing, and shall be reasonably satisfied with the
result of such review.

         Section 5.04 Other Closing Documents.

         Seller shall have delivered to the Purchaser and HEcom at or prior to
the Closing such other documents (including the Transaction Agreements (other
than this Agreement) to which it is or shall be a party and certificates of
officers of Seller or of any Seller Subsidiary) as the Purchaser may reasonably
request in order to enable the Purchaser and HEcom to determine whether the
conditions to their obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.

         Section 5.05 Review of Proceedings.

         All actions, proceedings, instruments, and documents required to carry
out each of the Transaction Agreements and each of the documents contemplated
thereby or in connection therewith and all other related legal matters shall be
subject to the reasonable approval of Brock Silverstein LLC, counsel to the
Purchaser, and Seller shall have furnished such counsel such documents as such
counsel may have reasonably requested for the purpose of enabling them to pass
upon such matters.

         Section 5.06 Legal Action.

         There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by the Transaction Agreements, or any document
contemplated thereby or in connection therewith, or to obtain substantial
damages with respect thereto.

         Section 5.07 No Governmental Action.

         There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by, or in connection with,
any of the Transaction Agreements by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which, in the sole judgment of the
Purchaser, (a) makes any of the transactions contemplated by any Transaction
Agreement illegal, (b) results in a delay in the ability of the Purchaser or
HEcom to consummate any of the transactions contemplated by any of the
Transaction Agreements, (c) requires the divestiture by the Purchaser or HEcom
of a material portion of the business of either the Purchaser and the Purchaser
Subsidiaries taken as a whole, or of Seller and the Seller Subsidiaries taken as
a whole, (d) imposes material limitations on the ability of the Purchaser or
HEcom effectively to exercise full rights of ownership with respect to the
properties and assets purported to be sold pursuant to this Agreement, or (e)
otherwise prohibits, restricts, or delays consummation of any of the
transactions contemplated by any of the Transaction Agreements or impairs the
contemplated benefits to the Purchaser or to HEcom of any of the transactions
contemplated by this Agreement.

                                      -34-
<PAGE>

         Section 5.08 Approval of Seller's Stockholders.

         The consummation of the transactions contemplated by, and in connection
with, any of the Transaction Agreements, including the liquidation contemplated
by Section 4.04, shall have been approved at or before the Closing by the
affirmative vote of the holders of a majority of Seller Common Stock.

         Section 5.09 Governmental Approval.

         The parties to this Agreement shall have obtained at or prior to the
Closing all required consents and unconditional written approvals of all
governmental agencies having the legal or administrative right or obligation to
consent to, or approve, any Transaction Agreement and to the execution,
delivery, and performance thereof.

         Section 5.10 Blue-Sky Law Compliance.

         The Purchaser shall have received at or prior to the Closing a permit
from all appropriate blue-sky or securities law administrator(s) with regard to
the issuance of Purchaser Common Stock and Purchaser Preferred Stock as
contemplated by this Agreement.

         Section 5.11 Deposit Note.

         Upon the execution hereof, Seller shall execute and deliver to
Purchaser the Deposit Note, a form of which is attached hereto as Exhibit 5.11,
against delivery of $1.0 million by Purchaser.

         Section 5.12 Contractual Consents Needed.

         The parties to any Transaction Agreement shall have obtained at or
prior to the Closing all consents required for the consummation of the
transactions contemplated by, or in connection with, the Transaction Agreements
from any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which any of them or any Seller Subsidiary or
any Purchaser Subsidiary is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject.

         Section 5.13 Other Agreements.

         The Employment Agreements, substantially in the form attached hereto as
Exhibits 5.13A, 5.13B, and 5.13C hereto, the Seller Voting Agreement, and the
Escrow Agreement, substantially in the form of Exhibit 5.13D hereto, shall have
been duly authorized, executed, and delivered by the parties thereto at or prior
to the Closing, at the Closing shall be in full force, valid, and binding upon
the parties thereto, and shall, subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally, be
enforceable by them in accordance with their terms at the Closing, and no party
thereto at any time from the execution thereof until immediately after the
Closing shall have been in violation of or in default in complying with any
material term thereof.

                                      -35-
<PAGE>

         Section 5.14 Corporate Name.

         Seller shall not amend its name to any name containing either the word
"Health" or "Exchange" or words similar to or susceptible of confusion with the
word "Health" or "Exchange" or any combination or abbreviation thereof.

         Section 5.15 Personnel.

         The individuals set forth in Schedule 2.08(f) whose aggregate
compensation for the fiscal year ended December 31, 1999, exceeded $25,000 or
whose aggregate compensation presently exceeds the rate of $25,000 per annum
shall at the Closing be actively engaged in the performance of their existing
duties for Seller and the Seller Subsidiaries and shall not have evidenced any
intention not to engage in comparable employment with HEcom after the Closing.

         Section 5.16 Repayment of Loans.

         Principal on premium (if any), and interest on the loans identified in
Schedule 5.16 as being owed by Seller or any Seller Subsidiary shall have been
repaid at or prior to the Closing in full or the Purchaser, in its sole
discretion, shall have consented in writing to alternate arrangements for the
repayment thereof.

         Section 5.17 Releases.

         The Purchaser and HEcom shall have received at or prior to the Closing
from each person who is, who before the Closing becomes, or who at any time
between that date which is one year prior to the date this Agreement is executed
and the date this Agreement is executed was an officer or a director of Seller
or any Seller Subsidiary, dated the date of the Closing, substantially in the
form of Exhibit 5.17.

         Section 5.18 Officers' and Directors' Noncompetition Agreement.

                  The Purchaser shall have received at or prior to the Closing
from each person who is, who before the Closing becomes, or who at any time
between that date which is one year prior to the date this Agreement is executed
and the date this Agreement is executed was an officer or a director of Seller
or any Seller Subsidiary (other than those persons party to the Employment
Agreement) an agreement not to compete, substantially in the form of Exhibit
5.18.

         Section 5.19 Officers' and Directors' Confidentiality Agreement.

         The Purchaser shall have received at or prior to the Closing from each
person who is, who before the Closing becomes, or who at any time between that
date which is one year prior to the date this Agreement is executed and the date
this Agreement is executed was, an officer or a director of Seller or any Seller
Subsidiary (other than those persons party to the Employment Agreement) an
agreement to keep confidential certain data, substantially in the form of
Exhibit 5.19.

                                      -36-
<PAGE>

VI.      CONDITIONS TO THE OBLIGATIONS OF SELLER

         The obligations of Seller under this Agreement are subject, at the
option of Seller, to the following conditions:

         Section 6.01 Accuracy of Representations and Compliance with
Conditions.

         All representations and warranties of Purchaser and HEcom contained in
this Agreement shall be accurate in all material respects when made and, in
addition, shall be accurate as of the Closing as though such representations and
warranties were then made in exactly the same language by Purchaser or HEcom and
regardless of knowledge or lack thereof on the part of Purchaser or HEcom or
changes beyond their control; as of the Closing, each of Purchaser and HEcom
shall have performed and complied in all material respects with all covenants
and agreements and satisfied all conditions required to be performed and
complied with by it at or before such time by this Agreement; and the Seller
shall have received certificates executed by the chief executive officer and the
chief financial officer of each of Purchaser and HEcom, dated the date of the
Closing, to that effect, substantially in the form of Exhibits 6.01 A and 6.01B,
respectively.

         Section 6.02 Opinion of Counsel.

         Purchaser and HEcom shall have delivered to the Seller on the date of
the Closing the opinion of Brock Silverstein LLC, counsel to the Purchaser and
HEcom, dated as of such dates, in form and substance satisfactory to counsel for
the Seller.

         Section 6.03 Schedules.

         Prior to the Closing, Seller shall deliver to Purchaser and HEcom the
Schedules and other documents required to be delivered thereby pursuant to the
terms of the Transaction Agreements.

         Section 6.04 Other Closing Documents.

         Purchaser and HEcom shall have delivered to the Seller at or prior to
the Closing such other documents (including certificates of officers of
Purchaser or of any Purchaser Subsidiary) as the Seller may reasonably request
in order to enable the Seller to determine whether the conditions to their
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.

         Section 6.05 Review of Proceedings.

         All actions, proceedings, instruments, and documents required to carry
out each of the Transaction Agreements and each of the documents contemplated
thereby or in connection therewith and all other related legal matters shall be
subject to the reasonable approval of Winthrop & Weinstine, P.A., counsel to the
Seller, and Purchaser shall have furnished such counsel such documents as such
counsel may have reasonably requested for the purpose of enabling them to pass
upon such matters.

                                      -37-
<PAGE>

         Section 6.06 Legal Action.

         There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by the Transaction Agreements, or any document
contemplated thereby or in connection therewith, or to obtain substantial
damages with respect thereto.

         Section 6.07 No Governmental Action.

         There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by, or in connection with,
any of the Transaction Agreements by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which, in the sole judgment of the
Seller, (a) makes any of the transactions contemplated by any Transaction
Agreement illegal, (b) results in a delay in the ability of the Seller to
consummate any of the transactions contemplated by any of the Transaction
Agreements, (c) requires the divestiture by the Purchaser or HEcom of a material
portion of the business of either the Purchaser and the Purchaser Subsidiaries
taken as a whole, or of Seller and the Seller Subsidiaries taken as a whole, (d)
imposes material limitations on the ability of the Purchaser or HEcom
effectively to exercise full rights of ownership with respect to the properties
and assets purported to be sold pursuant to this Agreement, or (e) otherwise
prohibits, restricts, or delays consummation of any of the transactions
contemplated by any of the Transaction Agreements or impairs the contemplated
benefits to Seller of any of the transactions contemplated by this Agreement.

         Section 6.08 Approval of Seller's Stockholders.

         The consummation of the transactions contemplated by, and in connection
with, any of the Transaction Agreements, including the liquidation contemplated
by Section 4.04, shall have been approved at or before the Closing by the
affirmative vote of the holders of a majority of Seller Common Stock.

         Section 6.09 Governmental Approval.

         The parties to this Agreement shall have obtained at or prior to the
Closing the consent and unconditional written approval of all governmental
agencies having the legal or administrative right or obligation to consent to,
or approve, any Transaction Agreement and the execution, delivery, and
performance of any Transaction Agreement.

                                      -38-

<PAGE>

         Section 6.10 Blue-Sky Law Compliance.

         The Purchaser shall have received at or prior to the Closing a permit
from all appropriate blue-sky or securities law administrator(s) with regard to
the issuance of Purchaser Common Stock and Purchaser Preferred Stock as
contemplated by this Agreement.

         Section 6.11 Contractual Consents Needed.

         The parties to any Transaction Agreement shall have obtained at or
prior to the Closing all consents required for the consummation of the
transactions contemplated by, or in connection with, the Transaction Agreements
from any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which any of them or any Seller Subsidiary or
any Purchaser Subsidiary is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject.

         Section 6.12 Other Agreements.

         The Employment Agreements, the Purchaser Voting Agreement, and the
Escrow Agreement shall have been duly authorized, executed, and delivered by the
parties thereto at or prior to the Closing, at the Closing shall be in full
force, valid, and binding upon the parties thereto, and shall, subject to
applicable bankruptcy, insolvency, and other laws affecting the enforceability
of creditors' rights generally, be enforceable by them in accordance with their
terms at the Closing, and no party thereto at any time from the execution
thereof until immediately after the Closing shall have been in violation of or
in default in complying with any material term thereof.

         Section 6.13 Due Diligence Review.

         Prior to the date of the Closing, Seller shall conduct a due diligence
review of the Purchaser and HEcom, including a review of the Schedules and the
documents referenced therein of Purchaser and HEcom delivered prior to the date
hereof and prior to the date of the Closing, and shall be reasonably satisfied
with the result of such review.

                                      -39-
<PAGE>

 VII.    COVENANTS AND AGREEMENTS OF SELLER

         Seller covenants and agree as follows:

         Section 7.01 Access.

         Until the earlier of the Closing and the rightful abandonment or
termination of this Agreement pursuant to the terms of this Agreement (the
"Release Time"), Seller will afford the officers, employees, counsel, agents,
investment bankers, accountants, and other representatives of the Purchaser and
HEcom and lenders, investors, and prospective lenders and investors free and
full access to the plants, properties, books, and records of Seller and the
Seller Subsidiaries, will permit them to make extracts from and copies of such
books and records, and will from time to time furnish the Purchaser and HEcom
with such additional financial and operating data and other information as to
the financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of Seller and the Seller Subsidiaries as the
Purchaser from time to time may request.

         Section 7.02 Conduct of Business.

         Until the Release Time, Seller will conduct its affairs and the affairs
of the Seller Subsidiaries so that at the Closing no representation or warranty
of Seller will be inaccurate in any material respects, no covenant or agreement
of Seller will be breached in any material respects, and no condition in any
Transaction Agreement will remain unfulfilled in any material respects by reason
of the actions or omissions of Seller or any Subsidiary. Except as otherwise
requested by the Purchaser in writing, until the Release Time, Seller and the
Seller Subsidiaries will, use their best efforts to preserve the business
operations of Seller and the Seller Subsidiaries intact, to keep available the
services of their present personnel, to preserve in full force and effect the
contracts, agreements, instruments, leases, licenses, arrangements, and
understandings of Seller and the Seller Subsidiaries, and to preserve the good
will of their suppliers, customers, and others having business relations with
any of them. Until the Release Time, Seller and the Seller Subsidiaries will
conduct their business and operations in all respects only in the ordinary
course.

         Section 7.03 Advice of Changes.

         Until the Release Time, Seller will immediately advise the Purchaser in
a detailed written notice of any fact or occurrence or any pending or threatened
occurrence of which it obtains knowledge and which (if existing and known at the
date of the execution of this Agreement) would have been required to be set
forth or disclosed in or pursuant to this Agreement or a Schedule or an Exhibit
hereto, which (if existing and known at any time prior to or at the Closing)
would make the performance by any party of a covenant contained in this
Agreement or any other Transaction Agreement impossible or make such performance
materially more difficult than in the absence of such fact or occurrence, or
which (if existing and known at the time of the Closing) would cause a condition
to any party's obligations under any Transaction Agreement not to be fully
satisfied.

                                      -40-
<PAGE>

         Section 7.04 Confidentiality.

         Seller shall insure that all confidential information which Seller, any
Seller Subsidiary, any of their respective officers, directors, employees,
counsel, agents, investment bankers, or accountants, or any stockholder of the
Seller or any Seller Subsidiary, any of their respective counsel, agents,
investment bankers, or accountants may now possess or may hereafter create or
obtain relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Purchaser, or any
Purchaser Subsidiary, any affiliate of any of them, or any customer or supplier
of any of them or any such affiliate shall not be published, disclosed, or made
accessible by any of them to any other person or entity at any time or used by
any of them except pending the Closing in the business and for the benefit of
Seller and the Seller Subsidiaries, in each case without the prior written
consent of the Purchaser; provided, however, that the restrictions of this
sentence shall not apply (a) after this Agreement is rightfully terminated, but
only to the extent such confidential information relates to the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Seller, of any Seller Subsidiary, of any affiliate of any of
them, or (insofar as such confidential information was obtained directly by
Seller, any Seller Subsidiary, or any such affiliate from any customer or
supplier of any of them) of any such customer or supplier, (b) as may otherwise
be required by law, (c) as may be necessary or appropriate in connection with
the enforcement of any Transaction Agreement, or (d) to the extent such
information shall have otherwise become publicly available. Seller shall, and
shall cause all other such persons and entities to, deliver to the Purchaser all
tangible evidence of such confidential information to which the restrictions of
the foregoing sentence apply at the Closing or the earlier rightful termination
of this Agreement.

         Section 7.05 Public Statements.

         Before Seller shall release any information concerning any Transaction
Agreement or any document contemplated thereby or in connection therewith, or
the transactions contemplated by, which is intended for or may result in public
dissemination thereof, it shall cooperate with the Purchaser, shall furnish
drafts of all documents or proposed oral statements to the Purchaser for
comments, and shall not release any such information without the written consent
of the Purchaser. Nothing contained herein shall prevent Seller from releasing
any information to any governmental authority if required to do so by law.

         Section 7.06 Other Proposals.

         Until the earlier of March 31, 2000 and Release Time, Seller shall not,
and shall neither authorize nor permit any officer, director, employee, counsel,
agent, investment banker, accountant, or other representative of Seller or of
any Seller Subsidiary, directly or indirectly, to: (a) initiate contact with any
person or entity (other than Purchaser or any Purchaser Subsidiary) in an effort
to solicit any Takeover Proposal (as such term is defined in this Section 7.06);
(b) cooperate with, or furnish or cause to be furnished any non-public
information concerning the business, properties, or assets of Seller or any
Seller Subsidiary to, any person or entity (other than Purchaser or any
Purchaser Subsidiary) in connection with any Takeover Proposal; (c) negotiate
with any person or entity (other than Purchaser or any Purchaser Subsidiary)
with respect to any Takeover Proposal; or (d) enter into any agreement or
understanding (other than the Transaction Agreements) with the intent to effect
a Takeover Proposal. Seller will immediately give written notice to the
Purchaser of the details of any Takeover Proposal of which any of them becomes
aware. As used in this Section 7.06, "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, (e) for a merger,
consolidation, reorganization, other business combination, or recapitalization
involving Seller or any Seller Subsidiary, for the acquisition of a 5% or
greater interest in the equity or in any class or series of capital stock of
Seller or any Seller Subsidiary, for the acquisition of the right to cast 5% or
more of the votes on any matter with respect to Seller or any Seller Subsidiary,
or for the acquisition of a substantial portion of any of their respective
assets other than in the ordinary course of their respective businesses, or (f)
the effect of which may be to prohibit, restrict, or delay the consummation of
any of the transactions contemplated by this Agreement or impair the
contemplated benefits to the Purchaser or HEcom of any of the transactions
contemplated by the Transaction Agreements.

                                      -41-
<PAGE>

         Section 7.07 Bulk Sales.

         The Purchaser hereby waives compliance by Seller with the provisions of
any applicable bulk sales laws and bulk sales tax laws.

         Section 7.08 Consents Without Any Condition.

         Seller shall not make any agreement or reach any understanding not
approved in writing by the Purchaser as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by the Transaction Agreements.

         Section 7.09 Noncompetition.

         If the Closing takes place, Seller agrees, in consideration of the
obligations of the Purchaser and HEcom hereunder: (a) for a period of five years
after the date of the Closing, Seller will not (i) compete with or be engaged in
the same business as, or Participate In (as hereinafter defined in this Section
7.09) any other business or organization which at any time during the five year
period after the date of the Closing competes with or is engaged in the same
business as, that entity which operates the business acquired under this
Agreement or any Seller Subsidiary, with respect to any product or service sold
or activity engaged in up to the time of the Closing in any geographical area in
which at the time of the Closing such product or service is sold or activity
engaged in or (ii) Participate In any other business or organization which at
any time during the five-year period after the date of the Closing uses a name
containing either the word "Health" or "Exchange" or words similar to or
susceptible of confusion with the word or any combination or abbreviation
thereof; (b) Seller will not directly or indirectly reveal the name of, solicit
or interfere with, or endeavor to entice away from that entity which operates
the business acquired under this Agreement, any Seller Subsidiary, the
Purchaser, or HEcom, any of their respective suppliers, customers, or employees;
and (c) Seller will not directly or indirectly employ any person who, at any
time up to the date of the Closing, was an employee of Seller, any Seller
Subsidiary, the Purchaser, or any Purchaser Subsidiary, within a period of five
years after such person leaves the employ of such corporation. As used in this
Section 7.09, "Participate In" shall mean "directly or indirectly, for its or
his own benefit or for, with, or through any other person or entity, own,
manage, operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director, officer,
employee, partner, consultant, agent, independent contractor, or otherwise with,
or acquiesce in the use of its name in." Seller agrees that the provisions of
this Section 7.09 are necessary and reasonable to protect that entity which
operates the business acquired under this Agreement, the Seller Subsidiaries,
the Purchaser, and HEcom in the conduct of their businesses. If any restriction
contained in this Section 7.09 shall be deemed to be invalid, illegal, or
unenforceable by reason of the extent, duration, or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form such restriction shall then be enforceable in the manner
contemplated hereby.

                                      -42-
<PAGE>

         Section 7.11 Future Name.

         Seller will not use or adopt, or cause or give permission to any person
or entity to use or adopt, a name containing either the word "Health" or
"Exchange" or words similar to or susceptible of confusion with the word or
"Health" or "Exchange" or any combination or abbreviation thereof.

         Section 7.12 File Tax Return.

         If the Closing takes place, Seller agrees to file, within the time
allowed by law, all federal, state, local, and foreign Tax Returns with the
appropriate jurisdictions, for the period January 1, 2000 through the date of
the Closing, to include therein all information required to be contained therein
relating to Seller and the Seller Subsidiaries for such period, and to pay all
Taxes with respect to Seller and the Seller Subsidiaries for such period in a
manner consistent with the allocation of the consideration paid by HEcom made
pursuant to Section 4.01(c).

         Section 7.13 Voting by Stockholders.

         Prior to Closing, Seller shall deliver to Purchaser and HEcom the
agreement (the "Seller Voting Agreement") of the holders of a majority of the
outstanding Seller Common Stock to the effect that, until the Release Time, they
will vote all securities of Seller which they are entitled to vote against (a)
any merger, consolidation, reorganization, other business combination, or
recapitalization involving Seller or any Seller Subsidiary, (b) any sale of
assets of Seller or any Seller Subsidiary, except as contemplated by this
Agreement, (c) any stock split, stock dividend, or reverse stock split relating
to any class or series of Seller's stock, (d) any issuance of any shares of
capital stock of Seller or any Seller Subsidiary, any option, warrant, or other
right calling for the issuance of any such share of capital stock, or any
security convertible into or exchangeable for any such share of capital stock,
(e) any authorization of any other class or series of stock of Seller or any
Seller Subsidiary, (f) the amendment of the certificate of incorporation (or
other charter document) or the by-laws of Seller or any Seller Subsidiary, or
(g) any proposition the effect of which may be to prohibit, restrict, or delay
the consummation of any of the transactions contemplated by this Agreement or
impair the contemplated benefits to the Purchaser or HEcom of the transactions
contemplated by this Agreement, and in favor of (h) the transactions
contemplated by, and in connection with, the Transaction Agreements.

         Section 7.14 Break-Up Fee.

         In the event that prior to the Release Time Seller shall terminate this
Agreement for any reason, including failure to use best efforts to perform its
obligations hereunder and satisfy the conditions required to be satisfied by it
prior to Closing pursuant hereto, but excluding the breach hereof by Purchaser
or HEcom, Seller shall be obligated to immediately pay to Purchaser by
electronic wire transfer or official bank or certified check next day New York
clearing house funds, an amount equal to the sum of $5.0 million plus all
accountable expenses of Purchaser incurred in connection with the transactions
contemplated by the Transaction Agreements.

                                      -43-
<PAGE>

         Section 7.15 Restrictions on Resale.

         Notwithstanding anything herein to the contrary, the Seller agrees
that, commencing on the Closing Date, the shares of Purchaser Common Stock or
Purchaser Preferred Stock issued and delivered pursuant to Section 4.01 hereof
shall be subject to the restrictions on resale set forth in this Section 7.15.
In connection with the liquidation of Seller pursuant to Section 4.04 hereof,
Seller shall distribute such securities to the stockholders of Seller upon the
effectiveness under the Securities Act of, pursuant to, and in accordance with,
the Registration Statement described in Section 8.09 hereof. Following such
distribution, (a) the number shares of Purchaser Common Stock and Purchaser
Preferred Stock held by the persons identified in Schedule 7.15(a) hereof and
set forth opposite their respective names therein shall be subject to no
additional restrictions on resale, which is anticipated to principally consist
of holders of Seller Common Stock received in satisfaction of indebtedness
except John Deere Health, Inc; (b) the number shares of Purchaser Common Stock
and Purchaser Preferred Stock held by the persons identified in Schedule 7.15(b)
hereof and set forth opposite their respective names therein shall not be
offered, sold, subject to any contract to sell, subject to any option for the
sale of, or otherwise disposed of, for the period commencing on the date of such
liquidating distribution and terminating at the close of business on the date
one calendar month thereafter, which is anticipated to principally consist of de
minim's holders of Seller Common Stock; (c) the number shares of Purchaser
Common Stock and Purchaser Preferred Stock held by the persons identified in
Schedule 7.15(c) hereof and set forth opposite their respective names therein
shall not be offered, sold, subject to any contract to sell, subject to any
option for the sale of, or otherwise disposed of, for the period commencing on
the date of such liquidating distribution and terminating at the close of
business on the date six calendar months thereafter, which is anticipated to
consist of holders of Seller Common Stock other than those named in clause
(a),(b), and (d) hereto; and (d) the remaining shares of Purchaser Common Stock
and Purchaser Preferred Stock shall not be offered, sold, subject to any
contract to sell, subject to any option for the sale of, or otherwise disposed
of, for the period commencing on the date of such liquidating distribution and
terminating at the close of business on the date one year thereafter, which is
anticipated to consist principally of officers, directors, and other affiliates
of the Seller. Further, until the close of business on the date one year
following each liquidating distribution, the Purchaser, if so requested by any
underwriter, placement agent, investment banker, or similar professions
assisting Purchaser in connection with any transaction thereby, shall have the
right to require such persons to cease all sales of such securities owned
thereby (as well as the shares of Purchaser Common Stock, if any, issued upon
conversion of the Purchaser Preferred Stock) for a period of 135 days in the
event that the Purchaser shall be engaged in any transaction, that, in the
discretion of such underwriter, placement agent, investment banker, or similar
professional, could be materially adversely affected by sales of such securities
by such persons. In order to enable Purchaser to enforce the aforesaid
restrictions on transfer, Purchaser shall be entitled to impose stop-transfer
instructions with respect to the securities of the shares of Purchaser Common
Stock and Purchaser Preferred Stock owned beneficially or of record by Seller or
the stockholders thereof until the end of the relevant period described in this
Section 7.15 and may require that restrictive legends with respect to such
restrictions on transfer be affixed to the stock certificates representing such
securities.

                                      -44-
<PAGE>

         Section 7.16 Repayment of Loans; Release of Liens.

         At or prior to Closing, (a) Seller shall repay the principal of,
premium (if any), and interest on the loans identified in Schedule 5.17 as being
owed by Seller or any Seller Subsidiary and (b) the secured party of any liens
on any assets (other than Excluded Assets) of the Seller or any Seller
Subsidiary shall have released such liens or executed and delivered to Purchaser
documentation reasonably satisfactory to purchaser and HEcom irrevocably
terminating such liens.

         Section 7.17 Other Agreements

         At or prior to the Closing, Seller shall execute and deliver to
Purchaser and HEcom each of the Transaction Agreements (other than this
Agreement) to which it is or shall be party.

VIII.    COVENANTS AND AGREEMENTS OF THE PURCHASER AND HECOM

         The Purchaser and HEcom covenant and agree as follows:

         Section 8.01 Capital Stock Changes.

                  If, prior to the time for issuance of any shares of Purchaser
Common Stock or shares of Purchaser Preferred Stock pursuant to Section 4.01,
the Purchaser Common Stock shall be recapitalized or reclassified or the
Purchaser shall effect any stock dividend, stock split, or reverse stock split
of the Purchaser Common Stock or the Purchaser shall merge, consolidate,
reorganize, or enter into another business combination with any other
corporation or shall sell or exchange all or substantially all of its assets,
then the shares of Purchaser Common Stock to be delivered thereafter under
Section 4.01 shall be appropriately and equitably adjusted to the kind and
amount of shares of stock and other securities and property which the holders of
such shares of Purchaser Common Stock would have been entitled to receive had
such stock been issued and outstanding as of the record date for determining
stockholders entitled to participate in such corporate event. The provisions of
this Section 8.01 shall apply to successive mergers, consolidations,
reorganizations, and combinations.

         Section 8.02 Access.

         Until the Release Time, Purchaser and HEcom will afford the officers,
employees, counsel, agents, investment bankers, accountants, and other
representatives of the Seller and lenders, investors, and prospective lenders
and investors free and full access to the plants, properties, books, and records
of Purchaser and the Purchaser Subsidiaries, will permit them to make extracts
from and copies of such books and records, and will from time to time furnish
the Seller with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of Purchaser and the
Purchaser Subsidiaries as the Seller from time to time may request. Until the
Release Time, Purchaser will cause the independent certified public accountants
of Purchaser to make available to the Seller and its independent certified
public accountants the work papers relating to the audits of Purchaser and the
Purchaser Subsidiaries referred to in Section 3.06.

                                      -45-
<PAGE>

         Section 8.03 Advice of Changes.

         Until the Release Time, Purchaser and HEcom will immediately advise the
Seller in a detailed written notice of any fact or occurrence or any pending or
threatened occurrence of which it obtains knowledge and which (if existing and
known at the date of the execution of this Agreement) would have been required
to be set forth or disclosed in or pursuant to this Agreement or a Schedule or
an Exhibit hereto, which (if existing and known at any time prior to or at the
Closing) would make the performance by any party of a covenant contained in any
Transaction Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which (if existing
and known at the time of the Closing) would cause a condition to any party's
obligations under any Transaction Agreement not to be fully satisfied.

         Section 8.04 Confidentiality.

         Purchaser shall insure that all confidential information which
Purchaser, any Purchaser Subsidiary, any of their respective officers,
directors, employees, counsel, agents, investment bankers, or accountants, or
any stockholder or of the Purchaser or any Purchaser Subsidiary, any of their
respective counsel, agents, investment bankers, or accountants may now possess
or may hereafter create or obtain relating to the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects of
the Seller or any Seller Subsidiary, any affiliate of any of them, or any
customer or supplier of any of them or any such affiliate shall not be
published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them except pending the Closing in the
business and for the benefit of Seller and the Seller Subsidiaries, in each case
without the prior written consent of the Seller; provided, however, that the
restrictions of this sentence shall not apply (a) after this Agreement is
rightfully terminated, but only to the extent such confidential information
relates to the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Purchaser, of any Purchaser
Subsidiary, of any affiliate of any of them, or (insofar as such confidential
information was obtained directly by Purchaser, any Purchaser Subsidiary, or any
such affiliate from any customer or supplier of any of them) of any such
customer or supplier, (b) as may otherwise be required by law, (c) as may be
necessary or appropriate in connection with the enforcement of any Transaction
Agreement, or (d) to the extent such information shall have otherwise become
publicly available. Purchaser shall, and shall cause all other such persons and
entities to, deliver to the Seller all tangible evidence of such confidential
information to which the restrictions of the foregoing sentence apply at the
Closing or the earlier rightful termination of this Agreement.

         Section 8.05 Public Statements.

         Before Purchaser or HEcom shall release any information concerning any
Transaction Agreement or any document contemplated thereby or in connection
therewith, or the transactions contemplated by, which is intended for or may
result in public dissemination thereof, it shall cooperate with the Seller,
shall furnish drafts of all documents or proposed oral statements to the Seller
for comments, and shall not release any such information without the written
consent of the Seller. Nothing contained herein shall prevent Purchaser from
releasing any information to any governmental authority if required to do so by
law.

                                      -46-
<PAGE>

         Section 8.06 Consents Without Any Condition.

         Purchaser shall not make any agreement or reach any understanding not
approved in writing by the Seller as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by this Agreement.

         Section 8.07 Additional Agreements.

         At or prior to the Closing, Purchaser and HEcom will execute and
deliver such of the Employment Agreements and the Escrow Agreement to which it
shall be party and shall deliver the Purchaser Voting Agreement.

         Section 8.08 Stock Options; Warrants.

         As of the date of the Closing, Purchaser shall grant to the individuals
identified in Schedule 8.08 hereof non-qualified or incentive stock options or
warrants, in its sole discretion, exercisable for the number of shares of
Purchaser Common Stock and upon the terms and conditions set forth in Schedule
8.08 hereof.

         Section 8.09 Registration Statement.

         The Purchaser shall prepare and file with the SEC within 120 days
following the date of the Closing, and shall use reasonable best efforts to
cause to become effective, a Registration Statement under the Securities Act
relating to the distribution of the shares of Purchaser Common Stock referenced
in Section 4.01(a)(i) and the shares of Purchaser Preferred Stock referenced in
Section 4.01(a)(iv) (and the shares of Purchaser Common Stock, if any, issuable
upon the conversion thereof) from the Seller to the stockholders thereof in
connection with the liquidation and distribution of the Seller and any Seller
Subsidiaries included in the Excluded Assets pursuant to Section 4.04 hereof.

         Section 8.10 Vote of Stockholders of Purchaser.

         Prior to Closing, Purchaser shall deliver to Seller the agreement (the
"Purchaser Voting Agreement") of the executive officers and directors of
Purchaser that they will vote all shares of Purchaser Common Stock in favor of
the transactions contemplated by, and in connection with the Transaction
Agreements. Purchaser agrees that the issues referred to in the Purchaser Voting
Agreement will be presented for the consideration of the stockholders of
Purchaser at the next meeting of stockholders of Purchaser and that the Board of
Directors of Purchaser recommends that the stockholders vote in favor of the
issues described in the Purchaser Voting Agreement.

         Section 8.11 Performance Milestones.

         Purchaser and Seller agree to develop an operating plan and Purchaser
agrees to use commercially reasonable efforts to ensure that the Performance
Milestones are satisfied.

                                      -47-
<PAGE>

         Section 8.12 Conduct of Business.

         Until the Release Time, Purchaser will conduct its affairs and the
affairs of the Purchaser Subsidiaries so that at the Closing no representation
or warranty of Purchaser will be inaccurate in any material respect, no covenant
or agreement of Purchaser will be breached in any material respect, and no
condition in any Transaction Agreement will remain unfulfilled in any material
respect by reason of the actions or omissions of Purchaser or any Purchaser
Subsidiary. Except as otherwise requested by the Seller in writing, until the
Release Time, Purchaser and the Purchaser Subsidiaries will use their best
efforts to preserve the business operations of Purchaser and the Purchaser
Subsidiaries intact, to keep available the services of their present personnel,
to preserve in full force and effect the contracts, agreements, instruments,
leases, licenses, arrangements, and understandings of Purchaser and the
Purchaser Subsidiaries, and to preserve the good will of their suppliers,
customers, and others having business relations with any of them. Until the
Release Time, Purchaser and the Purchaser Subsidiaries will conduct their
business and operations in all respects only in the ordinary course.

         Section 8.13 Schedules.

         Prior to the Closing, Purchaser and HEcom shall deliver to Seller the
Schedules and other documents required to be delivered thereby pursuant to the
terms of the Transaction Agreements.

IX.      MISCELLANEOUS

         Section 9.01 Brokerage Fees.

                  If any person (other than Ryan, Beck & Co.) shall assert a
claim to a fee, commission, or other compensation on account of alleged
employment as a broker or finder, or alleged performance of services as a broker
or finder, in connection with or as a result of any of the transactions
contemplated any Transaction Agreement, Seller shall (subject to the next
sentence) indemnify and hold harmless the Purchaser Indemnitees against any and
all losses, liabilities, claims, damages, and expenses whatsoever as and when
incurred arising out of, based upon, or in connection with such claim by such
person, and Seller shall at its sole expense defend any and all suits, actions,
proceedings (formal or informal), or investigations involving such claim that
may at any time be brought against any Indemnitee and satisfy promptly any
settlement or judgment arising therefrom; but if Seller fails to defend such
suit, action, proceeding, or investigation in a timely manner, the Purchaser or
any Purchaser Indemnitee made a defendant therein or a party thereto shall have
the right to defend and settle the same and pay any judgment or settlement
pertaining thereto as it or he may reasonably deem appropriate at the cost and
expense of Seller. If, however, it is ultimately determined in any such suit,
action, or proceeding (in which the Purchaser and all Purchaser Indemnitees made
a defendant therein or a party thereto were afforded the opportunity to have
their counsel participate in the defense) that the Purchaser or any Purchaser
Indemnitee made a defendant therein or a party thereto was the sole employer of
such broker or finder or services were performed solely for the Purchaser or any
Purchaser Indemnitee made a defendant therein or a party thereto, then Seller
shall not be responsible under this Section 9.01 and amounts theretofore paid by
them by reason of this Section 9.01 shall be reimbursed by the Purchaser or the
Indemnitee, as the case may be, who was the sole employer. All fees,
commissions, or other compensation on account of employment as a broker or
finder, or performance of services as a broker or finder, in connection with or
as a result of any of the transactions contemplated any Transaction Agreement by
Ryan, Beck & Co. shall be the liability and obligation of Purchaser.

                                      -48-
<PAGE>

         Section 9.02 Further Actions.

         At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of any Transaction Agreement.

         Section 9.03 Availability of Equitable Remedies.

         Since a breach of the provisions of this Agreement could not adequately
be compensated by money damages, any party shall be entitled, either before or
after the Closing, in addition to any other right or remedy available to it, to
an injunction restraining such breach or a threatened breach and to specific
performance of any such provision of this Agreement, and in either case no bond
or other security shall be required in connection therewith, and the parties
hereby consent to the issuance of such an injunction and to the ordering of
specific performance.

         Section 9.04 Survival.

         The covenants, agreements, representations, and warranties contained in
or made pursuant to this Agreement shall survive the Closing and any delivery of
the consideration described in Section 4.01 hereof by the Purchaser or HEcom,
irrespective of any investigation made by or on behalf of any party. The
statements contained in the Transaction Agreements other than this Agreement or
in any document executed by Seller or any Seller Subsidiary relating hereto or
thereto or delivered to the Purchaser or HEcom in connection with the
transactions contemplated hereby or thereby, or in any statement, certificate,
or other instrument delivered by or on behalf of Seller or any Seller
Subsidiary, pursuant hereto or thereto or delivered to the Purchaser or HEcom in
connection with the transactions contemplated hereby or thereby shall be deemed
representations and warranties, covenants and agreements, or conditions, as the
case may be, of Seller hereunder for all purposes of this Agreement (including
all statements, certificates, or other instruments delivered pursuant hereto or
thereto or delivered in connection with the transactions contemplated hereby or
thereby).

         Section 9.05 Modification.

         This Agreement and the Schedules and Exhibits hereto set forth the
entire understanding of the parties with respect to the subject matter hereof
(except as provided in Section 9.04), supersede all existing agreements among
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party with the approval of the Board of
Directors or by an officer of each corporate party.

                                      -49-
<PAGE>

         Section 9.06 Notices.

         Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States) or by Federal Express, Express Mail, or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications equipment) against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 9.06)
with a copy to each of the other parties hereto. Any notice given to any
corporate party shall be addressed to the attention of the Corporate Secretary.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9.06. Any notice or other communication given by
certified mail (or by such comparable method) shall be deemed given at the time
of certification thereof (or comparable act), except for a notice changing a
party's address which will be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 9.06 shall be deemed given
at the time of receipt thereof. A copy of any notice to Purchaser or HEcom shall
simultaneously be delivered in accordance with this Section 9.06 to Brock
Silverstein LLC, 800 Third Avenue, 21st Floor, New York, New York 10022. A copy
of any notice to Seller shall simultaneously be delivered in accordance with
this Section 9.06 to Winthrop & Weinstine, P.A., 3000 Dain Rauscher Plaza, 60
South Sixth Street, Minneapolis, Minnesota 55402.

         Section 9.07 Waiver.

         Any waiver by any party of a breach of any term of this Agreement shall
not operate as or be construed to be a waiver of any other breach of that term
or of any breach of any other term of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing and, in the case of a corporate
party, be authorized by a resolution of the Board of Directors or by an officer
of the waiving party.

         Section 9.09 Binding Effect.

         The provisions of this Agreement shall be binding upon and inure to the
benefit of Seller, the Purchaser, and HEcom and their respective successors and
shall inure to the benefit of each Purchaser Indemnitee and its successors and
assigns (if not a natural person) and his assigns, heirs, and personal
representatives (if a natural person).

         Section 9.10 No Third Party Beneficiaries.

         This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 9.10).

                                      -50-
<PAGE>

         Section 9.11 Separability.

         If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.

         Section 9.12 Headings.

         The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.

         Section 9.14 Counterparts; Governing Law.

         This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed by and construed in accordance
with the laws of New York, without giving effect to conflict of laws. Any
action, suit, or proceeding arising out of, based on, or in connection with this
Agreement or the transactions contemplated hereby may be brought in the United
States District Court for the Southern District of New York and each party
covenants and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such action, suit, or proceeding, any claim that it or he is
not subject personally to the jurisdiction of such court, that its or his
property is exempt or immune from attachment or execution, that the action,
suit, or proceeding is brought in an inconvenient forum, that the venue of the
action, suit, or proceeding is improper, or that this Agreement or the subject
matter hereof may not be enforced in or by such court.

                                      -51-
<PAGE>

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

                                           CLAIMSNET.COM, INC.

                                           By: ________________________________
                                               Name: Bo W. Lycke
                                               Title: Chairman of the Board of
                                               Directors, President and Chief
                                               Executive Officer

                                           HEALTHEXCHANGE.COM, INC.

                                           By: ________________________________
                                               Name: Bo W. Lycke
                                               Title: Chairman of the Board of
                                               Directors, President and Chief
                                               Executive Officer

                                           VHX COMPANY

                                           By: ________________________________
                                               Name:
                                               Title:

                                      -52-<PAGE>

                                                                    Exhibit 4.27

--------------------------------------------------------------------------------
                            THIRTY-THIRD SUPPLEMENTAL

                                    INDENTURE

                          DATED AS OF NOVEMBER 15, 1999

                                       TO

                              INDENTURE OF MORTGAGE

                           DATED AS OF JANUARY 1, 1941

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

                       PHILADELPHIA SUBURBAN WATER COMPANY

                                       TO

         CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee

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

                       $300,000,000 FIRST MORTGAGE BONDS,
                          1999 MEDIUM TERM NOTE SERIES
--------------------------------------------------------------------------------

<PAGE>

                  THIRTY-THIRD SUPPLEMENTAL INDENTURE dated as of the 15th day
of November, 1999, by and between PHILADELPHIA SUBURBAN WATER COMPANY, a
corporation duly organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company"), party of the first part, and CHASE MANHATTAN TRUST
COMPANY, NATIONAL ASSOCIATION, a national banking association (the "Trustee"),
party of the second part.

                  WHEREAS, the Company heretofore duly executed and delivered to
The Pennsylvania Company for Insurances on Lives and Granting Annuities, as
Trustee, an Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), which by reference is hereby made a part hereof, and in and by the
Original Indenture the Company conveyed and mortgaged to the Trustee certain
property therein described, to secure the payment of its bonds to be generally
known as its "First Mortgage Bonds" and to be issued under the Original
Indenture in one or more series as therein provided; and

                  WHEREAS, on March 29, 1947, concurrently with a merger of
Germantown Trust Company into The Pennsylvania Company for Insurances on Lives
and Granting Annuities, the name of the surviving corporation was changed to The
Pennsylvania Company for Banking and Trusts, on September 30, 1955, concurrently
with a merger of The First National Bank of Philadelphia into The Pennsylvania
Company for Banking and Trusts, the name of the surviving corporation was
changed to The First Pennsylvania Banking and Trust Company, and on June 3,
1974, by amendment to its Articles of Association, The First Pennsylvania
Banking and Trust Company was changed and converted into a national bank and
concurrently therewith changed its name to First Pennsylvania Bank N.A., and on
October 1, 1990, First Pennsylvania Bank N.A. merged with and into The
Philadelphia National Bank, which changed its name to CoreStates Bank, N.A., and
on October 10, 1995, Mellon Bank, N.A. succeeded CoreStates Bank, N.A. as
trustee, and on November 24, 1997, Chase Manhattan Trust Company, National
Association succeeded Mellon Bank, N.A. as Trustee, such mergers, changes of
name and succession as trustee not involving any change in the title, powers,
rights or duties of the Trustee, as trustee under the Original Indenture as
supplemented at the respective dates thereof; and

                  WHEREAS, the Company duly executed and delivered to the
Trustee a First Supplemental Indenture dated as of July 1, 1948, a Second
Supplemental Indenture dated as of July 1, 1952, a Third Supplemental Indenture
dated as of November 1, 1953, a Fourth Supplemental Indenture dated as of
January 1, 1956, a Fifth Supplemental Indenture dated as of March 1, 1957, a
Sixth Supplemental Indenture dated as of May 1, 1958, a Seventh Supplemental
Indenture dated as of September 1, 1959, an Eighth Supplemental Indenture dated
as of May 1, 1961, a Ninth Supplemental Indenture dated as of April 1, 1962, a
Tenth Supplemental Indenture dated as of March 1, 1964, an Eleventh Supplemental
Indenture dated as of November 1, 1966, a Twelfth Supplemental Indenture dated
as of January 1, 1968, a Thirteenth Supplemental Indenture dated as of June 15,
1970, a Fourteenth Supplemental Indenture dated as of November 1, 1970, a
Fifteenth Supplemental Indenture dated as of December 1, 1972, a Sixteenth
Supplemental Indenture dated as of May 15, 1975, a Seventeenth Supplemental
Indenture dated as of December 15, 1976, an Eighteenth Supplemental Indenture
dated as of May 1, 1977, a Nineteenth Supplemental Indenture dated as of June 1,
1980, a Twentieth Supplemental Indenture dated as of August 1, 1983, a
Twenty-First Supplemental Indenture, dated as of August 1, 1985, a Twenty-Second

                                       1
<PAGE>

Supplemental Indenture, dated as of April 1, 1986, a Twenty-Third Supplemental
Indenture, dated as of April 1, 1987, a Twenty-Fourth Supplemental Indenture,
dated as of June 1, 1988, a Twenty-Fifth Supplemental Indenture, dated as of
January 1, 1990, a Twenty-Sixth Supplemental Indenture, dated as of November 1,
1991, a Twenty-Seventh Supplemental Indenture, dated as of June 1, 1992,
Twenty-Eighth Supplemental Indenture, dated as of April 1, 1993, a Twenty-Ninth
Supplemental Indenture dated as of March 1, 1995, a Thirtieth Supplemental
Indenture dated as of August 15, 1995, a Thirty-First Supplemental Indenture
dated as of July 1, 1997 and a Thirty-Second Supplemental Indenture dated as of
October 1, 1999 to subject certain additional property to the lien of the
Original Indenture and to provide for the creation of additional series of
bonds; and

                  WHEREAS, the Company has issued under the Original Indenture,
as supplemented at the respective dates of issue, thirty-eight series of First
Mortgage Bonds designated, respectively, as set forth in the following table,
the Indenture creating each series and the principal amount of bonds thereof
issued being indicated opposite the designation of such series:

<TABLE>
<CAPTION>
Designation                              Indenture                                            Amount
<S>                                      <C>                                               <C>
3 1/4% Series due 1971                   Original                                          $16,375,000
9 5/8% Series due 1975                   Thirteenth Supplemental                            10,000,000
9.15% Series due 1977                    Fourteenth Supplemental                            10,000,000
3% Series due 1978                       First Supplemental                                  2,000,000
3 3/8% Series due 1982                   Second Supplemental                                 4,000,000
3.90% Series due 1983                    Third Supplemental                                  5,000,000
3 1/2% Series due 1986                   Fourth Supplemental                                 6,000,000
4 1/2% Series due 1987                   Fifth Supplemental                                  4,000,000
4 1/8% Series due 1988                   Sixth Supplemental                                  4,000,000
5% Series due 1989                       Seventh Supplemental                                4,000,000
4 5/8% Series due 1991                   Eighth Supplemental                                 3,000,000
4.70% Series due 1992                    Ninth Supplemental                                  3,000,000
6 7/8% Series due 1993                   Twelfth Supplemental                                4,500,000
4.55% Series due 1994                    Tenth Supplemental                                  4,000,000
10 1/8% Series due 1995                  Sixteenth Supplemental                             10,000,000
5 1/2% Series due 1996                   Eleventh Supplemental                               4,000,000
7 7/8% Series due 1997                   Fifteenth Supplemental                              5,000,000
8.44% Series due 1997                    Twenty-Third Supplemental                          12,000,000
9.20% Series due 2001                    Seventeenth Supplemental                            7,000,000
8.40% Series due 2002                    Eighteenth Supplemental                            10,000,000
5.95% Series due 2002                    Twenty-Seventh Supplemental                         4,000,000
12.45% Series due 2003                   Twentieth Supplemental                             10,000,000
13% Series due 2005                      Twenty-First Supplemental                           8,000,000
10.65% Series due 2006                   Twenty-Second Supplemental                         10,000,000
9.89% Series due 2008                    Twenty-Fourth Supplemental                          5,000,000
7.15% Series due 2008                    Twenty-Eighth Supplemental                         22,000,000
9.12% Series due 2010                    Twenty-Fifth Supplemental                          20,000,000
8 7/8% Series due 2010                   Nineteenth Supplemental                             8,000,000
6.50% Series due 2010                    Twenty-Seventh Supplemental                         3,200,000
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
<S>                                      <C>                                               <C>
9.17% Series due 2011                    Twenty-Sixth Supplemental                           5,000,000
9.93% Series due 2013                    Twenty-Fourth Supplemental                          5,000,000
9.97% Series due 2018                    Twenty-Fourth Supplemental                          5,000,000
9.17% Series due 2021                    Twenty-Sixth Supplemental                           8,000,000
6.35% Series due 2025                    Thirtieth Supplemental                             22,000,000
9.29% Series due 2026                    Twenty-Sixth Supplemental                          12,000,000

1995 Medium Term Note
   Series                                Twenty-Ninth Supplemental                          77,000,000
   7.72% Subseries A due 2025                         15,000,000
   6.82% Subseries B due 2005                         10,000,000
   6.89% Subseries C due 2015                         12,000,000
   6.99% Subseries D due 2006                         10,000,000
   7.47% Subseries E due 2003                         10,000,000
   6.83% Subseries F due 2003                         10,000,000
   7.06% Subseries G due 2004                         10,000,000

1997 Medium Term Note
   Series                                Thirty-First Supplemental                          65,000,000
   6.75% Subseries A due 2007                         10,000,000
   6.30% Subseries B due 2002                         10,000,000
   6.14% Subseries C due 2008                         10,000,000
   5.80% Subseries D due 2003                         10,000,000
   5.85% Subseries E due 2004                         10,000,000
   6.00% Subseries F due 2004                         15,000,000

6.00% Series due 2029                    Thirty-Second Supplemental                         25,000,000

</TABLE>
and

                  WHEREAS, all of the bonds of each of said series are presently
outstanding other than the bonds listed on Exhibit A attached hereto and made a
part hereof; and

                  WHEREAS, the Original Indenture and said Supplemental
Indentures were duly recorded in the Commonwealth of Pennsylvania on the dates
and in the office for the Recording of Deeds for the following counties in the
Mortgage Books and at the pages indicated in the following table:

                            [continued on next page]

                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                                               COUNTY
---------------------------------------------------------------------------------------------------------------------------------
                                                Bucks                  Chester               Delaware           Montgomery
---------------------------------------------------------------------------------------------------------------------------------
                             Date of
Indenture                    Recording     Book       Page       Book            Page     Book      Page      Book      Page
---------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>  <C>      <C>        <C>          <C>   <C>     <C>      <C>       <C>       <C>       <C>
Original                     2/20/41       496        1          H-13.Vol.307    20       1034      1         1625      1
First Supplemental           8/26/48       632        1          F-16.Vol.380    200      1668      169       2031      257
Second Supplemental          7/1/52        768        438        18.Vol.425      186      1962      376       2360      517
Third Supplemental           11/25/53      895        1          18.Vol.442      325      2052      1         2493      1
Fourth Supplemental          1/9/56        1089       155        Z-20.Vol.499    1        2199      1         2722      425
Fifth Supplemental           3/20/57       1181       316        B-22.Vol.536    601      2294      50        2850      335
Sixth Supplemental           5/9/58        1254       1          G-23            201      2380      039       2952      289
Seventh Supplemental         9/25/59       1332       509        B-25            109      2442      1         3090      249
Eighth Supplemental          5/9/61        -          -          Z-26            17       2526      312       -         -
Eighth Supplemental          5/10/61       1409       225        -               -        -         -         3249      289
Ninth Supplemental           4/10/62       1458       372        G-28            126      2581      463       3307      169
Tenth Supplemental           3/19/64       1568       1          M-30            967      2976      1043      3310      237
Eleventh Supplemental        11/4/66       1655       695        Q-32            6682     762       223       3549      129
Twelfth Supplemental         1/23/68       1691       531        N-33            219      2792      708       3542      315
Thirteenth Supplemental      7/2/70        1763       1167       D-35            80       2850      301       3687      23
Fourteenth Supplemental      11/5/70       1774       331        K-35            713      2858      3113      700       548
Fifteenth Supplemental       12/11/72      1869       196        O-37            998      2926      550       3786      96
Sixteenth Supplemental       5/28/75       1979       14         E-44            77       3005      511       4010      307
Seventeenth Supplemental     12/18/77      2072       683        L-51            1        3072      43        5002      436
Eighteenth Supplemental      4/29/77       2082       567        B-52            344      3078      728       5003      291
Nineteenth Supplemental      6/23/80       2303       714        J-62            92       3261      293       5030      502
Twentieth Supplemental       8/2/83        2487       370        D-72            1        96        810       5662      1045
Twenty-First Supplemental    8/27/85       2690       806        54              550      -         -         5864      1347
Twenty-First Supplemental    8/28/85       -          -          -               -        264       159       -         -
Twenty-Second Supplemental   4/22/86       2774       160        263             275      326       592       5944      360
Twenty-Third Supplemental    4/1/87        2960       693        -               -        -         -         -         -
Twenty-Third Supplemental    4/2/87        -          -          680             337      447       1807      6115      602
Twenty-Fourth Supplemental   7/25/88       3199       1095       1224            389      0593      0585      6324      143
Twenty-Fifth Supplemental    1/12/90       0136       0250       1848            205      731       1571      6538      376
Twenty-Sixth Supplemental    11/8/91        369       2190       2660            205      894       2241      6780      891
Twenty-Seventh Supplemental  6/29/92       0487       1829       3055            182      0969      2023      6918      302
Twenty-Eighth Supplemental   4/22/93       0652       1335       3542            1542     1081      0852      7112      0539
Twenty-Ninth Supplemental    3/30/95       1045       1872       3875            1368     1349      0829      7561      1155
Thirtieth Supplemental       8/30/95       1111       0798       3932            0471     1393      2255      7631      0689
Thirty-First Supplemental    7/11/97       1421       2196       4201            2133     1607      138       7968      797
Thirty -Second Supplemental  10/6/99                                                      1936      1207      8548      1067
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       4
<PAGE>

   and
                  WHEREAS, the Original Indenture was recorded in Berks County
on August 16, 1999 and the Thirty-Second Supplemental Indenture was recorded in
Berks County on October 6, 1999 in Books 3113 and 3132 at Pages 707 and 1510,
respectively; and

                  WHEREAS, the Company proposes to create under the Original
Indenture, as supplemented, one or more new series of bonds to be designated
"First Mortgage Bonds, 1999 Medium Term Note Series, Subseries __" (the "Bonds")
to be limited in aggregate principal amount to $300,000,000, to be issued
hereunder only as registered bonds without coupons, to be dated as provided in
the Original Indenture and this Thirty-Third Supplemental Indenture, to bear
interest at the rates and mature on the dates as determined hereunder by the
Company; and

                  WHEREAS, the Bonds may be issued in a single series or from
time to time in more than one series designated as a "subseries" and, if so
issued in more than one subseries, each subseries of the Bonds shall bear a
separate letter designation and the first such subseries of the Bonds shall be
designated "First Mortgage Bonds, 1999 Medium Term Note Series, Subseries A";
and

                  WHEREAS, the Company proposes to issue $300,000,000 principal
amount of the Bonds under the provisions of Article IV of the Original
Indenture, as supplemented by this Thirty-Third Supplemental Indenture, in one
or more transactions over a period of up to five years from November 18, 1999
through November 17, 2004 (the "Offering Period"), and, for each such
transaction, will comply with the provisions thereof as well as with other
provisions of the Original Indenture and indentures supplemental thereto in
connection with the issuance of additional bonds so that it will be entitled to
procure the authentication and delivery of the Bonds; and

                                       5
<PAGE>

                  WHEREAS, Article XVIII of the Original Indenture provides that
the Company, when authorized by resolution of its Board of Directors, may with
the Trustee enter into an indenture supplemental to the Original Indenture,
which thereafter shall form a part of the Original Indenture, for the purposes,
inter alia, of subjecting to the lien of the Original Indenture additional
property, of defining the covenants and provisions applicable to any bonds of
any series other than the 3 1/4% Series due 1971, of adding to the covenants and
agreements of the Company contained in the Original Indenture other covenants
and agreements thereafter to be observed by the Company, of surrendering any
right or power in the Original Indenture reserved to or conferred upon the
Company, and of making such provisions in regard to matters or questions arising
under the Original Indenture as may be necessary or desirable and not
inconsistent therewith; and

                  WHEREAS, in addition to the property described in the Original
Indenture and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,
Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh,
Twenty-Eighth, Twenty-Ninth, Thirtieth, Thirty-First and Thirty-Second
Supplemental Indentures, the Company has acquired or will acquire certain other
property and desires to confirm the lien of the Original Indenture thereon; and

                  WHEREAS, the Company, by proper corporate action, has duly
authorized the creation of said new series of Bonds (to be issued in accordance
with the terms and provisions of the Original Indenture and indentures
supplemental thereto, including this Thirty-Third Supplemental Indenture, and to
be secured by said Original Indenture and indentures supplemental thereto,
including this Thirty-Third Supplemental Indenture), and has further duly
authorized the execution, delivery and recording of this Thirty-Third
Supplemental Indenture setting forth the terms and provisions of the Bonds
insofar as said terms and provisions are not set forth in said Original
Indenture; and

                  WHEREAS, the Bonds and the Trustee's certificate upon said
Bonds are to be substantially in the following form - the proper amount, names
of registered owners and numbers to be inserted therein, and such appropriate
insertions, omissions and changes to be made therein as may be required or
permitted by this Thirty-Third Supplemental Indenture to conform to any
pertinent law or usage:

                            [continued on next page]

                                       6
<PAGE>

THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND SALES OR OTHER TRANSFERS HEREOF MAY BE MADE ONLY TO QUALIFIED
INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE ACT ("QUALIFIED
INSTITUTIONAL BUYERS"), APPROVED BY [AGENT(S)] OR ANOTHER DULY APPOINTED
PLACEMENT AGENT (THE "PLACEMENT AGENTS") OR BY THE COMPANY IN TRANSACTIONS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE ACT.

BY ITS ACCEPTANCE OF THIS BOND, THE HOLDER REPRESENTS AND AGREES THAT IT IS A
QUALIFIED INSTITUTIONAL BUYER AND THAT THIS BOND IS BEING ACQUIRED FOR ITS OWN
ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY FOR OTHERS FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE PUBLIC
DISTRIBUTION HEREOF IN ANY TRANSACTION THAT WOULD BE IN VIOLATION OF FEDERAL OR
STATE SECURITIES LAWS, AND THAT ANY RESALE OR OTHER TRANSFER HEREOF OR ANY
INTEREST HEREIN PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF (A) ITS
DATE OF ISSUE OR (B) THE LAST DATE ON WHICH THE COMPANY OR ANY OF ITS AFFILIATES
WAS THE BENEFICIAL OWNER HEREOF WILL BE MADE ONLY (1) TO A PLACEMENT AGENT OR
THE COMPANY, (2) THROUGH ANY PLACEMENT AGENT OR BY ANY PLACEMENT AGENT ACTING AS
PRINCIPAL TO A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE APPROVED BY SUCH
PLACEMENT AGENT, (3) DIRECTLY TO A QUALIFIED INSTITUTIONAL BUYER APPROVED BY THE
COMPANY IN A TRANSACTION APPROVED BY THE COMPANY, (4) THROUGH A DEALER OTHER
THAN A PLACEMENT AGENT TO A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE IN A
TRANSACTION APPROVED BY THE COMPANY, OR (5) DIRECTLY TO A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION THAT MEETS THE REQUIREMENTS OF RULE 144A
UNDER THE ACT, SUBJECT TO IN EACH CASE THE DISPOSITION OF THE PURCHASER'S
PROPERTY BEING AT ALL TIMES WITHIN ITS CONTROL. IN THE CASE OF CERTIFICATED
BONDS, ANY TRANSFER DESCRIBED IN CLAUSE (3), (4) OR (5) ABOVE REQUIRES THE
SUBMISSION TO THE TRUSTEE (AS DEFINED HEREIN) OR DULY AUTHORIZED PAYING AGENT
(AS DEFINED HEREIN) OF THE CERTIFICATE OF TRANSFER ATTACHED HERETO DULY
COMPLETED OR A DULY COMPLETED TRANSFER INSTRUMENT SUBSTANTIALLY IN THE FORM OF
THE CERTIFICATE OF TRANSFER. THE COMPANY SHALL NOT RECOGNIZE ANY RESALE OR OTHER
TRANSFER, OR ATTEMPTED RESALE OR OTHER TRANSFER, OF THIS BOND NOT MADE IN
COMPLIANCE WITH THE FOREGOING PROVISIONS. THIS BOND AND RELATED DOCUMENTATION
MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON
THE PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS BOND TO REFLECT ANY
CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR
PROVIDE ALTERNATIVE PROCEDURES IN COMPLIANCE WITH APPLICABLE LAW AND PRACTICES
RELATING TO THE RESALE OR OTHER TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE
HOLDER OF THIS BOND SHALL BE DEEMED, BY THE ACCEPTANCE OF THIS BOND, TO HAVE
AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.

[Bonds eligible for deposit at The Depository Trust Company shall also bear the
following legend:]

THIS BOND IS A PERMANENT GLOBAL BOND. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OR TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

                                       7
<PAGE>

No. R-                                                                $_________

                           PHILADELPHIA SUBURBAN WATER
                                     COMPANY

                (Incorporated under the Laws of the Commonwealth
                                of Pennsylvania)

               First Mortgage Bond, 1999 Medium Term Note Series,
                                 Subseries _____

PRINCIPAL AMOUNT ______________________________
ORIGINAL ISSUE DATE ___________________________
INTEREST RATE _________________________________
MATURITY DATE _________________________________
INITIAL REDEMPTION DATE _______________________
INITIAL REDEMPTION PERCENTAGE _________________
ANNUAL REDEMPTION REDUCTION PERCENTAGE ________
[OPTIONAL TENDER DATE__________________________]

                  Philadelphia Suburban Water Company, a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania (hereinafter
called the "Company", which term shall include any successor corporation as
defined in the Indenture hereinafter referred to), for value received, hereby
promises to pay to Cede & Co., as nominee for The Depository Trust Company
("DTC") or its registered assigns, on the Maturity Date referred to above, the
sum of and to pay interest thereon at the Interest Rate per annum specified
above, until the principal hereof is paid or duly made available for payment,
semiannually on January 1 and July 1 (each an "Interest Payment Date") in each
year commencing on the first Interest Payment Date next succeeding the Original
Issue Date specified above (the "Original Issue Date"), unless the Original
Issue Date or the date of authentication occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date, in which case
commencing on the second Interest Payment Date succeeding the Original Issue
Date, to the registered holder of this bond of the 1999 Medium Term Note Series,
as defined below, on the Record Date with respect to such Interest Payment Date,
and on the maturity date specified on the face hereof (the "Maturity Date"), any
date fixed for redemption pursuant to the terms hereof (the "Redemption Date")
or any date fixed for the optional tender pursuant to the terms hereof (the
"Tender Date"). Interest on this Bond of the 1999 Medium Term Note Series, as
defined below, will accrue from the most recent Interest Payment Date to which
interest has been paid or duly provided for or, if no interest has been paid,
from the Original Issue Date specified above, until the principal hereof has
been paid or made duly available for payment. If the Maturity Date (or any
Redemption Date or Tender Date) or an Interest Payment Date falls on a day which
is not a Business Day, as defined below, principal (and premium, if any) or

                                       8
<PAGE>

interest payable with respect to such Maturity Date (or Redemption Date or
Tender Date) or Interest Payment Date will be paid on the next succeeding
Business Day with the same force and effect as if made on such Maturity Date (or
Redemption Date or Tender Date) or Interest Payment Date, as the case may be,
and no interest shall accrue with respect to such payment for the period from
and after such Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, subject to certain exceptions, be paid to the
nominee of DTC, in whose name this Bond of the 1999 Medium Term Note Series is
registered at the close of business on the Record Date for such interest, which
shall be the 15th day of the calendar month preceding such Interest Payment
Date; provided, however, that interest payable on the Maturity Date (or any
Redemption Date or Tender Date) will be payable to the person to whom the
principal hereof shall be payable. As used herein, "Business Day" means any day
other than a Saturday or Sunday, on which the Trustee, any paying agent, or
banks in New York, New York are not required or authorized by law, or executive
order, to close.

                  The interest so payable will (except as otherwise provided in
the Thirty-Third Supplemental Indenture referred to herein) be calculated on the
basis of a 360-day year of twelve 30-day months.

                  This bond is one of a duly authorized issue of bonds of the
Company known as its First Mortgage Bonds, issued and to be issued without
limitation as to aggregate principal amount except as set forth in the Indenture
hereinafter mentioned in one or more series and equally secured (except insofar
as a sinking fund or other similar fund established in accordance with the
provisions of the Indenture may afford additional security for the bonds of any
specific series) by an Indenture of Mortgage (herein called the "Indenture")
dated as of January 1, 1941, executed by the Company to The Pennsylvania Company
for Insurances on Lives and Granting Annuities (now Chase Manhattan Trust
Company, National Association, as successor trustee), as Trustee (hereinafter
called the "Trustee"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security, the rights of the holders and
registered owners of the bonds and of the Trustee in respect of such security,
and the terms and conditions under which the bonds are and are to be secured and
may be issued under the Indenture; but neither the foregoing reference to the
Indenture nor any provision of this bond or of the Indenture or of any indenture
supplemental thereto shall affect or impair the obligation of the Company, which
is absolute and unconditional, to pay at the stated or accelerated maturity
herein and in the Indenture provided, the principal of, (premium if any) and
interest on this bond as herein provided. As provided in the Indenture, the
bonds may be issued in series for various principal amounts, may bear different
dates and mature at different times, may bear interest at different rates and
may otherwise vary as in the Indenture provided or permitted. This bond is one
of the bonds described in an indenture supplemental to said Indenture known as
the "Thirty-Third Supplemental Indenture" dated as of November 15, 1999, and
designated therein as "First Mortgage Bonds, 1999 Medium Term Note Series,
Subseries __" (the "Bonds of the 1999 Medium Term Note Series").

                  The Bonds of the 1999 Medium Term Note Series will be issued
in fully registered form, without coupons. The Bonds of the 1999 Medium Term
Note Series will be deposited with, or on behalf of DTC and registered in the
name of a nominee of DTC in the form of one or more global securities (the
"Global Bonds")

                                       9
<PAGE>

or will remain in the custody of the Trustee pursuant to a Medium-Term Note
Certificate Agreement, dated December 2, 1988, between DTC and The Chase
Manhattan Bank, which was merged into Chemical Bank, which changed its name to
The Chase Manhattan Bank. DTC was created to hold securities of persons who have
accounts with DTC ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants.

                  Upon the issuance of a Global Bond, DTC or its nominees will
credit the respective Bonds of the 1999 Medium Term Note Series represented by
such Global Bond to accounts of participants. The accounts to be credited shall
be designated by the purchasers. Ownership of beneficial interests in such
Global Bonds will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Bonds will be shown on, and the transfer of those ownership interests
will be effected only through, records maintained by DTC or its nominee for such
Global Bonds. Ownership of beneficial interests in such Global Bonds by persons
that hold through participants will be shown on, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant.

                  So long as DTC or its nominee is the registered owner of a
Global Bond, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of those Bonds of the 1999 Medium Term Note Series
beneficially owned by other persons for all purposes under the Indenture. Except
as set forth below, owners of beneficial interests in such Global Bonds will not
be entitled to have the Bonds of the 1999 Medium Term Note Series registered in
their names, will not receive or be entitled to receive physical delivery of the
Bonds of the 1999 Medium Term Note Series in definitive form and will not be
considered the owners or holders thereof under the Indenture.

                  Payment of principal of and any interest on the Bonds of the
1999 Medium Term Note Series registered in the name of or held by DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner or the holder of the Global Bond. Neither the Company, the
Trustee nor any paying agent for the Bonds of the 1999 Medium Term Note Series
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a Global
Bond or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. Payment of principal or any interest on the
Certificated Bonds (as defined below), if any, will be made to the registered
owners thereof.

                  The Company expects that DTC, upon receipt of any payment of
principal or interest in respect of a permanent Global Bond, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Bond as shown on the records of DTC. The Company also expects that payments by
participants to owners of beneficial interests in such Global Bond held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name", and will be the responsibility of
such participants.

                                       10
<PAGE>

                  A Global Bond may not be transferred except as a whole by DTC
to a nominee or a successor of DTC. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue Bonds of the 1999 Medium Term
Note Series in definitive registered form (the "Certificated Bonds") in exchange
for the Global Bond or Bonds representing such Bonds of the 1999 Medium Term
Note Series. In addition, the Company may at any time and in its sole discretion
determine not to have some of or all the bonds of the 1999 Medium Term Note
Series represented by one or more Global Bonds and, in such event, will issue
bonds of the 1999 Medium Term Note Series in definitive registered form in
exchange for all of the Global Bonds representing such Bonds of the 1999 Medium
Term Note Series. In any such instance, an owner of a beneficial interest in a
Global Bond will be entitled to physical delivery of Certificated Bonds
represented by such Global Bond equal in amount to that represented by such
beneficial interest and to have such Certificated Bonds registered in its name.

                  Payments of principal, premium, if any, and interest shall be
made in such coin or currency of the United States as at the time of payment is
legal tender for the payment of public and private debts. Payments of interest,
other than interest payable at the Maturity Date, or any earlier Redemption Date
or Tender Date, will be paid in immediately available funds by wire transfer to
the account of Cede & Co., as nominee for DTC, or, in the case of Certificated
Bonds, by check mailed to the registered holder of such bond at the address
shown in the Register maintained by the Trustee, or at the option of the
registered holder, at such place in the United States of America as the
registered holder shall designate to the Trustee in writing. Notwithstanding the
foregoing, the registered holder of $10,000,000 or more of Certificated Bonds
with the same Interest Payment Date shall be entitled to receive payment by wire
transfer of immediately available funds, provided that written instructions
designating the account number and bank in New York, New York (or other bank
consented to by the Company) shall have been received by the Trustee not less
than ten (10) days prior to the Record Date for such Interest Payment Date. Once
such wire transfer instructions have been received by the Trustee they shall
remain in effect unless (i) the Trustee is notified, in writing, of a change
thereof not less than ten (10) days prior to the Record Date for an Interest
Payment Date; or (ii) the registered holder no longer holds an aggregate
principal amount of at least $10,000,000 of Certificated Bonds having the same
Interest Payment Date.

                  The principal amount hereof, premium, if any, and interest due
on the Redemption Date, Tender Date or at the Maturity Date will be paid on the
Redemption Date, Tender Date or at the Maturity Date in immediately available
funds by wire transfer to such account at a bank in New York, New York (or such
other bank consented to by the Company) as such holder of the bond of the 1999
Medium Term Note Series shall have designated for such payment or for the
payment of interest as provided above. Payment to a registered holder of Bonds
of the 1999 Medium Term Note Series for which appropriate instructions for
payment have not been received by the Trustee not later than ten (10) days prior
to the related date of payment shall be made by check mailed by the Trustee to
the person entitled thereto at such person's address appearing in the registry
maintained by the Trustee. Wire transfer instructions received by the Trustee in
connection with the payment of principal, premium, if any, and interest due on
the Redemption Date, Tender Date or the Maturity Date of the Bond of the 1999
Medium Term Note Series shall remain in effect unless the Trustee is notified of
a change thereof not less than ten (10) days prior to the Redemption Date,
Tender Date or Maturity Date. Payment of principal, premium, if any, and
interest due on the Redemption Date, Tender Date or the Maturity Date on the
Bond of the 1999 Medium Term Note Series shall only be made against presentation
and surrender of this bond at a delivery office designated by the Trustee and
maintained for that purpose in Dallas, Texas, or at such other office or agency
of the Company as the Company shall designate.

                                       11
<PAGE>

                  So long as the Bonds of the 1999 Medium Term Note Series are
in book-entry form represented by Global Bonds registered in the name of Cede &
Co., or another nominee of DTC, then Cede & Co., or such other nominee of DTC,
as the case may be, will be considered the sole owner or holder of the Bonds of
the 1999 Medium Term Note Series represented by such Global Bond for the purpose
of receiving payment on the Bonds of the 1999 Medium Term Note Series, receiving
notices and for all other purposes under the Indenture or the Global Bond.
Ownership of beneficial interests in Global Bonds will be limited to persons who
have accounts with DTC (the "participants") or persons that may hold interests
through participants. Beneficial interests in a Global Bond will be evidenced
only by, and transfers thereof will be effected only through, records maintained
by DTC. Ownership of beneficial interests in such Global Bonds by persons that
hold through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. In the case of Certificated Bonds, subject to
certain restrictions set forth on the face hereof and in the Indenture, this
bond may be transferred at the aforesaid office of the Trustee by surrendering
this bond for cancellation, accompanied by a written instrument of transfer in
form satisfactory to the Trustee and duly executed by the registered holder
hereof in person or by the holder's attorney duly authorized in writing, and
thereupon the Trustee will issue in the name of the transferee or transferees,
in exchange hereof, a new bond or bonds having identical terms and provisions
and having a like aggregate principal amount in authorized denominations,
subject to the terms and conditions set forth herein; provided, however, that
the Trustee will not be required to register the exchange or transfer of any
Bond of the 1999 Medium Term Note Series after the first notice of redemption of
such bond has been mailed or after the first notice of Tender (hereinafter
defined) of such Bond has been received by the Trustee or during a period
beginning at the opening of business ten (10) days preceding an Interest Payment
Date. Bonds of the 1999 Medium Term Note Series are exchangeable at said office
for other Bonds of the 1999 Medium Term Note Series of other authorized
denominations of equal aggregate principal amount and having identical terms and
provisions. All such exchanges of Bonds of the 1999 Medium Term Note Series will
be free of charge, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge in connection therewith. All bonds of
the 1999 Medium Term Note Series surrendered for exchange shall be accompanied
by a written instrument of transfer in the form attached hereto to the Trustee
and executed by the registered holder in person or by the holder's attorney duly
authorized in writing.

                  To the extent permitted by and as provided in the Indenture,
modifications or alterations of the Indenture, or of any indenture supplemental
thereto, and of the rights and obligations of the Company and of the holders and
registered owners of bonds issued and to be issued thereunder may be made with
the consent of the Company by an affirmative vote of the holders and registered
owners of not less than 75% in principal amount of bonds then outstanding under
the Indenture and entitled to vote, at a meeting of the bondholders called and
held as provided in the Indenture, and, in case one or more but less than all of
the series of bonds then outstanding under the Indenture are so affected, by an
affirmative vote of the holders and registered owners of not less than 75% in
principal amount of bonds of any series then outstanding under the Indenture and
entitled to vote on and affected by such modification or alteration, or by the
written consent of the holders and registered owners of such percentages of

                                       12
<PAGE>

bonds; provided, however, that no such modification or alteration shall be made
which shall reduce the percentage of bonds the consent of the holders or
registered owners of which is required for any such modification or alteration
or which shall affect the terms of payment of the principal of or interest on
the bonds, or permit the creation by the Company of any lien prior to or on a
parity with the lien of the Indenture with respect to any property subject to
the lien of the Indenture as a first mortgage lien thereon, or which shall
affect the rights of the holders or registered owners of less than all of the
bonds of any series affected thereby.

                  The Bonds of the 1999 Medium Term Note Series are subject to
redemption at the option of the Company on or after the Initial Redemption Date
specified on the face hereof (if any), either as a whole or in part, in
increments of $1,000 (provided that any remaining principal hereof shall be at
least $100,000) on any Interest Payment Date in coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts at the Redemption Price equal to the Initial Redemption
Percentage specified on the face hereof of the principal amount hereof, which
shall decline on each anniversary of the Initial Redemption Date by the Annual
Redemption Reduction Percentage specified on the face hereof of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount, in each case plus accrued interest to the Redemption Date.

                  The Bonds of the 1999 Medium Term Note Series are subject to
mandatory redemption (i) in connection with the sale to or other acquisition by
or on behalf of one or more governments or municipal corporations or other
governmental subdivisions, bodies, authorities or agencies of all or
substantially all of the property of the Company, or (ii) in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
occurring in connection with or subsequent to the acquisition of all or
substantially all of the stock of the Company ordinarily entitled to voting
rights by or on behalf of one or more governments or municipal corporations or
other governmental subdivisions, bodies, authorities or agencies. In such a
mandatory redemption, the Bonds of the 1999 Medium Term Note Series are
redeemable in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts, at
one hundred per cent (100%) of the principal amount thereof, together with
interest accrued thereon to the Redemption Date.

                  Any redemption shall be effected by notice mailed to the
registered owners thereof, as provided in the Indenture, at least thirty (30)
days before the Redemption Date, all on the conditions and in the manner
provided in the Indenture.

                  If this bond or any portion hereof is called for redemption
and payment thereof is duly provided for as specified in the Indenture, interest
shall cease to accrue hereon or on such portion, as the case may be, from and
after the Redemption Date. In the event of redemption of this bond in part only,
a new bond for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the surrender hereof.

                                       14
<PAGE>

                  [Tender Bonds only - This bond is subject to optional tender
("Tender"), in its entirety, by holders thereof on the first Interest Payment
Date ("Tender Date") next succeeding the tenth anniversary of the Original Issue
Date in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts at a tender
price ("Tender Price") of one hundred percent (100%) of the principal amount
thereof, plus accrued interest to the Tender Date.

                  Any Tender shall be effectuated by (1) notice ("Tender
Notice") mailed (by registered mail with return receipt requested or other
courier or express delivery service) by the registered owner of a Bond of the
1999 Medium Term Note Series to the Trustee at least thirty (30) days prior to
the Tender Date, and (2) presentment to the Trustee of said Bond[s] of the 1999
Medium Term Note Series at least five (5) Business Days prior to the Tender
Date.

                  If a Bond of the 1999 Medium Term Note Series which is subject
to Tender is tendered and payment thereof is duly provided for, interest shall
cease to accrue hereon from and after the Tender Date.

                  By delivery of the Tender Notice, the owner irrevocably agrees
to deliver the bond or bonds described therein (if such bonds are in
certificated form) to the delivery office of the Trustee at least five (5)
Business Days prior to the Tender Date. The determination by the Trustee of a
bondholder's compliance with the requirement of the Tender Notice is in its sole
discretion and binding on the Company and the holder of the bond or bonds. Any
Tender Notice which is determined not to be in compliance with the Thirty-Third
Supplemental Indenture shall be of no force and effect.

                  If a holder who gives a Tender Notice shall fail to deliver
the bond identified in the Tender Notice to the Trustee at or prior to 10:00
a.m. on the Purchase Date, such bond shall be deemed purchased and shall cease
to accrue interest on such Tender Date and the holder thereof shall thereafter
be entitled only to payment of the Tender Price therefor and to no other
benefits of the Thirty-Third Supplemental Indenture.

                  Notwithstanding anything to the contrary herein, the right of
the holders of a bond to tender the bonds shall cease immediately and without
further notice from and including the date on which the Trustee notifies the
holder of such bond of an acceleration under Article XI of the Indenture.]

                  The principal hereof may be declared or may become due prior
to its Maturity Date on the conditions, in the manner and with the effect set
forth in the Indenture upon the happening of an event of default, as in the
Indenture provided; subject, however, to the right, under certain circumstances,
of the registered owners of a majority in principal amount of bonds then
outstanding, including the Bonds of the 1999 Medium Term Note Series, to annul
such declaration.

                  The Company, the Trustee and any Paying Agent may deem and
treat the registered owner of this bond as the absolute owner hereof for the
purpose of receiving payment of or on account of the principal hereof and the
interest hereon, and for all other purposes, and shall not be affected by any
notice to the contrary.

                                       14
<PAGE>

                  When any notice to holders of the Bonds of the 1999 Medium
Term Note Series requesting consents, waivers, votes or other actions of such
holders is given by the Trustee hereunder at any time that the Bonds of the 1999
Medium Term Note Series are represented by Global Bonds registered in the name
of Cede & Co., or another nominee of DTC, such notice shall be sent by the
Trustee to DTC with a request that DTC forward (or cause to be forwarded) the
notice to the DTC participants so that DTC participants may forward (or cause to
be forwarded) the notice to the beneficial owners. The Trustee shall be entitled
to rely on any omnibus proxy delivered by DTC and to consider those DTC
participants to whose account the Bonds of the 1999 Medium Term Note Series are
credited on any record date or special record date, as appropriate, and
identified in a listing attached to the omnibus proxy, as owners of the
aggregate amount of Bonds of the 1999 Medium Term Note Series set forth on such
listing for purposes of any consent, waiver, vote or other action of holders of
such Bonds of the 1999 Medium Term Note Series.

                  No recourse shall be had for the payment of the principal of
or interest on this bond or for any claim based hereon or otherwise in respect
hereof or of the Indenture or of any indenture supplemental thereto against any
incorporator or any past, present or future stockholder, officer or director of
the Company or of any predecessor or successor corporation, as such, either
directly or through the Company, or through any such predecessor or successor
corporation or through any receiver or trustee in bankruptcy, by virtue of any
constitutional provision, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise; all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released by every holder or registered owner hereof, as
more fully provided in the Indenture.

                  The Bonds of the 1999 Medium Term Note Series and related
documentation may be amended or supplemented from time to time by the Company
without the consent of any holder of Bonds of the 1999 Medium Term Note Series
to modify the restrictions on and procedures for resale and other transfers of
the Bonds of the 1999 Medium Term Note Series to reflect any change in
applicable law or regulation (or the interpretation thereof) or provide
alternative procedures in compliance with applicable law and practices relating
to the resale or other transfer of restricted securities generally. Each holder
of any bond of the 1999 Medium Term Note Series will be deemed, by the
acceptance of such bond, to have agreed to any such amendment or supplement.

                  The Company agrees to make available to any holder of Bonds of
the 1999 Medium Term Note Series or a prospective purchaser of Bonds of the 1999
Medium Term Note Series, each of whom is a Qualified Institutional Buyer as
defined in Rule 144A of the Securities Act of 1933, as amended, such information
required by Rule 144A to enable resales of the Bonds of the 1999 Medium Term
Note Series to be made pursuant to Rule 144A. However, the Company shall not be
required to provide more information than was required by Rule 144A as
originally adopted but may elect to do so, if necessary, under subsequent
revisions of Rule 144A.

                  This Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid or obligatory
for any purpose, until Chase Manhattan Trust Company, National Association, as
Trustee under the Indenture, or a successor trustee thereunder, shall have
signed the certificate of authentication endorsed hereon.

                  This Bonds of the 1999 Medium Term Note Series shall be deemed
to be a contract and shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania (excluding laws governing conflicts of
law).

                                       15
<PAGE>

                  IN WITNESS WHEREOF, Philadelphia Suburban Water Company has
caused this bond to be signed by its President or a Vice President and its
corporate seal to be hereto affixed and attested by its Secretary or an
Assistant Secretary, and this bond to be dated ____________.

                                                PHILADELPHIA SUBURBAN
Attest:                                         WATER COMPANY

                                                By______________________________
-----------------------------
Assistant Secretary                                 Vice President and Treasurer

                         [Form of Trustee's Certificate]

                  This bond is one of the bonds, of the series designated
therein, referred to in the within-mentioned Thirty-Third Supplemental
Indenture.

                                                 CHASE MANHATTAN TRUST COMPANY,
                                                 NATIONAL ASSOCIATION, TRUSTEE

                                                 By:____________________________
                                                          Authorized Officer

                        [Form of Certificate of Transfer]

(To be delivered with a Certificated Bond to the Trustee)

                  FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto

(please print or typewrite name and address including postal zip code of
assignee and insert Taxpayer Identification No.)

this bond and all rights hereunder, hereby irrevocably constituting and
appointment attorney to transfer this bond the books of the Company with full
power of substitution in the premises.

                                       16
<PAGE>

                             CERTIFICATE OF TRANSFER

                  (The following is not required for sales or other transfers of
this bond to or through the Company or a Placement Agent).

                  In connection with any transfer of this bond occurring prior
to the date which is two years after the later of (a) the Original Issue Date of
this bond, or (b) the last date the Company or any of its affiliates was the
beneficial owner of this bond, the undersigned confirms that:

[ ]               This bond is being transferred by the undersigned to a
                  transferee that is, or that the undersigned reasonably
                  believes to be, a "qualified institutional buyer" (as defined
                  in Rule 144A under the Securities Act of 1933, as amended)
                  pursuant to the exemption from registration under the
                  Securities Act of 1933, as amended, provided by Rule 144A
                  thereunder.

                  If the foregoing box is not checked, then, so long as the
accompanying bond shall bear a legend on its face restricting resales and other
transfers thereof (except in the case of a resale or other transfer made (i) to
the Placement Agent referred to in such legend or to the Company or (ii) through
the Placement Agent or by the Placement Agent acting as principal to a
"qualified institutional buyer" as defined in Rule 144A under the Securities Act
of 1933, as amended, in a transaction approved by the Placement Agent) the
Trustee shall not be obligated to register this bond in the name of any person
other than the registered owner hereof.

Dated:

                  NOTICE: The signature of the beneficial owner to this
assignment must correspond with the name as written on the face of this bond in
every particular, without alteration or enlargement or any change whatsoever.

TO BE COMPLETED BY PURCHASER IF THE BOX ABOVE IS CHECKED:

                  The undersigned represents and warrants that it is a
"qualified institutional buyer" as defined in Rule 144A under the Securities Act
of 1933, as amended, and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
registered owner is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.

Dated:

NOTICE:  To be executed by an officer.

and;

                                       17
<PAGE>

                  WHEREAS, all acts and things necessary to make the bonds, when
executed by the Company and authenticated and delivered by the Trustee as in
this Thirty-Third Supplemental Indenture provided and issued by the Company,
valid, binding and legal obligations of the Company, and this Thirty-Third
Supplemental Indenture a valid and enforceable supplement to said Original
Indenture, have been done, performed and fulfilled, and the execution of this
Thirty-Third Supplemental Indenture has been in all respects duly authorized:

                  NOW, THEREFORE, THIS THIRTY-THIRD SUPPLEMENTAL INDENTURE
WITNESSETH: That, in order to secure the payment of the principal and interest
of all bonds issued under the Original Indenture and all indentures supplemental
thereto, according to their tenor and effect, and according to the terms of the
Original Indenture and of any indenture supplemental thereto, and to secure the
performance of the covenants and obligations in said bonds and in the Original
Indenture and any indenture supplemental thereto respectively contained, and to
provide for the proper issuing, conveying and confirming unto the Trustee, its
successors in said trust and its and their assigns forever, upon the trusts and
for the purposes expressed in the Original Indenture and in any indenture
supplemental thereto, all and singular the estates, property and franchises of
the Company thereby mortgaged or intended so to be, the Company, for and in
consideration of the premises and of the sum of One Dollar ($1.00) in hand paid
by the Trustee to the Company upon the execution and delivery of this
Thirty-Third Supplemental Indenture, receipt whereof is hereby acknowledged, and
of other good and valuable consideration, has granted, bargained, sold, aliened,
infefted, released and confirmed and by these presents does grant, bargain,
sell, alien, enfeoff, release and confirm unto Chase Manhattan Trust Company,
National Association as Trustee, and to its successors in said trust and its and
their assigns forever:

                  All and singular the premises, property, assets, rights and
franchises of the Company, whether now or hereafter owned, constructed or
acquired, of whatever character and wherever situated (except as herein
expressly excepted), including among other things the following, but reference
to or enumeration of any particular kinds, classes, or items of property shall
not be deemed to exclude from the operation and effect of the Original Indenture
or any indenture supplemental thereto any kind, class or item not so referred to
or enumerated:

                                       I.

                          REAL ESTATE AND WATER RIGHTS.

                  The real estate described in the deeds from the grantors named
in Exhibit B hereto, dated and recorded as therein set forth, and any other real
estate and water rights acquired since the date of the Thirty-Second
Supplemental Indenture.

                                       II.

                            BUILDINGS AND EQUIPMENT.

                  All mains, pipes, pipe lines, service pipes, buildings,
improvements, standpipes, reservoirs, wells, flumes, sluices, canals, basins,
cribs, machinery, conduits, hydrants, water works, plants and systems, tanks,
shops, structures, purification systems, pumping stations, fixtures, engines,
boilers, pumps, meters and equipment which are now owned or may hereafter be
acquired by the Company (except as herein expressly excepted), including all
improvements, additions and extensions appurtenant to any real or fixed property
now or hereafter subject to the lien of the Original Indenture or any indenture
supplemental thereto which are used or useful in connection with the business of
the Company as a water company or as a water utility, whether any of the
foregoing property is now owned or may hereafter be acquired by the Company.

                                       18
<PAGE>

                  It is hereby declared by the Company that all property of the
kinds described in the next preceding paragraph, whether now owned or hereafter
acquired, has been or is or will be owned or acquired with the intention of
using the same in carrying on the business or branches of the business of the
Company, and it is hereby declared that it is the intention of the Company that
all thereof (except property hereinafter specifically excepted) shall be subject
to the lien of the Original Indenture.

                  It is agreed by the Company that so far as may be permitted by
law tangible personal property now owned or hereafter acquired by the Company,
except such as is hereafter expressly excepted from the lien hereof, shall be
deemed to be and construed as fixtures and appurtenances to the real property of
the Company.

                                      III.

                          FRANCHISES AND RIGHTS OF WAY.

                  All the corporate and other franchises of the Company, all
water and flowage rights, riparian rights, easements and rights of way, and all
permits, licenses, rights, grants, privileges and immunities, and all renewals,
extensions, additions or modifications of any of the foregoing, whether the same
or any thereof, or any renewals, extensions, additions or modifications thereof,
are now owned or may hereafter be acquired, owned, held, or enjoyed by the
Company.

                                       IV.

                            AFTER ACQUIRED PROPERTY.

                  All real and fixed property and all other property of the
character hereinabove described which the Company may hereafter acquire.

                  TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any way appertaining to the aforesaid property
or any part thereof, with the reversion and reversions, remainder and
remainders, tolls, rents, revenues, issues, income, product and profits thereof,
and all the estate, right, title, interest and claim whatsoever, at law as well
as in equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, rights and franchises and every part and parcel
thereof.

                                       19
<PAGE>

                  EXCEPTING AND RESERVING, HOWEVER, certain premises, not used
or useful in the supplying of water by the Company, expressly excepted and
reserved from the lien of the Original Indenture and not subject to the terms
thereof.

                  AND ALSO SAVING AND EXCEPTING from the property hereby
mortgaged and pledged, all of the following property (whether now owned by the
Company or hereafter acquired by it): all bills, notes and accounts receivable,
cash on hand and in banks, contracts, choses in action and leases to others (as
distinct from the property leased and without limiting any rights of the Trustee
with respect thereto under any of the provisions of the Original Indenture or of
any indenture supplemental thereto), all bonds, obligations, evidences of
indebtedness, shares of stock and other securities, and certificates or
evidences of interest therein, all automobiles, motor trucks, and other like
automobile equipment and all furniture, and all equipment, materials, goods,
merchandise and supplies acquired for the purpose of sale in the ordinary course
of business or for consumption in the operation of any properties of the Company
other than any of the foregoing expected property which may be specifically
transferred or assigned to or pledged or deposited with the Trustee hereunder or
required by the provisions of the Original Indenture or any indenture
supplemental thereto so to be; provided, however, that if, upon the happening of
a completed default, as specified in Section I of Article XI of the Original
Indenture, the Trustee or any receiver appointed hereunder shall enter upon and
take possession of the mortgaged property, the Trustee or any such receiver may,
to the extent permitted by law, at the same time likewise take possession of any
and all of the property described in this paragraph then on hand and any and all
other property of the Company then on hand, not described or referred to in the
foregoing granting clauses, which is used or useful in connection with the
business of the Company as a water company or as a water utility, and use and
administer the same to the same extent as if such property were part of the
mortgaged property, unless and until such completed default shall be remedied or
waived and possession of the mortgaged property restored to the Company, its
successors or assigns.

                  SUBJECT, HOWEVER, to the exceptions, reservations and matters
hereinabove and in the Original Indenture recited, to releases executed since
the date of the Original Indenture in accordance with the provisions thereof, to
existing leases, to easements and rights of way for pole lines and electric
transmission lines and other similar encumbrances and restrictions which the
Company hereby certifies, in its judgment, do not impair the use of said
property by the Company in its business, to liens existing on or claims against,
and rights in and relating to, real estate acquired for right-of-way purposes,
to taxes and assessments not delinquent, to alleys, streets and highways that
may run across or encroach upon said lands, to liens, if any, incidental to
construction, and to Permitted Liens, as defined in the Original Indenture; and,
with respect to any property which the Company may hereafter acquire, to all
terms, conditions, agreements, covenants, exceptions and reservations expressed
or provided in such deeds and other instruments, respectively, under and by
virtue of which the Company shall hereafter acquire the same and to any and all
liens existing thereon at the time of such acquisition.

                  TO HAVE AND TO HOLD, all and singular the property, rights,
privileges and franchises hereby conveyed, transferred or pledged or intended so
to be unto the Trustee and its successors in the trust heretofore and hereby
created, and its and their assigns forever.

                                       20
<PAGE>

                  IN TRUST NEVERTHELESS, for the equal pro rata benefit and
security of each and every person or corporation who may be or become the
holders of bonds and coupons secured by the Original Indenture or by any
indenture supplemental thereto, or both, without preference, priority or
distinction as to lien or otherwise of any bond or coupon over or from any other
bond or coupon, so that each and every of said bonds and coupons issued or to be
issued, of whatsoever series, shall have the same right, lien and privilege
under the Original Indenture and all indentures supplemental thereto and shall
be equally secured hereby and thereby, with the same effect as if said bonds and
coupons had all been made, issued and negotiated simultaneously on the date
thereof; subject, however, to the provisions with reference to extended,
transferred or pledged coupons and claims for interest contained in the Original
Indenture and subject to any sinking or improvement fund or maintenance deposit
provisions, or both, for the benefit of any particular series of bonds.

                  IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between
the parties hereto, that all such bonds and coupons are to be authenticated,
delivered and issued, and that all property subject or to become subject hereto
is to be held subject to the further covenants, conditions, uses and trusts
hereinafter set forth, and the Company, for itself and its successors and
assigns, does hereby covenant and agree to and with the Trustee and its
successor or successors in said trust, for the benefit of those who shall hold
said bonds and coupons, or any of them, issued under this Indenture or any
indenture supplemental hereto, or both, as follows:

                                   ARTICLE I.

                 Form, Authentication and Delivery of the Bonds;
                        Redemption and Tender Provisions
                 -----------------------------------------------

                  SECTION 1. There shall be a thirty-ninth series (and later
series as described herein) of bonds, limited in aggregate principal amount to
$300,000,000 designated as "Philadelphia Suburban Water Company First Mortgage
Bonds, 1999 Medium Term Note Series, Subseries "__" (the "Bonds"). The Bonds may
be issued at any time during the Offering Period in a single subseries or from
time to time during the Offering Period in more than one subseries pursuant to
this Thirty-Third Supplemental Indenture and the Original Indenture. Each
subseries of the Bonds issued hereunder shall constitute a separate series for
purposes of this Thirty-Third Supplemental Indenture and the Original Indenture.
Each subseries of the Bonds shall be initially authenticated and delivered from
time to time upon delivery to the Trustee of the items specified in Article IV
of the Original Indenture, including the initial authorizing resolution of the
Board of Directors of the Company for the issuance of the Bonds (a "Series
Authorizing Resolution") and a certificate of an authorized officer of the
Company issued pursuant to said resolution (a "Subseries Authorizing
Certificate") specifying the principal amount of the Bonds of such subseries to
be issued on the specified date of issuance, the numbers, denominations,
redemption date or dates, tender date if any, maturity date or dates, redemption
prices and interest rate or rates of such Bonds.

                  Interest on each subseries of the Bonds shall be payable
semiannually on January 1 and July 1 (each an "Interest Payment Date") in each
year commencing on the first Interest Payment Date next succeeding the date of
authentication of such Bond (the "Original Issue Date"), unless the Original
Issue Date or the date of authentication occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date, in which case
commencing on the second Interest Payment Date succeeding the Original Issue

                                       21
<PAGE>

Date or the date of authentication, to the registered holders of the Bonds on
the Record Date with respect to such Interest Payment Date, and on the maturity
date specified on the face of the Bond (the "Maturity Date") or any date fixed
for tender or redemption pursuant to the terms of such Bond (the "Tender Date"
or "Redemption Date" respectively). Interest on each subseries of Bonds will
accrue from the most recent Interest Payment Date to which interest has been
paid or duly provided for or, if no interest has been paid, from its Original
Issue Date, until the principal has been paid or made duly available for
payment. If the Maturity Date (or any Redemption Date or Tender Date) or an
Interest Payment Date falls on a day which is not a Business Day, as defined
below, principal (and premium, if any) or interest payable with respect to such
Maturity Date (or Redemption Date or Tender Date) or Interest Payment Date will
be paid on the next succeeding Business Day with the same force and effect as if
made on such Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date, as the case may be, and no interest shall accrue with respect to
such payment for the period from and after such Maturity Date (or Redemption
Date or Tender Date) or Interest Payment Date. The term "Record Date" as used in
this Section 1 with respect to any regular Interest Payment Date shall mean the
15th day of the calendar month preceding such Interest Payment Date. As used
herein, "Business Day" means any day other than a Saturday or Sunday, on which
the Trustee, any paying agent or banks in New York, New York are not required or
authorized by law or executive order to close.

                  Each subseries of the Bonds shall be stated to mature (subject
to the right of earlier redemption or Tender at the prices and dates and upon
the terms and conditions hereinafter set forth) and shall bear interest at the
rates set forth in the Subseries Authorizing Certificate.

                  The Bonds shall be issuable only as registered bonds without
coupons, shall be in the form hereinabove recited, in the minimum denomination
of $100,000 or any integral multiple of $1,000 in excess thereof, shall be
lettered "R", and shall bear such numbers as the Company may reasonably require.

                  Payments of principal, premium, if any, and interest shall be
made in such coin or currency of the United States as at the time of payment is
legal tender for the payment of public and private debts. Payments of interest,
other than interest payable at the Maturity Date, or any earlier Redemption Date
or Tender Date, will be paid in immediately available funds by wire transfer to
the account of Cede & Co., as nominee for DTC, or, in the case of Certificated
Bonds, by check mailed to the registered holder of such bond at the address
shown in the Register maintained by the Trustee, or at the option of the
registered holder, at such place in the United States of America as the
registered holder shall designate to the Trustee in writing. Notwithstanding the
foregoing, the registered holder of $10,000,000 or more of Certificated Bonds
with the same Interest Payment Date shall be entitled to receive payment by wire
transfer of immediately available funds, provided that written instructions
designating the account number and bank in New York, New York (or other bank
consented to by the Company) shall have been received by the Trustee not less
than ten (10) days prior to the Record Date for such Interest Payment Date. Once
such wire transfer instructions have been received by the Trustee they shall
remain in effect unless (i) the Trustee is notified, in writing, of a change
thereof not less than ten (10) days prior to the Record Date for an Interest
Payment Date; or (ii) the registered holder no longer holds an aggregate
principal amount of at least $10,000,000 of Certificated Bonds having the same
Interest Payment Date.

                                       22
<PAGE>

                  The person in whose name any Bond is registered at the close
of business on any Record Date with respect to any Interest Payment Date shall
be entitled to receive the interest payable on such Interest Payment Date
notwithstanding the cancellation of such Bond upon any transfer or exchange
subsequent to the Record Date and prior to such Interest Payment Date; provided,
however, that if and to the extent the Company shall default in the payment of
the interest due on such Interest Payment Date, such defaulted interest shall be
paid to the persons in whose names outstanding Bonds are registered at the close
of business on a subsequent Record Date established by notice given by mail by
or on behalf of the Company to the holders of Bonds not less than fifteen (15)
days preceding such subsequent Record Date, such Record Date to be not less than
ten (10) days preceding the date of payment of such defaulted interest.

                  Exchange of any Bonds shall be effected in accordance with the
applicable provisions of Sections 7, 8 and 9 of Article II of the Original
Indenture.

                  The text of the Bonds and of the certificate of the Trustee
upon such Bonds shall be, respectively, substantially of the tenor and effect
hereinbefore recited.

                  SECTION 2. Each subseries of the Bonds shall be subject to
redemption at the option of the Company on and after the Initial Redemption Date
indicated on the face of the Bonds. On and after the Initial Redemption Date,
the Bonds of such subseries may be redeemed in whole or in part in increments of
$1,000 (provided that any remaining principal hereof shall be at least $100,000)
at the option of the Company at the Redemption Price (hereinafter defined),
together with interest thereon payable to the Redemption Date.

                  The Redemption Price shall initially be the Initial Redemption
Percentage specified on the face of such subseries of the Bonds of the principal
amount of such subseries and, if applicable, shall decline on each anniversary
of the Initial Redemption Date by the Annual Redemption Reduction Percentage
specified on the face of such Subseries of the Bonds, of the principal amount to
be redeemed until the Redemption Price is 100% of such principal amount.

                  SECTION 3. Each subseries of the Bonds shall be subject to
mandatory redemption (i) in connection with the sale to or other acquisition by
or on behalf of one or more governments or municipal corporations or other
governmental subdivisions, bodies, authorities or agencies of all or
substantially all of the property of the Company, or (ii) in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
occurring in connection with or subsequent to the acquisition of all or
substantially all of the stock of the Company ordinarily entitled to voting
rights by or on behalf of one or more governments or municipal corporations or
other governmental subdivisions, bodies, authorities or agencies. The Bonds are
redeemable in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts, at
one hundred per cent (100%) of the principal amount thereof, together with
interest accrued thereon to the date fixed for redemption.

                  SECTION 4. Any redemption of the Bonds shall be effected in
accordance with the provisions of Article V of the Original Indenture.

                  SECTION 5. During the Offering Period, there will be delivered
to the Trustee an adequate number of executed Bonds which will have the Bond
number, principal amount, Original

                                       23
<PAGE>

Issue Date, interest rate, Maturity Date, Initial Redemption Date, Initial
Redemption Percentage and Annual Redemption Reduction Percentage left blank.
Each Bond will be signed and sealed manually or by facsimile on behalf of the
Company, to be held in safekeeping by the Trustee for the account of the
Company. If an officer of the Company whose signature is on a Bond no longer
holds such office at the time the Trustee delivers the Bond in accordance with
the Indenture, the Bond will be valid nevertheless. Each subseries of the Bonds
may be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered to or upon the order of the Company,
upon receipt by the Trustee of the resolutions, certificates, opinions or other
instruments or all of the foregoing required to be delivered upon the issue of
bonds pursuant to the provisions of the Original Indenture and receipt of a
Series Authorizing Resolution for such subseries.

                  SECTION 6. A Bond of the 1999 Medium Term Note Series which
has a Maturity Date which is more than ten years after the Original Issue Date
may, at the option of the Company, be issued by the Company subject to optional
tender ("Tender"), in its entirety, by holders thereof on the first Interest
Payment Date next succeeding the tenth anniversary of the Original Issue Date
("Tender Date") in such coin or currency of the United States of America as at
the time of payment is legal tender for the payment of public and private debts
at a tender price ("Tender Price") of one hundred percent (100%) of the
principal amount thereof, plus accrued interest to the Tender Date.

                  Any Tender shall be effectuated by (1) notice ("Tender
Notice") mailed (by registered mail with return receipt requested or other
courier or express delivery service) by the registered owner of a Bond of the
Medium Term Notes Series to the Trustee at least thirty (30) days prior to the
Tender Date, and (2) presentment to the Trustee of said Bond[s] of the 1999
Medium Term Note Series at least five (5) Business Days prior to the Tender
Date.

                  If a Bond of the 1999 Medium Term Note Series which is subject
to Tender is tendered and payment thereof is duly provided for, interest shall
cease to accrue hereon from and after the Tender Date.

                  By delivery of the Tender Notice, the owner irrevocably agrees
to deliver the bond or bonds described therein (if such bonds are in
certificated form) to the delivery office of the Trustee designated in Article
V, Section 2 hereof at least five (5) Business Days prior to the Tender Date.
The determination by the Trustee of a bondholder's compliance with the
requirement of the Tender Notice is in its sole discretion and binding on the
Company and the holder of the bond or bonds. Any Tender Notice which is
determined not to be in compliance with this Thirty-Third Supplemental Indenture
shall be of no force and effect.

                  If a holder who gives a Tender Notice shall fail to deliver
the bond identified in the Tender Notice to the Trustee at or prior to 10:00
a.m. on the Purchase Date, such bond shall be deemed purchased and shall cease
to accrue interest on such Tender Date and the holder thereof shall thereafter
be entitled only to payment of the Tender Price therefor and to no other
benefits of this Thirty-Third Supplemental Indenture.

                  Notwithstanding anything to the contrary herein, the right of
the holders of a bond to tender the bonds shall cease immediately and without
further notice from and including the date on which the Trustee notifies the
holder of such bond of an acceleration under Article XI of the Indenture.

                                       24
<PAGE>

                                   ARTICLE II.

                       Maintenance or Improvement Deposit.

                  SECTION 1. The Company covenants that it will deposit with the
Trustee on or before the March 1 next occurring after the bonds of the 9.89%
Series due 2008 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.93% Series due 2013 cease to be outstanding,
or on or before the next March 1 next occurring after the bonds of the 9.97%
Series due 2018 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.12% Series due 2010 cease to be outstanding,
or on or before the March 1 next occurring after the bonds of the 9.29% Series
due 2026 cease to be outstanding, or on or before the March 1 next occurring
after the bonds of the 9.17% Series due 2021 cease to be outstanding, or on or
before the next March 1 next occurring after the bonds of the 9.17% Series due
2011 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 6.50% Series due 2010 cease to be outstanding, or on or before
the next March 1 next occurring after the bonds of the 5.95% Series due 2002
cease to be outstanding, or on or before the March 1 next occurring after the
bonds of the 7.15% Series due 2008 cease to be outstanding, or on or before the
March 1 next occurring after the bonds of any of the Subseries of the 1995
Medium Term Note Series issued under the Twenty-Ninth Supplemental Indenture
(consisting of the 7.72% Subseries A due 2025, the 6.82% Subseries B due 2005,
the 6.89% Subseries C due 2015, the 6.99% Subseries D due 2006, the 7.47%
Subseries E due 2003, the 6.83% Subseries F due 2003, and the 7.06% Subseries G
due 2004) shall cease to be outstanding, or on or before the March 1 next
occurring after bonds of the 6.35% Series due 2025 shall cease to be
outstanding, on or before the March 1 next occurring after the bonds of any of
the Subseries of the 1997 Medium Term Note Series issued under the Thirty-First
Supplemental Indenture (consisting of the 6.75% Subseries A due 2007, the 6.30%
Subseries B due 2002, the 6.14% Subseries C due 2008, the 5.80% Subseries D due
2003, the 5.85% Subseries E due 2004 and the 6.00% Subseries F due 2004) cease
to be outstanding, or on or before March 1 next occurring after the bonds of
6.00% Series due 2029 cease to be outstanding, whichever is latest, and on or
before March 1 in each year thereafter if and so long as any of the Bonds are
outstanding, an amount in cash (the "Maintenance or Improvement Deposit") equal
to 9% of the Gross Operating Revenues of the Company during the preceding
calendar year less, to the extent that the Company desires to take such credits,
the following:

                           (a) the amount actually expended for maintenance
                  during such calendar year; and

                           (b) the Cost or Fair Value, whichever is less, of
                  Permanent Additions acquired during such calendar year which
                  at the time of taking such credit constitute Available
                  Permanent Additions; and

                           (c) the unapplied balance, or any part thereof, of
                  the Cost or Fair Value, whichever is less, of Available
                  Permanent Additions acquired by the Company during the five
                  calendar years preceding such calendar year and specified in
                  the Officers' Certificates delivered to the Trustee pursuant
                  to Section 2 of this Article, but only to the extent that the
                  Permanent Additions with respect to which such Cost or Fair
                  Value was determined shall at the time of taking such credit
                  constitute Available Permanent Additions.

                                       25
<PAGE>

                  SECTION 2. The Company covenants that it will on or before
March 1 in each year, beginning with the first deposit made with the Trustee
under the provisions of Section 1 of this Article, as long as any of the Bonds
are outstanding, deliver to the Trustee the following:

                  (A) An Officers' Certificate, which shall state:

                           (i) The amount of the Gross Operating Revenues for
                  the preceding calendar year;

                           (ii) 9% of such Gross Operating Revenues;

                           (iii) The amount actually expended by the Company for
                  maintenance during such calendar year;

                           (iv) The amount set forth in subparagraph (xii) of
                  each Officers' Certificate delivered to the Trustee pursuant
                  to the provisions of this Section during the preceding five
                  calendar years (specifying each such Officers' Certificate),
                  after deducting from each such amount the aggregate of (a) the
                  Cost or Fair Value, whichever is less, of all Permanent
                  Additions represented by such amount which have ceased to be
                  Available Permanent Additions; and (b) any part of such amount
                  for which the Company has previously taken credit against any
                  Maintenance or Improvement Deposit (specifying the Officers'
                  Certificate in which such credit was taken); and (c) any part
                  of such amount for which the Company then desires to take
                  credit against the Maintenance or Improvement Deposit;

                           (v) An amount which shall be the aggregate of all
                  amounts set forth pursuant to the provisions of clause (c) of
                  the foregoing subparagraph (iv);

                           (vi) The Cost or Fair Value, whichever is less, of
                  Available Permanent Additions acquired by the Company during
                  the preceding calendar year;

                           (vii) That part of the amount set forth in
                  subparagraph (vi) which the Company desires to use as a credit
                  against the Maintenance or Improvement Deposit;

                           (viii) The amount of cash payable to the Trustee
                  under the provisions of Section 1 of this Article, which shall
                  be the amount by which the amount set forth in subparagraph
                  (ii) hereof exceeds the sum of the amounts set forth in
                  subparagraphs (iii), (v) and (vii) hereof;

                                       26
<PAGE>

                           (ix) The sum of all amounts charged on the books of
                  the Company against any reserve for retirement or depreciation
                  during the preceding calendar year representing the aggregate
                  of the Cost when acquired of any part of the Company's plants
                  and property of the character described in the granting
                  clauses hereof which has been permanently retired or
                  abandoned;

                           (x) The aggregate of the amounts set forth in
                  subparagraphs (v) and (vii) hereof;

                           (xi) The amount by which the amount set forth in
                  subparagraph (x) exceeds the amount set forth in subparagraph
                  (ix), being the amount required to be deducted from the Cost
                  or Fair Value of Available Permanent Additions in order to
                  determine a Net Amount of Available Permanent Additions
                  pursuant to the provisions of Section 9 of Article I of the
                  Original Indenture;

                           (xii) The amount set forth in subparagraph (vi) after
                  deducting the amount, if any, set forth in subparagraph (vii);
                  and

                           (xiii) That all conditions precedent to the taking of
                  the credit or credits so requested by the Company have been
                  complied with.

                  (B) In the event that the Officers' Certificate delivered to
the Trustee pursuant to the provisions of paragraph (A) of this Section shall
state, pursuant to the requirements of subparagraph (vi), the Cost or Fair Value
of Available Permanent Additions acquired by the Company during the preceding
calendar year, the documents specified in paragraphs 2, 3, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture.

                  (C) An amount in cash equal to the sum set forth in
subparagraph (viii) of the Officers' Certificate provided for in paragraph (A)
hereof.

                  SECTION 3. All cash deposited with the Trustee as part of any
Maintenance or Improvement Deposit provided for in Section 1 of this Article,
may, at the option of the Company, be applied to the purchase of bonds under the
provisions of Section 2 of Article X of the Original Indenture or to the
redemption of bonds under the provisions of Section 3 of Article X of the
Original Indenture or may be withdrawn by the Company at any time to reimburse
the Company for the cost of a Net Amount of Available Permanent Additions
(excluding, however, from any such Available Permanent Additions all Permanent
Additions included in any certificate delivered to the Trustee for the purpose
of obtaining a credit against any Maintenance or Improvement Deposit provided
for in Section 1 of this Article to the extent that such Permanent Additions
have been used for any such credit). The Trustee shall pay to or upon the
written order of the Company all or any part of such cash upon the receipt by
the Trustee of:

                           (a) A Resolution requesting such payment; and

                                       27
<PAGE>

                           (b) The documents specified in paragraphs 2, 5, 6 and
                  7 of subdivision (B) of Section 3 of Article IV of the
                  Original Indenture, with such modifications, additions and
                  omissions as may be appropriate in the light of the purposes
                  for which they are used.

                                  ARTICLE III.

                            Covenants of the Company.

                  SECTION 1. The Company hereby covenants and agrees with the
Trustee, for the benefit of the Trustee and all the present and future holders
of the Bonds, that the Company will pay the principal of and premium, if any,
the Tender Price of and interest on all bonds issued or to be issued as
aforesaid under and secured by the Original Indenture as hereby supplemented, as
well as all bonds which may be hereafter issued in exchange or substitution
therefor, and will perform and fulfill all of the terms, covenants and
conditions of the Original Indenture and of this Thirty-Third Supplemental
Indenture with respect to the additional bonds to be issued under the Original
Indenture as hereby supplemented.

                  SECTION 2. The Company covenants and agrees that so long as
any of the Bonds are outstanding (a) the Company will not make any Stock Payment
if, after giving effect thereto, its retained earnings, computed in accordance
with generally accepted accounting principles consistently applied, will be less
than the sum of (i) Excluded Earnings, if any, since December 31, 1998, and (ii)
$20,000,000; (b) Stock Payments made more than forty (40) days after the
commencement, and prior to the expiration, of any Restricted Period shall not
exceed 65% of the Company's Net Income during such Restricted Period; and (c)
the Company will not authorize a Stock Payment if there has occurred and is
continuing an event of default under subsections (a) and (b) of Section 1 of
Article XI of the Original Indenture.

                  For the purposes of this Section 2 the following terms shall
have the following meanings:

                  "Stock Payment" shall mean any payment in cash or property
(other than common stock of the Company) to any holder of shares of any class of
capital stock of the Company as such holder, whether by dividend or upon the
purchase, redemption, conversion or other acquisition of such shares, or
otherwise.

                  "Excluded Earnings" shall mean 35% of the Company's Net Income
during any Restricted Period.

                  "Restricted Period" shall mean a period commencing on any
Determination Date on which the total Debt of the Company is, or as the result
of any Stock Payment then declared or set aside and to be made thereafter will
be, more than 70% of Capitalization, and continuing until the third consecutive
Determination Date on which the total Debt of the Company does not exceed 70% of
Capitalization.

                                       28
<PAGE>

                  "Net Income" for any particular Restricted Period shall mean
the amount of net income properly attributable to the conduct of the business of
the Company for such Restricted Period, as determined in accordance with
generally accepted accounting principles consistently applied, after payment of
or provision for taxes on income for such Restricted Period.

                  "Determination Date" shall mean the last day of each calendar
quarter. Any calculation with respect to any Determination Date shall be based
on the Company's balance sheet as of such date.

                  "Debt" means (i) all indebtedness, whether or not represented
by bonds, debentures, notes or other securities, for the repayment of money
borrowed, (ii) all deferred indebtedness for the payment of the purchase price
of property or assets purchased (but Debt shall not be deemed to include
Customer Advances for Construction (as defined in the Indenture) or any bonds
issued under the Indenture which are not Outstanding Bonds), (iii) leases which
have been or, in accordance with generally accepted accounting principles,
should be recorded as capital leases and (iv) guarantees of the obligations of
another of the nature described in clauses (i), (ii) or (iii) which have been
or, in accordance with generally accepted accounting principles, should be
recorded as debt.

                  "Outstanding Bonds" shall mean bonds which are outstanding
within the meaning indicated in Section 20 of Article I of the Original
Indenture except that, in addition to the bonds referred to in clauses (a), (b)
and (c) of said Section 20, said term shall not include bonds for the retirement
of which sufficient funds have been deposited with the Trustee with irrevocable
instructions to apply such funds to the retirement of such bonds at a specified
time, which may be either the maturity thereof or a specified redemption date,
whether or not notice of redemption shall have been given.

                  "Capitalization" shall mean the sum of (i) the aggregate
principal amount of all Debt at the time outstanding, (ii) the aggregate par or
stated value of all capital stock of the Company of all classes at the time
outstanding, (iii) premium on capital stock, (iv) capital surplus, and (v)
retained earnings.

                  SECTION 3. The Company covenants and agrees that so long as
any of the Bonds are outstanding neither the Company nor any subsidiary of the
Company will, directly or indirectly, lend or in any manner extend its credit
to, or indemnify, or make any donation or capital contribution to, or purchase
any security of, any corporation which directly or indirectly controls the
Company, or any subsidiary or affiliate (other than an affiliate which is a
subsidiary of the Company or a natural person (or his estate)) of any such
corporation.

                                       29
<PAGE>

                                   ARTICLE IV.

                                  The Trustee.

                  SECTION 1. The Trustee hereby accepts the trust hereby
declared and provided, and agrees to perform the same upon the terms and
conditions in the Original Indenture, as supplemented by this Thirty-Third
Supplemental Indenture, and in this Thirty-Third Supplemental Indenture set
forth, and upon the terms and conditions set forth in Article IV hereof.

                  SECTION 2. Subject to the provisions of Article XIII of the
Original Indenture, the Trustee may execute any of the trusts or powers hereof
and perform any of its duties by or through and consult with attorneys, agents,
officers or employees selected by the Trustee in its sole discretion. The
Trustee shall be entitled to advice of counsel concerning all matters of trusts
hereof and the duties hereunder and may in all cases pay such reasonable
compensation, including the reimbursement of expenses, to all such attorneys,
agents, officers and employees as may reasonably be employed in connection with
the trusts hereof. The Trustee may act and rely upon the opinion or advice of
any attorney (who may be the attorney or attorneys for the Company) and shall be
free from all liability for any action taken or not taken in reliance on such
opinion or advice. The Trustee may act and rely on written opinions of experts
employed by the Trustee and such advice shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by the
Trustee hereunder in good faith and in reliance thereon. The Trustee shall not
be responsible for any loss or damage resulting from any action or non-action in
good faith taken in reliance upon such opinion or advice. The Trustee shall not
be bound to confirm, verify or make any investigation into the facts or matters
stated in any financial or other statements, resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or other
paper or document furnished pursuant to the terms hereof.

                  SECTION 3. Before the Trustee shall be required to foreclose
on, or to take control or possession of, the real property or leasehold interest
(the "Premises") which may be the subject of any mortgage or mortgages for which
the Trustee is mortgagee in connection with the issuance of the Bonds, the
Trustee shall be indemnified and held harmless by the holders and/or beneficial
owners of the Outstanding Bonds from and against any and all expense, loss, or
liability that may be suffered by the Trustee in connection with any spill, leak
or release which may have occurred on or invaded the Premises or any
contamination by any Hazardous Substance or for any Environmental Claim (as such
terms are hereinafter defined), whether caused by the Company or any other
person or entity, including, but not limited to, (1) any and all reasonable
expenses that the Trustee may incur in complying with any of the Environmental
Statutes (hereinafter defined), (2) any and all reasonable costs that the
Trustee may incur in studying or remedying any spill, leak or release which may
have occurred on or invaded the Premises or any contamination, (3) any and all
fines or penalties assessed upon the Trustee by reason of such contamination,
(4) any and all loss of value of the Premises or the improvements thereon by
reason of such contamination, and (5) any and all legal fees and costs
reasonably incurred by the Trustee in connection with any of the foregoing. As
used in this Section, contamination by any Hazardous Substance shall include
contamination arising from the presence, creation, production, collection,
treatment, disposal, discharge, release, storage, transport, or transfer of any
Hazardous Substance at or from the Premises or any improvements thereon. As used
in this Section, the term "Hazardous Substance" shall mean petroleum

                                       30
<PAGE>

hydrocarbons or any substance which (a) constitutes a hazardous waste or
substance under any applicable federal, state or local law, rule, order or
regulation now or hereafter adopted; (b) constitutes a "hazardous substance" as
such term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C. ss.9601 et seq.) and the
regulations issued thereunder and any comparable state or local law or
regulation; (c) constitutes a "hazardous waste" under the Resource Conservation
and Recovery Act, (42 U.S.C. ss.6991) and the regulations issued thereunder; (d)
constitutes a pollutant, contaminant, chemical or industrial, toxic or hazardous
substance or waste as such terms are defined under the Federal Clean Water Act,
as amended (33 U.S.C. ss.1251 et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss. 2601 et seq.), or any comparable state or local laws or
regulations; (e) exhibits any of the characteristics enumerated in 40 C.F.R.
Sections 261.20-261.24, inclusive; (f) those extremely hazardous substances
listed in Section 302 of the Superfund Amendments and Reauthorization Act of
1986 (Public Law 99-499, 100 Stat. 1613) which are present in threshold planning
or reportable quantities as defined under such act; (g) toxic or hazardous
chemical substances which are present in quantities which exceed exposure
standards as those terms are defined under Sections 6 and 8 of the Occupational
Safety and Health Act, as amended (29 U.S.C. ss.ss.655 and 657 and 29 C.F.R.
Part 1910, subpart 2); and (h) any asbestos, petroleum-based products, or any
substance contained within or released from any underground or aboveground
storage tanks. As used in this Section, the term "Environmental Statutes" shall
mean the statutes, laws, rules, orders and regulations referred to in (a)
through (h) inclusive in the preceding sentence and the term "Environmental
Claim" shall mean with respect to any person, any action, suit, proceeding,
investigation, notice, claim, complaint, demand, request for information or
other communication (written or oral) by any other person (including any
governmental authority, citizens group or employee or former employee of such
person) alleging, asserting or claiming any actual or potential: (a) violation
of any Environmental Statutes, (b) liability under any Environmental Statutes or
(c) liability for investigatory costs, cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries, fines or
penalties arising out of, based on, or resulting from, the presence or release
into the environment of any Hazardous Substances at any location, whether or not
owned by such person.

                                   ARTICLE V.

                                 Miscellaneous.

                  SECTION 1. This instrument is executed and shall be construed
as an indenture supplemental to the Original Indenture, and shall form a part
thereof, and except as hereby supplemented, the Original Indenture and the
First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth,
Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third,
Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh, Twenty-Eighth,
Twenty-Ninth, Thirtieth, Thirty-First and Thirty-Second Supplemental Indentures
are hereby confirmed. All references in this Thirty-Third Supplemental Indenture
to the Original Indenture shall be deemed to refer to the Original Indenture as
heretofore amended and supplemented, and all terms used herein shall be taken to
have the same meaning as in the Original Indenture, as so amended, except in the
cases where the context clearly indicates otherwise.

                                       31
<PAGE>

                  SECTION 2. Any notices to the Trustee under this Thirty-Third
Supplemental Indenture shall be delivered to the Trustee at its administrative
office by registered or certified mail, hand delivery or other courier or
express delivery service (with receipt confirmed) or by telecopy (with receipt
confirmed) at the following address:

                      Chase Manhattan Trust Company, National Association
                      Capital Markets Fiduciary Services
                      1650 Market Street, Suite 520
                      Philadelphia, PA  19103
                      Attention:  Philadelphia Suburban Water Administrator
                      Telecopy:  (215) 972-1685

Any Bonds of the 1999 Medium Term Note Series being delivered to the Trustee for
payment, exchange or which have been tendered, if certificated, shall be
delivered to the Trustee's delivery office currently located at:

                      Chase Bank of Texas, N.A.
                      CT Services
                      1201 Main St., 18th Fl.
                      Dallas, TX  75202

Any change in such address or telecopy number may be made by notice to the
Company delivered in the manner set forth above.

                  SECTION 3. All recitals in this Thirty-Third Supplemental
Indenture are made by the Company only and not by the Trustee; and all of the
provisions contained in the Original Indenture in respect of the rights,
privileges, immunities, powers and duties of the Trustee shall be applicable in
respect hereof as fully and with like effect as if set forth herein in full.

                  SECTION 4. Although this Thirty-Third Supplemental Indenture
is dated for convenience and for the purpose of reference as of November 15,
1999, the actual date or dates of execution hereof by the Company and the
Trustee are as indicated by their respective acknowledgments annexed hereto.

                  SECTION 5. In order to facilitate the recording or filing of
this Thirty-Third Supplemental Indenture, the same may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original and such counterparts shall together constitute but one and the same
instrument.

                                       32
<PAGE>

                                   ARTICLE VI

                              Environmental Matters

                  SECTION 1.  The Company represents as follows:

         (a) It is in compliance with all applicable Environmental Statutes
except for matters which, individually or in the aggregate, could not have a
Material Adverse Effect.

         (b) It has all Environmental Approvals necessary or desirable for the
ownership and operation of its properties, facilities and businesses as
presently owned and operated except for matters which, individually or in the
aggregate, could not have a Material Adverse Effect.

         (c) There is no Environmental Claim pending or, to its knowledge after
due inquiry, threatened, and there are no past or present acts, omissions,
events or circumstances that could form the basis of any Environmental Claim,
against it except for matters which, individually or in the aggregate, could not
have a Material Adverse Effect.

         (d) No facility or property now or previously owned, operated or leased
by it is an Environmental Cleanup Site.

                  SECTION 2. The Company covenants as follows:

         (a) It will comply with all applicable Environmental Statutes.

         (b) Promptly upon becoming aware of any Environmental Claim pending or
threatened against it, or any past or present acts, omissions, events or
circumstances that could form the basis of such Environmental Claim, which if
adversely resolved, individually or in the aggregate, could have a Material
Adverse Effect, it shall give the Trustee prompt written notice thereof,
together with a written statement of an Authorized Executive Officer of the
Company setting forth the details thereof and any action with respect thereto
taken or proposed to be taken by the Company.

                  SECTION 3. The Company agrees to indemnify and hold harmless
the Trustee, all its directors, officers, employees and agents, against any and
all losses, claims, damages or liabilities, joint or several, to which it may
become subject under the law of any jurisdiction insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any violation or breach by the Company of any Environmental Statutes, or
any Environmental Claim arising out of the management, use, control, ownership
or operation of the Premises.

                  SECTION 4. For purposes of this Article VI, the following
terms shall have the indicated meanings.

                  "Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material, hazardous waste,
toxic substance, solid waste, pollutant, contaminant or any related material,
raw material, substance, product or by-product of any substance specified in, or
regulated by, any "Environmental Statute", (b) any toxic chemical or other
substance from or related to industrial, commercial or institutional activities,
and (c) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating
oil and other petroleum products or compounds, polychlorinated biphenyls, radon
and urea formaldehyde.

                                       33
<PAGE>

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

                  "Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on CERCLIS or on
any similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding or
investigation related to or arising from any alleged violation of any
Environmental Law.

                  "Environmental Approvals" shall mean any governmental action
pursuant to or required under any Environmental Law.

                                       34
<PAGE>

                  IN WITNESS WHEREOF the parties hereto, intending to be legally
bound, have caused their corporate seals to be hereunto affixed and their
Presidents or Vice-Presidents, under and by the authority vested in them, have
hereto affixed their signatures, and their Secretaries or Assistant Secretaries
or Authorized Officers have duly attested the execution hereof, as of the ___
day of November, 1999.

[CORPORATE SEAL]                              PHILADELPHIA SUBURBAN WATER
                                              COMPANY

Attest /s/ Patricia M. Mycek                By:/s/ Kathy Lee Pape
       ----------------------------            ----------------------------
         Secretary                             Vice President and Treasurer

[CORPORATE SEAL]                              CHASE MANHATTAN TRUST COMPANY,
                                              NATIONAL ASSOCIATION, as Trustee

Attest: /s/ Michael J. Judge                By:/s/ Catherine Lenhardt
        --------------------                   ----------------------------
         Authorized Signer                     Assistant Vice President

                                       35
<PAGE>

COMMONWEALTH OF PENNSYLVANIA:

COUNTY OF MONTGOMERY:

                  On the 19th day of November, 1999, before me, the Subscriber,
a Notary Public for the Commonwealth of Pennsylvania, personally appeared Kathy
L. Pape, who acknowledged herself to be the Vice President and Treasurer of
Philadelphia Suburban Water Company, a corporation, and that she as such Vice
President and Treasurer, being authorized to do so, executed the foregoing
Thirty-Third Supplemental Indenture as and for the act and deed of said
corporation and for the uses and purposes therein mentioned, by signing the name
of the corporation by herself as such officer.

                  In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]                                  /s/ Suzanne Falcone
                                                     Notary

                                       36
<PAGE>

COMMONWEALTH OF PENNSYLVANIA

COUNTY OF PHILADELPHIA

                  On the 18th day of November, 1999 before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared
Catherine Lenhardt, who acknowledged herself to be an Assistant Vice President
of Chase Manhattan Trust Company National Association, Trustee, a national
banking association, and that she as such Assistant Vice President, being
authorized to do so, executed the foregoing Thirty-Third Supplemental Indenture
as and for the act and deed of said national banking association and for the
uses and purposes therein mentioned by signing the name of said national banking
association by herself as such officer.

                  In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]                                           /s/  Joan F. Wilson
                                                               Notary

                                       37
<PAGE>

                                  EXHIBIT A
                                  ---------

                                   Exhibit A
                      Bonds Redeemed or Paid at Maturity

                              Principal Amount
                              Paid or Redeemed
                              (If less than all       Date
Series                        Bonds of Series)        Paid          Maturity
------                        -----------------       ----          --------
 3.25% Series Due 1971                                12/31/1970    Redemption
 9.63% Series Due 1975                                06/15/1975    Maturity
 9.15% Series Due 1977                                01/01/1977    Maturity
 3.00% Series Due 1978                                07/01/1978    Maturity
 3.38% Series Due 1982                                07/01/1982    Maturity
 3.90% Series Due 1983                                07/01/1983    Maturity
 3.50% Series Due 1986                                01/01/1986    Maturity
 4.50% Series Due 1987                                01/01/1987    Maturity
 4.13% Series Due 1988                                05/01/1988    Maturity
 5.00% Series Due 1989                                09/01/1989    Maturity
 4.63% Series Due 1991                                05/01/1991    Maturity
 4.70% Series Due 1992                                04/01/1992    Maturity
 6.88% Series Due 1993                                01/01/1993    Maturity
 4.55% Series Due 1994                                03/01/1994    Maturity
10.13% Series Due 1995        $ 6,300,000                    -      Sinking Fund
10.13% Series Due 1995        $ 3,700,000             05/17/1993    Redemption
 9.20% Series Due 2001        $ 3,850,000                    -      Sinking Fund
 9.20% Series Due 2001        $ 3,150,000             05/01/1993    Redemption
 8.40% Series Due 2002        $ 5,850,000                    -      Sinking Fund
 8.40% Series Due 2002        $ 4,150,000             01/02/1996    Redemption
 5.95% Series Due 2002        $ 2,400,000                    -      Sinking Fund
12.45% Series Due 2003        $ 1,000,000             08/01/1993    Sinking Fund
12.45% Series Due 2003        $ 9,000,000             08/02/1993    Redemption
 8.88% Series Due 2010        $   800,000                    -      Sinking Fund
 8.88% Series Due 2010        $ 7,200,000             06/30/1992    Redemption
13.00% Series Due 2005                                08/02/1995    Redemption
 7.88% Series Due 1997                                01/02/1996    Redemption
10.65% Series Due 2006                                04/02/1996    Redemption
 5.50% Series Due 1996                                11/01/1996    Maturity
 8.44% Series Due 1997                                04/01/1997    Maturity
 7.15% Series Due 2008        $ 4,000,000                    -      Sinking Fund

                                     A-1

<PAGE>

                                    EXHIBIT B

                                 No New Property

                                       B-1
<PAGE>

         This Thirty-Third Supplemental Indenture was recorded on November 30,
1999 in the Office for the Recording of Deeds for each of the five counties
tabulated below in the Mortgage Book and at the page indicated:

                                              Mortgage
                                                Book                   Page
                                                ----                   ----
County
Berks.........................                  ____                   ____
Bucks.........................                  ____                   ____
Chester.......................                  ____                   ____
Delaware......................                  ____                   ____
Montgomery....................                  ____                   ____

         For the recording information with respect to the Original Indenture
and the first thirty-two supplemental indentures, see pages 4 and 5 of this
Thirty-Third Supplemental Indenture.

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