CYNET INC, SB-2/A, 1999-08-12

CYNET INC
SB-2/A, 1999-08-12
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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As filed with the Securities and Exchange Commission on August 12, 1999.

Registration No. 333-60765
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Amendment No. 1 to

FORM SB-2

Registration Statement
Under the Securities Act of 1933

CYNET, INC.
(Exact name of Registrant as specified in its charter)

Texas 7370 76-0467099
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)

Copies to:
12777 Jones Road, Suite 400 James J. Spring, III Samuel C. Beale
Houston, Texas 77070 Chamberlain, Hrdlicka, White, Vice President -
(281) 897-8317 Williams & Martin General Counsel
(Address and telephone 1400 Two Allen Center CyNet, Inc.
number of principal 1200 Smith Street 12777 Jones Road,
executive offices) Houston, Texas 77002 Suite 400
Phone (713) 658-1818 Houston, Texas 77070
Facsimile (713) 658-2553 (281) 897-8317
(Name, address and
telephone number of
agent for service)

Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Proposed
Amount Maximum Proposed Maximum Amount of
Title of Each Class ofSecurities To Be Offering Price Aggregate Registration
To Be Registered Registered Per Unit Offering Price Fee
<S> <C> <C> <C> <C>
Class A Common Stock(1) 3,649,635 $1.37 $5,000,000 $1,475
Class A Common Stock(2) 5,514,491 (3) $8,138,876 $2,401
Class B Common Stock(2) 2,719,733 (4) $5,418,574 $1,599
Series A Preferred Stock(2) 103,500 $2.00 $ 207,000 $ 61
Series B Preferred Stock(2) 87,349 $3.00 $ 262,047 $ 77
Warrants to Purchase Shares
of Class A Common Stock(5) 799,000 (5) $ 201,640 $ 59
Class B Common Stock
Underlying Warrants(6) 2,200,000 $1.00 $2,200,000 $ 649
------
Total $6,321
======
</TABLE>

- ----------
(1) Represents securities to be issued in connection with the funding of the
rescission offer described in the Prospectus which is a part of this
Registration Statement.
(2) Each of these securities is the subject of a rescission offer to be
commenced following the effectiveness of the Registration Statement, as
more fully described in the prospectus which is a part of this
Registration Statement.
(3) The shares of Class A Common Stock that are subject to the rescission
offer were issued in exchange for cash and services rendered at prices
ranging from $0.39 to $2.00 per share, and include shares issued following
the conversion of 3,364,354 shares of Series A Preferred Stock that were
originally sold at prices ranging from $1.43 to $2.00 per share.
(4) The shares of Class B Common Stock that are subject to the rescission
offer were issued in exchange for cash and services rendered at prices
ranging from $0.25 to $2.73 per share, and include shares issued following
the conversion of 1,717,891 shares of Series B Preferred Stock that were
originally sold at $3.00 per share.
(5) Warrants to purchase shares of Class A Common Stock represent (i) warrants
to purchase 738,000 shares issued in exchange for services rendered valued
at $0.26 per share and (ii) a warrant to purchase 61,000 shares issued in
exchange for services rendered valued at $0.16 per share.
(6) Represents shares of Class B Common Stock underlying certain warrants that
have not yet been exercised.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED AUGUST 12, 1999

PROSPECTUS
CYNET, INC.
--------------------------------------------------------------------

SECURITIES SUBJECT TO RESCISSION OFFER TO PURCHASE:
5,514,491 SHARES OF CLASS A COMMON STOCK
2,719,733 SHARES OF CLASS B COMMON STOCK
103,500 SHARES OF SERIES A PREFERRED STOCK
87,349 SHARES OF SERIES B PREFERRED STOCK
WARRANTS TO PURCHASE 799,000 SHARES OF CLASS A COMMON STOCK

SECURITIES TO BE ISSUED TO RESCISSION UNDERWRITERS:
3,649,635 SHARES OF CLASS A COMMON STOCK

SECURITIES OFFERED BY SELLING SHAREHOLDERS:
2,200,000 SHARES OF CLASS B COMMON STOCK UNDERLYING WARRANTS

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

CyNet, Inc., a Texas corporation (the "Company"), is offering, upon the
terms and conditions set forth herein, to rescind the issuance or sale of an
aggregate of (i) 5,514,491 shares of no par value Class A voting common stock
("Class A Common Stock"), including 4,036,725 shares issued upon conversion of
the Company's Series A convertible preferred stock ("Series A Preferred Stock")
originally sold at prices ranging from $1.43 to $2.00 per share, (ii) 2,719,733
shares of no par value Class B nonvoting common stock ("Class B Common Stock"),
including 2,058,803 shares issued upon conversion of the Company's Series B
convertible preferred stock ("Series B Preferred Stock") originally sold at
$3.00 per share, (iii) 103,500 shares of Series A Preferred Stock, (iv) 87,349
shares of Series B Preferred Stock and (v) warrants to purchase an aggregate of
799,000 shares of the Class A Common Stock (the securities described in (i)
through (v) above are referred to collectively as the "Subject Securities") to
persons who acquired the Subject Securities from the Company between August 1996
and May 1998 (each, individually referred to as an "Offeree" and all,
collectively referred to as the "Offerees"), in exchange for cash and services
rendered at prices ranging from $0.25 to $3.00 per share (the "Rescission
Offer"). See "Rescission Offer" and "Description of Capital Stock." The Company
believes the issuance or sale of the Subject Securities may have been in
violation of certain provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Accordingly, the Company may be liable to the Offerees in the
aggregate amount of $14,228,137, plus interest from the date of issuance, less,
with respect to shares of Series A Preferred Stock and Series B Preferred Stock
(collectively, the "Preferred Stock"), $248,128 in dividends paid to the holders
of such shares. The aggregate amount of accrued interest calculated through
September 15, 1999 is $2,374,558. The Company hereby offers to rescind such
prior sales by repurchasing the Subject Securities from the Offerees at the
price per share paid by the Offerees, plus an amount equal to the interest
thereon at the appropriate statutory rate per annum from the date of issuance of
the Subject Securities to the expiration of the Rescission Offer, less any
dividends paid, with respect to shares of Preferred Stock. The applicable rates
of interest for the repurchase of the Subject Securities provided by law for
residents of various jurisdictions are set forth under "Rescission Offer." The
Rescission Offer will expire on the later to occur of (x) October , 1999 (30
days after the date of this Prospectus), or (y) 30 days after the date each
Offeree receives this Prospectus, unless extended by the Company in its sole
discretion, but in no event shall the Rescission Offer be extended beyond
November 30, 1999 (the "Expiration Date"). The Rescission Offer does not apply
to any securities of the Company other than the Subject Securities.

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

All Offerees receiving the Rescission Offer are urged to read this
Rescission Offer carefully.

The date of this Prospectus is , 1999.

<PAGE>

INVESTMENT IN THE SUBJECT SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

THE SUBJECT SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

IN CONNECTION WITH THIS OFFERING OF CLASS A COMMON STOCK ISSUED TO THE
RESCISSION UNDERWRITERS AND CERTAIN SHARES OF CLASS B COMMON STOCK SUBJECT TO
WARRANTS, CERTAIN UNDERWRITERS AND SELLING SHAREHOLDERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK AND THE CLASS B COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "PLAN OF
DISTRIBUTION AND SELLING SHAREHOLDERS."

NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATIONS TO ANY
SHAREHOLDERS AS TO WHETHER TO ACCEPT THE RESCISSION OFFER OR TO RETAIN THE
SUBJECT SECURITIES PURCHASED FROM THE COMPANY. EACH OFFEREE MUST MAKE HIS OWN
DECISION AS TO WHETHER TO ACCEPT THE RESCISSION OFFER.

Acceptance or Rejection

All Offerees are requested to complete the form of Election set forth on
Exhibit A attached hereto (the "Election") accompanying this Prospectus and
return it to the Company (Attention: Samuel C. Beale, Vice President and General
Counsel), 12777 Jones Road, Suite 400, Houston, Texas 77070 as soon as
practicable, but in no event should the Election be delivered to the Company
later than the Expiration Date. The Election should be completed to indicate
whether the Offeree accepts or rejects the Rescission Offer. Offerees accepting
the Rescission Offer must enclose with the Election the original certificates or
other instruments representing the Subject Securities, properly endorsed for
transfer, with the signature(s) guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program). Any Offeree
who has not delivered a completed Election by the Expiration Date shall be
conclusively deemed to have rejected the Rescission Offer, except to the extent
applicable state laws provide otherwise. The Election and the stock certificates
or other instruments representing the Subject Securities may be delivered by
hand or courier service, or by mail. The method of delivery of all documents is
at the election and risk of the Offeree. If an Offeree desires to make use of
the mails to deliver a completed Election to the Company, delivery will be
deemed to have occurred on the date the Election is postmarked. Moreover, if
using the mails, the Company recommends registered mail or certified mail,
return receipt requested, that is properly insured.

Effect of Rejection

For purposes of applicable federal and state securities laws, Offerees who
reject the Rescission Offer will be deemed to hold registered shares that are
freely tradeable. Rejection of the Rescission Offer by Offerees will not
necessarily bar the Offerees from rescission or other rights which they may have
under federal or state securities laws if the Company in fact violated such
laws. However, federal law does provide that an Offeree may, under certain
circumstances, lose any rescission rights under federal securities laws one year
from the date of purchase of such shares. In addition, most state securities
laws provide that an Offeree may lose any rescission rights by rejecting or
failing to respond to a valid rescission offer.

2
<PAGE>

Financing of Rescission Liabilities

The Company has entered into an Underwriting Agreement (the "Underwriting
Agreement") with a group of underwriters (the "Rescission Underwriters") to
provide $5,000,000 (the "Rescission Financing") to fund the Rescission Offer.
The Rescission Underwriters include, among others, Houston Economic Opportunity
Fund, L.L.P. ("HEOF"), a limited partnership whose general partner is HEOF
Management Corp., an affiliate of Enron Economic Development Corporation, a
wholly-owned subsidiary of Enron Corporation, a Houston, Texas-based Fortune 500
energy company. Subject to the terms and conditions of the Underwriting
Agreement, the Company has agreed to sell and the Rescission Underwriters have
agreed to purchase an aggregate of 3,649,635 shares of Class A Common Stock at a
price of $1.37 per share. The Underwriting Agreement provides, among other
things, that the obligation of the Rescission Underwriters to purchase such
shares of Class A Common Stock is subject to the successful completion of the
Rescission Offer. As additional consideration for its participation in the
Rescission Financing the Company has agreed to grant HEOF the right to require
the Company to repurchase the shares of Class A Common Stock issued to HEOF
pursuant to the Underwriting Agreement at a price of $1.51 per share (the "HEOF
Put Option"). The HEOF Put Option will have a term of one year from the closing
of the Rescission Financing.

As of the date of this Prospectus, the funds comprising the Rescission
Financing have been deposited into an interest-bearing escrow account with First
Bank Texas, N.A. of Houston, Texas, and will be disbursed as needed to satisfy
the Company's rescission liability to Offerees who accept the Rescission Offer.
In addition, the Company will deposit such additional amounts required to be
held in escrow under Texas law, which requires a minimum escrow deposit equal to
the amount of the Rescission Offer being made to Texas residents including
accrued interest. As of September 15, 1999, the minimum escrow balance required
will be $5,048,223.01 and will continue to increase at a rate of $733.39 per day
thereafter.

The proceeds from the Rescission Financing will be used to fund $5,000,000
of the Rescission Offer. While the Company believes the Rescission Financing
will be sufficient to repurchase the Subject Securities from Offerees who accept
the Rescission Offer, in the event that funds in excess of $5,000,000 are
needed, the Company shall have the right to either (i) with the consent of the
Rescission Underwriters, secure additional financing through the issuance of
equity securities or the sale of assets in amounts sufficient to satisfy the
Company's rescission liabilities and complete the Rescission Offer, or (ii)
declare the entire Rescission Offer ineffective and return all completed
Elections, together with the certificates or other instruments representing the
Subject Securities, to the Offerees who accepted the Rescission Offer. Subject
to the foregoing, any unused proceeds of the Rescission Financing remaining
after the funding of the Rescission Offer which are not returned to the
Rescission Underwriters will be used by the Company for general corporate
purposes. See "Risk Factors -- Lack of Sufficient Capital to Fund Rescission
Offer; Potential Rescission Liability" and "Use of Proceeds."

Selling Shareholders

This Prospectus also relates to the resale of 2,200,000 shares of Class B
Common Stock underlying two warrants (the "Shaffner Warrants") issued to Keith
Shaffner who subsequently transferred certain of the Shaffner Warrants to
various individuals and entities (collectively, the "Selling Shareholders"). The
Company will not receive any proceeds from the resale of the Class B Common
Stock underlying the Shaffner Warrants, but will receive gross proceeds of $1.00
per share in the event of the exercise of the Shaffner Warrants (a maximum
amount of $2,200,000). The Selling Shareholders or any dealer effecting a
transaction in the resale of the shares of the Class B Common Stock, whether or
not participating in a distribution, is required to deliver a current prospectus
upon such resale. The Company has extended the expiration of certain of the
Shaffner Warrants (currently expiring on August 30, 1999) until August 30, 2000
in exchange for such Selling Shareholders' agreement not to sell any of their
shares underlying their warrants for a period of six months following the
completion of the Rescission Offer. See "Plan of Distribution and Selling
Shareholders."

3
<PAGE>

NOTICE TO ARIZONA RESIDENTS

THESE SECURITIES ARE (ARE NOT) REGISTERED UNDER THE SECURITIES ACT OF
ARIZONA, BUT THE FACT OF THE REGISTRATION IS NOT TO BE DEEMED A FINDING BY THE
ARIZONA CORPORATION COMMISSION OR THE DIRECTOR OF THE SECURITIES DIVISION THAT
THIS PROSPECTUS IS TRUE OR ACCURATE, NOR DOES THE REGISTRATION MEAN THAT THE
COMMISSION OR THE DIRECTOR HAS PASSED ON THE MERITS OF OR OTHERWISE APPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS.

NOTICE TO CALIFORNIA RESIDENTS

THIS OFFER OF REPURCHASE HAS (HAS NOT) BEEN APPROVED BY THE CALIFORNIA
COMMISSIONER OF CORPORATIONS IN ACCORDANCE WITH SECTION 25507(b) OF THE
CORPORATE SECURITIES LAW OF 1968 ONLY AS TO ITS FORM. SUCH APPROVAL DOES NOT
IMPLY A FINDING BY THE COMMISSIONER THAT ANY STATEMENTS MADE HEREIN OR IN ANY
ACCOMPANYING DOCUMENTS ARE TRUE OR COMPLETE NOR DOES IT IMPLY A FINDING THAT THE
AMOUNT OFFERED BY THE SELLER IS EQUAL TO THE AMOUNT RECOVERABLE BY THE BUYER OF
THE SECURITY IN ACCORDANCE WITH SECTION 25503 IN A SUIT AGAINST THE SELLER, AND
THE COMMISSIONER DOES NOT ENDORSE THE OFFER AND MAKES NO RECOMMENDATION AS TO
ITS ACCEPTANCE OR REJECTION.

The Company may have incurred liability under Section 25503 by failing to
qualify the Subject Securities under Section 25110. If the Company violated
Section 25110, it is liable to the purchasers of such securities for an amount
equal to the consideration paid with interest thereon at the legal rate, less
the amount of any income received therefrom, upon tender of such security. The
Company's liability, if any, may be terminated by this Rescission Offer under
Section 25507(b).

An Offeree's right of action, if any, under Sections 25500, 25501 and
25502 and under common law, is not necessarily foreclosed by acceptance or
rejection of the Rescission Offer.

Under Section 25534, if the Commissioner determines that the Subject
Securities were offered or sold in violation of Section 25110, the Commissioner
may, by written order to the Company and the holders of such securities, require
certificates evidencing such securities to have stamped or printed prominently
on their face a legend, in the form prescribed by rule of the Commissioner,
restricting the transfer of such securities.

The complete text of the foregoing sections of the Corporate Securities
Law of 1968 is set forth in Exhibit B attached hereto.

NOTICE TO HAWAII RESIDENTS

NEITHER THIS PROSPECTUS NOR THE SECURITIES DESCRIBED HEREIN HAVE BEEN
APPROVED OR DISAPPROVED BY THE COMMISSIONER OF SECURITIES OF THE STATE OF HAWAII
NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.

NOTICE TO ILLINOIS RESIDENTS

From August 1996 through April 1997, 65,000 shares of Class A Common
Stock, 17,000 shares of Convertible Non-Voting Series A Preferred Stock (which
were subsequently converted into 20,400 shares of Class A Common Stock) and
18,000 shares of Convertible Non-Voting Series B Preferred Stock (which were
subsequently converted into 21,600 shares of Class B Common Stock) were offered
and sold to residents of the State of Illinois for an aggregate price of
$153,000.

The sale of these securities may not have been in compliance with the
Illinois Securities Law of 1953 (the "1953 Act"), in which case the sale is
voidable at the buyer's option in accordance with the provisions of Section 13
of the 1953 Act. Therefore, the Company hereby offers to rescind and set aside
such sales, to release each buyer from all contractual obligations the Company
required each buyer to undertake in order to effectuate such sales and to refund
the full amount paid for the securities, plus interest at the rate of 10% per
annum from the date of payment for the

4
<PAGE>

securities to the date of refund. This sum will be reduced by any income or
other amount received due to ownership of such securities.

Should you decide to accept this offer of rescission, please offer, in
writing, to return the securities or return the securities to the Company
together with a written notice of your election to accept such offer of
rescission. The election form attached hereto as Exhibit A may be used to
indicate your acceptance of this offer. Upon receipt of these materials, the
amount paid for the securities, plus interest, will be refunded to you and you
will be released from any and all contractual obligations the Company required
that you undertake in order to effectuate the sale.

This Rescission Offer is only good for thirty (30) days after your receipt
of this Prospectus. If you fail to accept this offer within that period, your
rights to recover under the 1953 Act may be extinguished. You should also note
that any decision to reject this offer is not binding until thirty (30) days
have elapsed from the date of receipt of this Prospectus. However, failure to
accept this offer within thirty (30) days of receipt shall constitute a
non-acceptance of this offer.

The complete text of Section 13 of the 1953 Act is set forth in Exhibit B
attached hereto.

NOTICE TO INDIANA RESIDENTS

Pursuant to Order No. 90-0019 of the Indiana Securities Commission,
failure to respond to this Rescission Offer will be deemed an ACCEPTANCE of the
offer.

NOTICE TO IOWA RESIDENTS

THIS IS A RESCISSION OFFER MADE PURSUANT TO SECTION 502.504(4) OF THE IOWA
UNIFORM SECURITIES ACT AND A COPY IS ON FILE WITH THE IOWA SECURITIES BUREAU.
THE BUREAU MAKES NO RECOMMENDATION AS TO WHETHER THE OFFER SHOULD BE ACCEPTED OR
REJECTED NOR HAS THE BUREAU PASSED UPON THE ADEQUACY OF THIS OFFER.

The Company may have incurred liability under Section 502.501 of the Iowa
Uniform Securities Act by failing to register the Subject Securities in
accordance with Section 502.201. An Offeree purchasing such securities may sue
under Section 502.501 to recover the consideration paid for the securities,
together with interest at the legal rate from the date of payment, less the
amount of any income received on the security, upon tender of the securities. An
Offeree's right to sue under Section 502.501 may be lost unless the Offeree
accepts the Rescission Offer within 30 days after receipt thereof.

The complete text of the foregoing sections of the Iowa Uniform Securities
Act is set forth in Exhibit B attached hereto.

NOTICE TO LOUISIANA RESIDENTS

THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES COMMISSIONER OF
THE STATE OF LOUISIANA. THE SECURITIES COMMISSIONER, BY ACCEPTING REGISTRATION,
DOES NOT IN ANY WAY ENDORSE OR RECOMMEND THE PURCHASE OF ANY OF THESE
SECURITIES.

NOTICE TO MICHIGAN RESIDENTS

As required by Section 410(e) of the Michigan Uniform Securities Act, the
entire text of Section 410(e) is included in Exhibit B attached hereto.

NOTICE TO MISSISSIPPI RESIDENTS

The Company may have incurred liability under Section 75-71-717 of the
Mississippi Securities Act by failing to register the Subject Securities in
accordance with Section 75-71-401. A buyer of such securities may sue under
Section 75-71-717 to recover the consideration paid for the securities, together
with interest at eight percent (8%) from the date of payment, less the amount of
any income received on the securities, upon tender of the securities.

5
<PAGE>

A buyer's right to sue under Section 75-71-717 may be lost if, before suit
is commenced, the buyer receives a written offer (i) to repurchase such
securities for cash payable on delivery of the securities equal to the
consideration paid, together with interest at six percent (6%) from the date of
payment, less the amount of any income received on the securities, (ii) stating
that the offer may be accepted by the buyer at any time within thirty (30) days
of its receipt and (iii) the buyer fails to accept such offer in writing within
the specified period.

The complete text of the foregoing sections of the Mississippi Securities
Act is set forth in Exhibit B attached hereto.

NOTICE TO NEVADA RESIDENTS

The Company may have incurred liability under Section 90.660 of the Nevada
Uniform Securities Act by failing to register the Subject Securities in
accordance with Section 90.460. An Offeree purchasing such securities may sue
under Section 90.660 to recover the consideration paid for the securities,
together with interest at the legal rate from the date of payment, less the
amount of any income received on the securities, upon tender of the securities.
An Offeree's right to sue under Section 90.660 may be lost unless the Offeree
accepts the Rescission Offer within 30 days after receipt thereof.

The complete text of the foregoing sections of the Nevada Uniform
Securities Act is set forth in Exhibit B attached hereto.

NOTICE TO NORTH CAROLINA RESIDENTS

The Company may have incurred liability under Section 78a-56 of the North
Carolina Securities Act by failing to register the Subject Securities in
accordance with Section 78a-24. An Offeree purchasing such securities may sue
under Section 78a-56 to recover the consideration paid for the securities,
together with interest at the legal rate from the date of payment, less the
amount of any income received on the securities, upon tender of the securities.
An Offeree's right to sue under Section 78a-56 may be lost unless the Offeree
accepts the Rescission Offer within 30 days after receipt thereof.

The complete text of the foregoing sections of the North Carolina
Securities Act is set forth in Exhibit B attached hereto.

NOTICE TO OREGON RESIDENTS

Under Section 59.125 of the Oregon Securities Law, an Offeree's right to
sue under Section 59.115 may be lost unless (i) the Offeree accepts the
Rescission Offer within 30 days after receipt thereof and has not been paid the
full amount offered or (ii) the Offeree no longer owns the Subject Securities
and gives the Company written notice of the inability to tender such securities
to the Company.

The complete text of the foregoing sections of the Oregon Securities Law
is set forth in Exhibit B attached hereto.

NOTICE TO PENNSYLVANIA RESIDENTS

From September 1996 through December 1997, 42,500 shares of Class A Common
Stock, 5,000 shares of Convertible Non-Voting Series A Preferred Stock (which
were subsequently converted into 6,000 shares of Class A Common Stock) and 8,900
shares of Convertible Non-Voting Series B Preferred Stock (which were
subsequently converted into 10,680 shares of Class B Common Stock) were offered
and sold to residents of the Commonwealth of Pennsylvania. It appears as if the
provisions of Section 201 of the Pennsylvania Securities Act of 1972 ("1972
Act") relating to registration of securities may not have been complied with in
connection with the offer or sale of these securities. Accordingly, the Company
is offering to repurchase these securities from you for your purchase price for
cash plus 6% interest from the date of purchase less any dividends, interest
payment or cash distributions paid to date. The enclosed disclosure materials
should be reviewed carefully before deciding whether to accept or reject the
offer to repurchase your securities. This Rescission Offer remains open for 30
days from the date you received this Notice. During such time you may either
accept or reject the offer.

6
<PAGE>

If you no longer own the securities which are the subject of this offer to
repurchase, the Company offers to pay you, upon acceptance of the offer, an
amount in cash equal to the damages, if any, computed in accordance with Section
502 of the 1972 Act as more fully described in the accompanying disclosure
materials.

If you affirmatively REJECT the offer or fail to affirmatively ACCEPT the
offer within 30 days in the manner described in the accompanying disclosure
materials, any rights you may have with respect to any failure to comply with
Section 201 of the 1972 Act will be terminated.

The complete text of the foregoing sections of the 1972 Act is set forth
in Exhibit B attached hereto.

NOTICE TO TENNESSEE RESIDENTS

The Company may have incurred liability under Section 48-2-122 of the
Tennessee Securities Act of 1980 by failing to register the Subject Securities
in accordance with Section 48-2-104. An Offeree purchasing such securities may
sue under Section 48-2-122 to recover the consideration paid for the securities,
together with interest at the legal rate from the date of payment, less the
amount of any income received on the securities, upon tender of the securities.
Unless the Rescission Offer is accepted within 30 days after receipt thereof,
the offer of rescission will be deemed to have been rejected.

Offerees may wish to consult with independent counsel before deciding to
accept or reject the Rescission Offer so as to be fully informed about the risks
and the consequences attached to either choice.

The complete text of the foregoing sections of the Tennessee Securities
Act of 1980 is set forth in Exhibit B attached hereto.

NOTICE TO TEXAS RESIDENTS

The Company may have incurred liability under Section 33 of the Texas
Securities Act of 1957 by failing to register the Subject Securities in
accordance with Section 7A. An Offeree purchasing such securities may sue under
Section 33 to recover the consideration paid for the securities, together with
interest at the legal rate from the date of payment, less the amount of any
income received on the securities, upon tender of the securities.

AN OFFEREE'S RIGHT TO SUE WILL BE LOST UNLESS THE OFFEREE (i) ACCEPTS THE
OFFER BUT DOES NOT RECEIVE THE AMOUNT OF THE OFFER, IN WHICH CASE HE MAY SUE
WITHIN THE TIME ALLOWED BY SECTION 33H(1)(a) OR 33H(2)(a) OR (b), AS APPLICABLE;
OR (ii) REJECTS THE OFFER IN WRITING WITHIN 30 DAYS OF ITS RECEIPT AND EXPRESSLY
RESERVES IN THE REJECTION HIS RIGHT TO SUE, IN WHICH CASE HE MAY SUE WITHIN ONE
YEAR AFTER HE SO REJECTS.

The name and address of the bank where the amount of the Rescission Offer
will be paid is First Bank Texas, N.A., 8820 Westheimer Road, Houston, Texas.
Offerees accepting the Rescission Offer will receive the amount of the offer not
later than 30 days after receipt by First Bank Texas, N.A., in a form reasonably
acceptable to the Company, and in compliance with the instructions herein, of
the security, if the Offeree still owns it, or evidence of the fact and date of
disposition if the Offeree no longer owns it.

The complete text of the foregoing sections of the Texas Securities Act of
1957 is set forth in Exhibit B attached hereto.

NOTICE TO WISCONSIN RESIDENTS

The Company may have incurred liability under Section 551.59 of the
Wisconsin Uniform Securities Law by failing to register the Subject Securities
in accordance with Section 551.21. An Offeree purchasing such securities may sue
under Section 551.59 to recover the consideration paid for the securities,
together with interest at the legal rate under Section 138.04 from the date of
payment, less the amount of any income received on the securities, upon tender
of the securities. An Offeree's right to sue under Section 551.59 may be lost
unless the Offeree accepts the Rescission Offer within 30 days after receipt
thereof.

The complete text of Sections 551.21 and 551.59 of the Wisconsin Uniform
Securities Law is set forth in Exhibit B attached hereto.

7
<PAGE>

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PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors" and
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements. Such
"forward-looking statements" can be identified by the use of forward-looking
terminology such as "may," "will," "should," "expect," "anticipate," "estimate"
or "continue" or the negatives thereof or other variations thereon or comparable
terminology. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company or its directors or officers with respect to, among other things:
(i) trends affecting the Company's financial condition or results of operations;
and (ii) the Company's business and growth strategies. Forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and actual results may differ materially from those projected,
expressed or implied, in the forward-looking statements as a result of various
factors. The accompanying information contained in this Prospectus, including
without limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," identifies important factors that could cause such
differences. Such forward-looking statements speak only as of the date of this
Prospectus and the Company cautions potential investors not to place undue
reliance on such statements. Unless otherwise indicated, the information in this
Prospectus assumes that no Offeree receiving the Rescission Offer exercises his
right to rescind.

The Company

CyNet, Inc. (the "Company") is an Internet business solutions provider.
The Company's products and services are offered through Messaging which includes
fax, data, voice, e-mail and mobile messaging, and Internet Services which
includes custom application development, e-commerce development, web content
creation, web hosting and Internet access.

The Company is a Texas corporation and was founded in 1995 to provide fax
services for business-to-business communication. The Company capitalized on the
dramatic increase in the usage of third-party fax services and created a niche
market for itself with its HyperCast fax broadcast desktop client software and
related services. In 1997, the Company introduced HyperLine, its point-to-point
desktop software and fax service in order to expand its fax service.

In response to the rapid growth and popularity of e-mail and the Internet
as a primary communications medium, the Company has set out to become a full
service Internet messaging provider. In 1998, the Company added to its product
offering HyperWeb, its Internet-to-fax service; HyperMail, its fax-to-e-mail
service; WebCast, its e-mail broadcast service; TeleCast, its voice broadcast
service; and HyperComm, its teleconferencing service. To further enhance its
messaging services, the Company, through its subsidiary, Worldwide Marketing
Services, Inc., added enhancement services such as list procurement,
full-service graphic design and copy development services for its customers.
These additional services enabled the Company to provide its customers with
complete messaging solutions with "end-to-end" control of the solutions.

In July 1999, the Company began offering Internet-based services by
acquiring Cynet Interactive, LLC ("Cynet Interactive"), a wholly-owned
subsidiary of Cynet Holdings, LLC. The acquisition of Cynet Interactive
allowed the Company to expand its messaging and broadcast enhancement
services to include web site design, Internet application development for
e-commerce and other Internet-based applications, and web site hosting.
Through a series of projects, the Company has integrated its messaging
services with Internet applications, creating more effective solutions for
its customers. The Company's current Internet projects include the
development of on-line shopping malls, integrated procurement centers, live
auctions and Internet web-based magazines for customers. In July 1999, the
Company entered into a strategic alliance with IXC Communications, Inc. ("IXC
Communications") to enable the Company to further expand its products and
services to include Internet access for business customers. The Company
expects this alliance with IXC Communications will enable the Company to
provide complete, "end-to-end" Internet business solutions just as it is able
to provide complete,

- --------------------------------------------------------------------------------
<PAGE>

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

"end-to-end" messaging business solutions. The Company's solutions selling
approach allows the Company to effectively deliver its customers' messages
irrespective of the transmission medium.

The Company was incorporated in Texas on April 19, 1995. The Company's
principal executive offices are located at 12777 Jones Road, Suite 400, Houston,
Texas 77070 and the telephone number is (281) 897-8317. The Company's home page
is located at www.cynetinc.com. Information contained in the Company's web site
shall not be deemed a part of this Prospectus.

Financings

From the Company's inception through December 31, 1996, the Company raised
approximately $1.9 million of start-up capital by forming sixteen limited
liability companies ("LLCs") with various persons who received either a 40%
(nine LLCs) or 50% (seven LLCs) interest in operations in a city or group of
cities in exchange for cash capital contributions. The Company was the manager
of the LLCs and owned the other 50% to 60% profit interest. The funds received
from LLC members were used to develop the Company's network infrastructure.
Revenue and profits from all other cities not on the network were 100% owned by
the Company. From December 1997 through January 1998, the Company exchanged
2,421,580 shares of Class A Common Stock for the net equity interest ("Minority
Interest") of the members (other than the Company) in all of the LLCs, at an
exchange ratio of 1.2 shares of Class A Common Stock for each $1.00 of capital
originally contributed by a member to an LLC. As a result, the Company became
the owner of 100% of the equity interest in the LLCs. In 1998, the Company
dissolved each of the LLCs.

From August 1996 through December 31, 1997, the Company raised
approximately $15.3 million of additional capital through a series of private
offerings ("Offerings"), including $14,228,137 from the issuance or sale of the
Subject Securities. The proceeds from the Offerings were used principally to
develop and expand the Company's marketing and sales efforts, improve the
products and services, expand the communications network and for working
capital.

In July 1998, the Company entered into a Subscription Agreement (the
"Holdings Subscription Agreement") with Cynet Holdings, LLC ("Cynet Holdings"),
pursuant to which Cynet Holdings committed to purchase up to 10,000,000 shares
of Class A Common Stock for $1.00 per share. As of July 31, 1999, Cynet Holdings
had contributed $3,871,000 in cash to the Company, and the Company had issued
3,871,000 shares of its Class A Common Stock to Cynet Holdings. In addition,
Cynet Holdings transferred all of the outstanding membership interests of Cynet
Interactive to the Company. See "Management -- Certain Transactions."

The Rescission Offer and Rescission Financing

The Company is, subject to the terms and conditions of the Rescission
Offer, offering to rescind the issuance of the Subject Securities to the
Offerees. The Company has completed the Rescission Financing with the Rescission
Underwriters to fund the repurchase of the Subject Securities from Offerees who
accept the Rescission Offer. The following table sets forth information
regarding the Rescission Offer and the Rescission Financing:

Class of Stock Number of Shares Subject to Rescission
-------------- ---------------- ---------------------
Outstanding(1) Offer
-------------- -----

Class A Common Stock(2) ........... 26,979,706 5,514,491
Class B Common Stock .............. 3,119,762 2,719,733
Class A Preferred Stock ........... 103,500 103,500
Class B Preferred Stock ........... 87,349 87,349
Warrants to Purchase
Class A Common Stock(3) ......... 8,425,000 799,000
Warrants to Purchase
Class B Common Stock ............ 2,548,954 -0-

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<PAGE>

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Rescission Financing.............. The Company will issue up to 3,649,635
shares of Class A Common Stock to the
Rescission Underwriters at a price of $1.37
per share pursuant to the Underwriting
Agreement. See "Rescission Offer -- Funding
the Rescission Offer."

Proceeds from
Rescission Financing ........... The proceeds from the Rescission Financing
will be used to fund the Rescission Offer.
Any unused proceeds of the Rescission
Financing remaining after the funding of the
Rescission Offer which are not returned to
the Rescission Underwriters will be used for
general corporate purposes. See "Use of
Proceeds."

No Proceeds from
Rescission Offer................ No proceeds will be received by the Company
from the Rescission Offer. However, the
Company will receive proceeds (i) in the
event of the exercise of the Shaffner
Warrants (see "Selling Shareholders") and
(ii) from the Rescission Financing (see "Use
of Proceeds").

No Market......................... The holders of Subject Securities who reject
the Rescission Offer and the Rescission
Underwriters will own freely tradeable
shares under the Securities Act. No public
market currently exists for any class of the
Subject Securities, and the Company provides
no assurance that there will be a market in
the future. See "Shares Eligible for Future
Sale."

Risk Factors...................... An investment in the Company involves a high
degree of risk. See "Risk Factors."

- -----------------
(1) Shares outstanding as of July 31, 1999, assuming 100% rejection of the
Rescission Offer and the successful completion of the Rescission
Financing.
(2) Includes 3,649,635 shares to be issued to the Rescission Underwriters, but
excludes 1,927,188 shares underlying options granted under the Company's
1997 Restated Stock Option Plan.
(3) Includes a warrant to purchase 376,000 shares pursuant to a consulting
agreement between the Company and HEOF.

Summary of Selected Financial Data

The following table presents summary historical data of the Company on a
consolidated basis (i) from the audited financial statements of the Company for
the years ended December 31, 1998 and 1997 and (ii) from the unaudited financial
statements of the Company for the three months ended March 31, 1999 and March
31, 1998. The summary selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.

- --------------------------------------------------------------------------------
<PAGE>

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

<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1998 1997 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .................... $ 8,947,732 $ 4,960,355 $ 2,153,832 $ 1,926,892
Loss from operations ........ (4,230,362) (7,958,870) (659,220) (819,503)
Net loss applicable
to common shareholders ...... (4,396,883) (8,502,067) (748,418) (830,288)
Net loss per common ......... $ (0.19) $ (0.60) $ (0.03) $ (0.04)
Weighted average number
of common shares
outstanding ................. 23,109,154 14,086,177 25,012,501 22,317,316
</TABLE>

December 31, March 31
1998 1999
------------ ------------

Balance Sheet Data:
Working Capital Deficit(1) ................... $ (885,068) $ (205,326)
Total assets ................................. 5,297,713 5,507,640
Stock and warrants subject to rescission ..... 13,980,009 13,980,009
Capital deficit .............................. (12,218,072) (11,856,490)

- ----------------
(1) Includes $2,078,825 of deferred offering costs. See Note 3 of the Notes to
the Consolidated Financial Statements.

- --------------------------------------------------------------------------------
<PAGE>

RISK FACTORS

An investment in the Company involves a high degree of risk. Offerees and
other prospective investors should consider the following factors, in addition
to the other information contained in this Prospectus.

Limited Operating History; History of Operating Losses

The Company commenced business in April 1995, has a limited operating
history and has incurred operating losses since inception. Revenue from the sale
of messaging and Internet services will be the Company's primary source of cash
flow during 1999. Although the Company continues to obtain significant numbers
of new accounts and revenue continues to increase, there can be no assurance
that the Company will be able to generate sales in quantities sufficient to
generate positive cash flow. In addition, there can be no assurance that the
Company will not continue to experience operating losses for the foreseeable
future as it commits additional resources to increase revenue.

Need for Additional Capital and Capital Requirements

The Company's efforts to develop and introduce its messaging and Internet
services have required, and will continue to require, the Company to invest in
infrastructure and systems development. In addition, the Company has incurred
substantial losses since inception and expects to continue to incur losses
through at least the third quarter of 1999 at which time the Company expects
that its operating revenues will be sufficient to cover operating costs and
provide positive cash flow. However, there can be no assurance that the Company
will meet these expectations and generate positive cash flow in the foreseeable
future. As a result, the Company expects it will need to raise additional
capital in future periods. If the Company experiences greater than anticipated
capital requirements, or if the implementation of the Company's operating
strategy fails to produce anticipated revenue growth and cash flows or if
additional working capital is required for any other reason, the Company will be
required to obtain additional sources of capital earlier than currently
anticipated. The timing of the need for additional capital also will be affected
by the extent to which the Rescission Offer is accepted. See "Rescission Offer"
and "--Lack of Sufficient Capital to Fund Rescission Offer; Potential Rescission
Liability." There can be no assurance that the Company will be able to obtain
equity or lease financing when needed or on terms that the Company finds
acceptable. Any additional equity financing may cause immediate and substantial
dilution to the Company's shareholders. If the Company is unable to obtain
sufficient funds to satisfy its capital requirements, it will be forced to
reduce the scope of its expansion plans, curtail operations, dispose of assets
or seek extended payment terms from its vendors, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

Lack of Sufficient Capital to Fund Rescission Offer; Potential Rescission
Liability

The Rescission Offer is being made to all persons who acquired the Subject
Securities from the Company. If all of the Offerees holding the Subject
Securities accept the Rescission Offer, the Company will be required to make
payments aggregating $14,228,137, plus the aggregate amount of interest at the
statutory interest rates from the date of issuance to the Expiration Date less
$248,128 in dividends paid on the Preferred Stock. As of September 15, 1999, the
aggregate accrued interest (on the total liability of $14,228,137) will be
$2,374,558 and will continue to accrue, assuming the full liability is incurred,
at the rate of approximately $3,000 per day. The Company has executed an
Underwriting Agreement with the Rescission Underwriters to provide $5,000,000 to
the Company for the Rescission Financing. In the event that funds in excess of
the Rescission Financing are needed to fund the Company's rescission liability,
the Company will be required, with the consent of the Rescission Underwriters,
to seek additional capital through equity financing or the sale of assets, and
there can be no assurance that sufficient financing can be obtained on terms
acceptable to the Company or that the Rescission Underwriters will consent to
the Company obtaining such additional financing or completing the Rescission
Offer. In addition, the Company shall also have the right (but not the
obligation) to declare the entire Rescission Offer ineffective. See "Rescission
Offer -- Funding the Rescission Offer."

12
<PAGE>

Subject to the foregoing, any unused proceeds of the Rescission Financing
remaining after the funding of the Rescission Offer will be used by the Company
for general corporate purposes. See "Use of Proceeds."

There can be no assurance that claims asserting violations of state or
federal securities laws will not be asserted notwithstanding the Rescission
Offer. Furthermore, there can be no assurance that the Company will not be
subject to penalties or fines relating to past securities issuances or that the
Offerees or other holders of the Subject Securities will not assert or prevail
in claims against the Company for rescission or damages under federal or state
securities laws. The staff of the Securities and Exchange Commission (the
"Commission") takes the position that a person's right of rescission under
federal securities law may, under certain circumstances, survive a rescission
offer. Even if the Company were successful in defending any securities law
claims, the assertion of such claims against the Company would result in costly
litigation and significant diversions of effort by the Company's management. In
addition, the Rescission Offer will not prevent the Commission or any state
securities commission from pursuing enforcement action against the Company with
respect to any alleged violations of federal or state securities laws. The
occurrence of any of the foregoing could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Rescission Offer -- Effect of Rescission Offer" and Note 8 of Notes to
Consolidated Financial Statements.

Risk of Managing Growth; Recent Management Changes

The Company's growth has placed, and is expected to continue to place, a
significant strain on the Company's management, administrative, operational,
financial and technical resources and on its systems and controls. The Company
has made recent changes in executive-level management positions and certain of
the Company's senior management personnel have worked together only a short
time. The Company believes it will need, both in the short term and the long
term, to hire additional qualified administrative and management personnel in
all functional areas. Failure to locate, hire and retain such qualified
personnel or failure to manage the Company's growth properly could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "-- Dependence on Key Personnel; Need to Hire
Additional Qualified Personnel," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operation," and "Management."

Accountants' Explanatory Paragraph

The Company's independent certified public accountants included an
explanatory paragraph in their opinion with respect to the financial statements
to reflect that recurring losses from operations and the Rescission Offer have
raised substantial doubt about the ability of the Company to continue as a going
concern. Furthermore, the financial statements do not include any adjustments
that might result from the outcome of such uncertainty. The Company's internally
generated cash flows from operations have historically been, and continue to be,
insufficient for cash needs. The Company has, therefore, relied upon external
equity financing to continue its operations.

From inception through March 31, 1999, the Company incurred significant
operating losses and at March 31, 1999, the Company had a capital deficit of
$11,856,490. Until the Company can obtain monthly sales levels of
approximately $1,200,000, which the Company currently expects to be necessary
to fund current working capital needs, there is uncertainty as to the ability
of the Company to expand its business and continue as a going concern. The
Company's current cash forecast indicates that there will be negative cash
flows from operations until at least the third quarter of 1999, at which time
the Company's operating revenues are expected to be sufficient to cover
operating costs and provide positive cash flow. There can be no assurance
that the Company will be able to generate revenues as projected sufficient to
service the cost of operations and fund the capacity to handle the Company's
growth. Further, failure to realize the sales growth projections could
shorten the period that the current cash balance will be sufficient to meet
working capital needs. As a result, there can be no assurance that the
Company will be successful in funding its working capital and capacity needs.

13
<PAGE>

Informal Commission Inquiry

In May 1997, the Company received a letter from the enforcement division
of the Commission in which the Company was advised of an informal inquiry being
conducted with respect to the Offerings. The Company met with the Commission in
August 1997 in an attempt to resolve the issues raised in the informal inquiry
and believes that it has complied with all information requests from the
Commission. Management believes the Rescission Offer addresses substantially all
of the issues raised by the Commission in its inquiry. While there can be no
assurance that other issues will not be raised or that the Rescission Offer will
completely satisfy the Commission's concerns, the Company has been advised
orally that upon the completion of the Rescission Offer, the Commission
currently intends to close its inquiry.

Market Growth of Messaging and Internet Services

The market and demand for business-to-business messaging services and
Internet application services is growing rapidly. While the Company believes the
market and demand for such services will continue to grow, there can be no
assurance as to the extent of any such growth. Even if there is continued growth
in the use of messaging and Internet services, there can be no assurance that
customers will elect to use service providers, such as the Company, to fulfill
their messaging and Internet application services needs. If the use of service
providers does continue to grow, there can be no assurance that the Company will
be able to attract these new users as customers. See "Business--Competition."

Competition

The Company faces a high degree of competition in each of its service
areas. The Company's current and potential competitors fall into the following
categories: (i) telecommunications companies and resellers, (ii) Internet
service providers, (iii) enhanced fax service providers, (iv) unified Internet
messaging providers and (v) various web design and electronic commerce
providers. The Company is unaware of any other entity that combines Messaging
and Internet products and services in a unified service offering as does the
Company. However, because of the high rate at which other established and new
companies are entering the various business segments, there can be no assurance
that additional competitors will not enter markets the Company currently serves.
Many of these competitors may possess significantly greater financial,
marketing, technical and other resources than the Company. There can be no
assurance that additional competitors will not enter markets that the Company
presently serves or plans to serve or that the Company will be able to compete
effectively. In addition, there can be no assurance that potential customers
will not elect to use their own equipment to fulfill their needs for messaging
and Internet services or that they will not elect to use alternatives to the
Company's messaging and Internet services. See "Business -- Competition."

Company System Failure

The success of the Company is largely dependent upon the efficient and
uninterrupted operation of its telecommunications system infrastructure. Within
120 days from the date of this Prospectus, the Company will expand its disaster
recovery plan to include one or more redundant network switching centers. The
Company's systems and operations remain vulnerable to damage or interruption
from fire, earthquake or other natural disaster and from power loss,
telecommunications failure, break-ins, unauthorized entry, computer viruses, and
similar events beyond the Company's control. Furthermore, the hardware, software
and network systems developed by the Company are relatively new, and therefore
have not withstood the demands of the larger volume associated with the
Company's revenue projections. There can be no assurance that these systems will
be adequate to operate at the volume levels projected or operate efficiently
enough to produce the required gross margin for the Company to be profitable.
The occurrence of any of the foregoing risks could have a material adverse
effect on the Company's business, financial condition and results of operations.

14
<PAGE>

Long Distance Carriers

The foundation of the Company's telephony network infrastructure depends
on the Company's right to use the telecommunications lines of certain of the
long distance carriers. There can be no assurance that these companies will not
discontinue or otherwise alter their relationships with the Company in a manner
that would have a material adverse effect on the Company's business, financial
condition and results of operations.

Lack of Long-Term Customer Contracts

The majority of the Company's services are performed pursuant to specific
purchase orders from customers and other short-term arrangements. While the
Company actively pursues longer term contracts with customers, the Company's
existing contracts typically are of a duration of six months to one year. As a
result, there can be no assurance that the majority of the Company's customers
will continue to purchase the Company's services in the future. See "Business --
Customers."

The Pricing for Services is Uncertain

Prices for messaging and Internet services have fallen historically. The
Company expects prices in the messaging and Internet industry in general to
continue to fall, and prices for the Company's existing and future services may
fall correspondingly. Accordingly, there can be no assurance that the Company's
current pricing schedule will prove to be viable, demand for Company services
will materialize at the prices it would like to charge, or the Company will be
able to sustain adequate future pricing levels as competitors introduce
competing services.

Dependence on Key Personnel; Need to Hire Additional Qualified Personnel

The Company is highly dependent on the technical and management skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain additional
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain existing personnel or identify
or hire additional personnel. The failure to retain and attract the necessary
technical, managerial, financial, marketing and customer service personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's performance also depends on its ability
to retain and motivate its executive officers and key employees, several of whom
have worked together for only a short time. The Company has entered into
employment agreements with five of its senior officers. The loss of key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Risk of Managing Growth;
Recent Management Changes and New Information Systems" and "Management --
Directors and Officers" and "Management -- Employment Agreements."

Technological Change

The messaging and Internet services industries are characterized by rapid
and continuous technological change, evolving industry standards, emerging
competition and frequent new service and other product introductions. Future
technological advances in the messaging and Internet services industries may
result in the availability of new services that could compete with the services
currently provided by the Company or decreases in the cost of existing services
that could enable the Company's established or potential customers to fulfill
their own messaging and Internet services needs more cost effectively. There can
be no assurance that the Company can successfully identify new service
opportunities and develop and bring new products and services to market in a
timely and cost-effective manner, or that products, services or technologies
developed by others will not render the Company's products, services or
technologies noncompetitive or obsolete.

15
<PAGE>

Software and Hardware Defects; Possibility of Development Delays

Software-based services and equipment, such as the Company's, may contain
undetected errors or failures when introduced or when new versions are released.
The hardware, software, and network systems the Company has developed are
relatively new and, therefore, have not withstood the demands of the larger
volume associated with its revenue projections. There can be no assurance that
these systems will be adequate to operate at the volume levels projected or
operate efficiently enough to produce the required gross margin the Company
needs to be profitable. Furthermore, there can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in the Company's software after commercial release, or that the Company
will not experience development delays, resulting in delays in market
acceptance. Any of these circumstances could have a material adverse effect on
the Company's business, prospects, financial condition and results of
operations.

Ability to Obtain Telephone Numbers

The Company's future success will depend on its ability to procure large
quantities of telephone numbers in the United States and foreign countries,
including telephone numbers in area codes that its customers demand. The
Company's ability to procure telephone numbers depends on applicable
regulations, the practices of telecommunications carriers that provide telephone
numbers and the level of demand for new telephone numbers. Failure to obtain
these numbers in a timely and cost-effective manner may prevent the Company from
entering some foreign markets or hamper the Company's growth in domestic
markets, and may have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

The Internet as an Information Transmission Medium

The Company's future success will depend on its ability to route its
customers' traffic through the Internet and through dedicated and/or partially
dedicated data network bandwidth. The Company depends on the viability of the
Internet and other bandwidth as a medium for the transmission of information in
various forms. To date, the Company has transmitted a limited amount of customer
traffic as compared to its growth projections. There can be no assurance that
these will prove to be viable communications media or that information
transmission will be reliable. There also can be no assurance against the
development of capacity constraints that might inhibit efficient information
transmission.

Continued Growth in the Use of the Internet

The Company's future success is dependent upon continued growth in the use
of the Internet in order to support the sale and use of the Company's services
and products. There can be no assurance that the number of Internet users will
continue to grow. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. The Internet may not prove
to be a viable avenue to transmit communications for a number of reasons. These
reasons include (i) lack of acceptable security technologies, (ii) lack of
access and ease of use, (iii) traffic congestion, (iv) inconsistent quality or
speed of service, (v) potentially inadequate development of the necessary
infrastructure, (vi) excessive governmental regulation, (vii) uncertainty
regarding intellectual property ownership, or (viii) lack of timely development
and commercialization of performance improvements, including high-speed modems.

Risks Associated with International Operations

The Company's current international operations consist of providing
messaging and Internet services to locations outside the United States. The
Company is planning to increase service offerings to foreign locations and
provide services for foreign customers in the near future. The Company is also
considering opportunities for acquiring businesses with significant
international operations and customers. However, any international expansion
will subject

16
<PAGE>

the Company to the wide range of general business risks associated with
international operations, including (i) unexpected changes in legal and
regulatory requirements, (ii) changes in tariffs, exchange rates and other
barriers, (iii) political and economic instability, (iv) inability to repatriate
net income from foreign markets, (v) long accounts receivable payment cycles in
certain countries, (vi) potentially adverse tax consequences and (vii) the
regulation of Internet access providers by foreign regulatory authorities. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future operations and, consequently, on the Company's business,
financial condition and results of operations.

Lack of Patents and Copyrights

The Company has developed much of its own operating system and user
software and expects to continue to improve existing applications and develop
new applications in the future. As of the date of this Prospectus, the Company
has not copyrighted or patented any of its software and relies on non-disclosure
agreements and common law rights of protection. Other companies may hold or
obtain patents on inventions or may otherwise claim proprietary rights to
technology useful or necessary to the Company's business. The Company intends to
pursue available patent, copyright, trademark and service mark protection for
its business processes, software, and Internet content. The extent to which the
Company may be required to seek licenses under such patents or other proprietary
rights of third parties, and the cost or availability of such licenses, cannot
now be predicted. The Company relies to a significant extent on proprietary
know-how, particularly with respect to messaging processes. There can be no
assurance, however, that others will not independently develop superior know-how
or obtain access to know-how used by the Company that the Company now considers
proprietary. See "Business -- Intellectual Property."

Risks Associated With Acquisitions, Investments and Strategic Alliances

The Company does presently and intends, in the future, to continue to
engage in efforts to acquire customer bases and businesses from, make
investments in, or enter into strategic alliances with, companies that have
customer bases, switching capabilities or existing networks in the Company's
current or target markets. See "Business --Strategic Relationships." Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by the risks commonly encountered in such transactions or efforts.
Such risks include, among others, (i) the difficulty of identifying appropriate
acquisition candidates, (ii) the difficulty of assimilating the operations and
personnel of the respective entities, (iii) the potential disruption of the
Company's ongoing business, (iv) the inability of management to capitalize on
the opportunities presented by acquisitions, investments, strategic alliances or
related efforts, (v) the failure to successfully incorporate licensed or
acquired technology and rights into the Company's services, (vi) the inability
to maintain uniform standards, controls, procedures and policies and (vii) the
impairment of relationships with employees and customers as a result of changes
in management. Acquired operations typically operate independent marketing,
customer support, billing systems and other functions. Any acquisition by the
Company could result in difficulties in the integration and consolidation of
customer bases or operations. Pending such integration and consolidation, it
would be necessary for the Company to maintain separate billing systems and
other functions of the acquired operation, which could cause inefficiencies and
significant operational complexity and expense, increase the risk of billing
delays and financial reporting difficulties, and impair the Company's efforts to
cross-sell the products and services of the acquired operation. Additionally, in
connection with an acquisition, the Company could experience rates of customer
attrition that would be significantly higher than the rate of customer attrition
that it ordinarily experiences. Further, to the extent that any such transaction
involves customer bases or businesses located outside the United States, the
transaction would involve the risks associated with international operations.
There can be no assurance that the Company would be successful in overcoming
these risks or any other problems encountered with such acquisitions,
investments, strategic alliances or related efforts. In addition, no assurance
can be given that the Company would be able to obtain the capital it will need
to finance any such efforts. See "-- Risks Associated with International
Operations."

17
<PAGE>

Governmental Regulation

The telecommunications industry is subject to regulation by the Federal
Communications Commission (the "FCC"), by various state public service and
public utility commissions and by various international regulatory authorities.
The FCC has the power to impose regulatory requirements on the Company and
currently classifies the Company as a "nondominant carrier." Generally, the FCC
has chosen not to closely regulate the charges or practices of nondominant
carriers. The FCC also has the power to impose more stringent regulatory
requirements on the Company and to change its regulatory classification. As a
result, there can be no assurance that the FCC will not change the Company's
regulatory classification or otherwise subject the Company to more burdensome
regulatory requirements that would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company is subject to federal and state laws regulating the
unsolicited transmission of fax and e-mail transmissions for advertisement
purposes. The Company has adopted a policy to refrain from transmitting fax and
e-mail advertisements except to the Company's own customers and other recipients
who have expressed an interest in receiving the transmitted information or
otherwise have given their permission to receive such transmissions. The Company
encourages its customers to familiarize themselves with the relevant laws and to
conduct their businesses in accordance with applicable laws.

In connection with its anticipated international operations, the Company
will be required to satisfy a variety of foreign regulatory requirements. The
Company intends to explore and to seek to comply with these requirements on a
country-by-country basis. There can be no assurance that the Company will be
able to satisfy the regulatory requirements in foreign countries, and the
failure to satisfy such requirements may prevent the Company from operating in
such countries. The failure to comply with foreign regulatory requirements would
have a material adverse effect on the Company's business, financial condition
and results of operations.

Lack of Public Market

There has been no public trading market for the Company's Class A and
Class B Common Stock and there can be no assurance that one will develop.
Management will attempt to develop a public market in the Class A and Class B
Common Stock immediately after the closing of the Rescission Offer by means of
the OTC Bulletin Board Service ("OTCBB") by engaging market makers in the shares
in such a manner that will permit trading. Assuming the successful completion of
the Rescission Offer and the Rescission Financing, the Company intends to take
the necessary actions to allow its Class A and Class B Common Stock to be traded
by means of the the Nasdaq National Market System ("NMS"). However, there can be
no assurance that a market for the Company's Class A and Class B Common Stock
will ever develop on the OTCBB or the NMS. If any market is developed it should
be assumed that such market will be highly illiquid, sporadic and volatile.

Penny Stock Regulation

The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NMS,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prepared by the Commission that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that a penny stock is a
suitable investment for the purchaser

18
<PAGE>

and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in any secondary market for a stock that becomes subject to the penny
stock rules. The Company's Class A and Class B Common Stock may be subject to
the penny stock rules, and accordingly, investors rejecting this Rescission
Offer may find it difficult to sell their shares, if at all.

Continued Control by Certain Shareholders

Assuming 100% rejection of the Rescission Offer, Cynet Holdings will
own approximately 50.2% of the Company's Class A Common Stock. As a result,
it will be able to exercise significant influence on the business and affairs
of the Company, including election of the Company's directors and the
authorization of other corporate actions requiring shareholder approval. See
"Principal Shareholders."

Authorized Stock

The Board of Directors of the Company has the authority to issue up to
10,000,000 shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined by the Board of Directors.
Accordingly, the Board of Directors of the Company is empowered, without further
shareholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of the Company's Common Stock. Certain companies
have used the issuance of preferred stock as an anti-takeover device and the
Board of Directors could, without further shareholder approval, issue preferred
stock with certain rights that could discourage an attempt to obtain control of
the Company in a transaction not approved by the Board of Directors. The Board
of Directors of the Company also has authority to issue up to 60,000,000 shares
of Common Stock, of which 40,000,000 shares have been designated as Class A
Common Stock and 20,000,000 shares have been designated as Class B Common Stock.
See "Description of Capital Stock." Assuming the successful completion of the
Rescission Offer and the Rescission Financing, the Company intends to (i) offer
the holders of the Class B Common Stock the right to exchange their shares of
Class B Common Stock for an equal number of shares of Class A Common Stock and
(ii) increase the number of authorized shares of its Common Stock to 100 million
shares at a special meeting of the Company's shareholders. See "Description of
Capital Stock."

Fluctuation in Stock Price

The Company's annual and quarterly operating results may fluctuate
significantly in the future as a result of numerous factors, including (i) the
rate at which the Company is able to add customers and up-sell additional
usage-based services to existing customers, (ii) the amount and timing of
expenditures to enhance sales and marketing and to expand the Company's
infrastructure, or other costs, as it expands its network, (iii) the
announcement or introduction of new or enhanced services by the Company's
competitors, (iv) technical difficulties or network downtime, and (v) economic
and competitive conditions specific to the Internet and messaging industries. As
a result, it is likely that in some future periods the Company's operating
results will be below the expectations of securities analysts and investors. If
this happens, the trading price of the Company's Common Stock would likely be
materially adversely affected.

Determination of Price of Offerings

The offering prices and assigned values relating to the issuances of the
Subject Securities and the Rescission Financing were arbitrarily determined by
the Company and bore no relationship to the Company's earnings, assets, book
value or any other generally accepted criteria of value. There can be no
assurance that if an Offeree rejects the Rescission Offer he will be able to
sell in the future, if at all, the Subject Securities for a price higher than
the original offering price.

19
<PAGE>

Need to Maintain a Current Prospectus

The Company must maintain a current prospectus in order for the Selling
Shareholders to sell the shares of the Class B Common Stock to which this
Prospectus relates. In the event that the Company is unable to maintain a
current prospectus due to lack of sufficient financial resources or for other
reasons, the Selling Shareholders may be unable to resell their shares of the
Class B Common Stock in any public market.

Forward-Looking Statements and Associated Risk

This Prospectus contains forward-looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based on the Company's expectations and are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the objectives and plans
of the Company will be achieved.

Year 2000 Risk

The Company reviewed for Year 2000 compliance the computer hardware and
software systems used in the delivery and support of its products and services
and brought all systems into compliance and readiness. However, the ability of
third parties with whom the Company transacts business to adequately address
their Year 2000 issues is outside the Company's control. Therefore, there can be
no assurance that the failure of such third parties to adequately address their
respective Year 2000 issues will not have an adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."

20
<PAGE>

RESCISSION OFFER

Background

From August 1996 through May 1998, the Company raised $14,228,137 of
capital through the issuance or sale of the Subject Securities. The following
table sets forth information regarding (i) the states in which the Offerees
reside, (ii) the statutory interest rates applicable in such states, (iii) the
aggregate amount of Subject Securities issued by the Company, (iv) the aggregate
amount of accrued interest calculated through September 15, 1999 and (v) the
aggregate amount of liability calculated through September 15, 1999.

<TABLE>
<CAPTION>
State or Territory Statutory Rate Amount Subject to Rescission Accrued Interest Aggregate Liability
<S> <C> <C> <C> <C>
Arizona 10% $669,899 $147,746.79 $817,645.79
Arkansas 6% 30,000 3,380.00 33,380.00
California 7% 1,212,451 206,641.48 1,419,092.48
Colorado 8% 152,000 24,596.34 176,596.34
Connecticut 6% 8,000 1,322.33 9,322.33
District of Columbia 6% 16,600 2,372.15 18,972.15
Florida 10% 201,500 48,535.70 250,035.70
Georgia 6% 17,001 2,610.44 19,611.44
Hawaii 10% 13,000 3,553.87 16,553.87
Idaho 6% 40,000 6,583.41 46,583.41
Illinois 10% 153,000 38,886.10 191,886.10
Indiana 8% 1,332,962 269,353.72 1,602,315.72
Iowa -- (1) 60,000 10,565.10 70,565.10
Kansas 15% 22,500 8,535.70 31,035.70
Kentucky 6%(2) 50,000 9,138.01 59,138.01
Louisiana -- (3) 36,500 6,640.49 43,140.49
Maine 6% 2,000 306.90 2,306.90
Maryland 10% 480,450 114,442.64 594,892.64
Massachusetts 6% 76,250 11,429.22 87,679.22
Michigan 6% 2,808,042 428,952.14 3,236,994.14
Minnesota 6% 446,060 62,794.17 508,854.17
Mississippi 6% 51,000 7,363.50 58,363.50
Missouri 8% 35,000 5,789.52 40,789.52
Nevada -- (4) 76,000 9,542.65 85,542.65
New Hampshire 10% 5,000 1,264.07 6,264.07
New Jersey 5.5% 26,000 3,618.70 29,618.70
New York 9% 146,667 34,375.75 181,042.75
North Carolina 8% 27,500 6,519.79 34,019.79
Ohio -- (5) 85,002 0 85,002.00
Oklahoma 10% 7,500 1,738.88 9,238.88
Oregon 9% 6,000 1,405.50 7,405.50
Pennsylvania 6% 79,200 12,750.33 91,950.33
South Carolina 6% 43,000 6,131.34 49,131.34
Tennessee 10% 809,988 207,071.31 1,017,059.31
Texas 6% 4,428,425 619,798.01 5,048,223.01
Utah 12% 30,000 8,250.00 38,250.00
Vermont 12% 30,000 8,960.00 38,960.00
Virginia 6% 46,401 6,974.51 53,375.51
Washington 8% 3,000 461.63 3,461.63
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
State or Territory Statutory Rate Amount Subject to Rescission Accrued Interest Aggregate Liability
<S> <C> <C> <C> <C>
Wisconsin 5% 201,239 24,156.24 225,395.24
Canada --(6) 30,000 0 30,000.00
England --(6) 33,000 0 33,000.00
France --(6) 100,000 0 100,000.00
Saudi Arabia --(6) 10,000 0 10,000.00
Taiwan --(6) 90,000 0 90,000.00
Total $14,228,137 $2,374,558.43 $16,602,695.43
</TABLE>

(1) Set monthly at the 52-week Treasury Bill rate plus 2%. As of July 31,1999,
the rate was 6%.
(2) Effective 7/15/98, the statutory rate for rescission offers is equal to
the "legal rate," which is currently 12%.
(3) In 1996 the rate was 9.75%, from 1/97 through 7/97 the rate was 9.25%,
from 8/97 through 12/97 the rate was 7.9% and for 1998 the rate is 7.3%.
(4) From 1/97 through 6/97 the rate was 8.25%, from 7/97 to the date of this
Prospectus the rate was 8.5%.
(5) The applicable statute does not require the payment of interest in an
offer of rescission.
(6) No applicable statute; interest will be paid at 6%.

The Subject Securities were not registered under the federal and state
securities laws, but were issued in reliance upon the exemptions from
registration afforded by (i) Sections 3(b) and 4(2) of the Act and Regulation D
promulgated thereunder and (ii) various state limited offering exemptions,
respectively. However, the Company believes that:

(1) Under the "integration" provisions of Regulation D, the Offerings
may be viewed as one continuous "public" offering which was not in
compliance with Regulation D;

(2) Because of the frequency and number of sales of the Subject
Securities, including the number of persons who received offers and
who purchased the Company's securities, the issuances may not have
been eligible for the exemptions from registration pursuant to
Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering;

(3) Certain of the Subject Securities may have been issued to persons
who failed to receive adequate information regarding the Company and
its financial condition, including information regarding the
Company's potential liability for possible violations of federal and
state securities laws; and

(4) The Subject Securities may have been issued in violation of state
securities laws as well as the securities laws of Canada, England,
France, Saudi Arabia and Taiwan.

The failure to provide adequate disclosure to purchasers of the Subject
Securities may result in potential liabilities under the Exchange Act and the
regulations thereunder.

If the Offerings were not conducted in compliance with applicable
securities laws, the Company may have incurred a liability to the holders of the
Subject Securities of $14,228,137 plus interest from the date of issuance less,
with respect to shares of Preferred Stock, $248,128 in dividends paid to the
holders of such shares. See "Risk Factors -- Lack of Sufficient Capital to Fund
Rescission Offer; Potential Rescission Liability" and Note 8 of the Notes to the
Consolidated Financial Statements.

The Company has elected to offer to all of the Offerees the right to
rescind their acquisitions of the Subject Securities and to receive in exchange
therefor, a payment in an amount equal to the aggregate consideration paid for
the

22
<PAGE>

issuance of the Subject Securities, plus interest at the applicable statutory
rate in the state in which they reside (the "Statutory Rate") from the date of
issuance, less, with respect to shares of Preferred Stock, dividends paid, or,
if the Subject Securities have been disposed of at a loss, the difference
between the purchase price of such Subject Securities and the price received
upon disposition plus interest at the Statutory Rate from the date of
disposition, less dividends paid.

The Rescission Offer is being made in order to limit, so far as may be
permitted under applicable federal and state securities laws, the potential
liability of the Company with respect to the issuances of the Subject
Securities. The Rescission Offer is not an admission that the Company did not
comply with the registration provisions of applicable federal and state laws nor
is it a waiver of any applicable statutes of limitations. Notwithstanding the
Rescission Offer, there can be no assurance that the Company will not be subject
to penalties or fines relating to past securities issuances or that other
holders of the Company's securities will not assert or prevail in claims against
the Company for rescission or damages under state or federal securities laws.
See "Risk Factors -- Lack of Sufficient Capital to Fund Rescission Offer;
Potential Rescission Liability" and Note 8 of the Notes to the Consolidated
Financial Statements.

Acceptance or Rejection

Any Offeree may accept or reject the Rescission Offer, in whole but not in
part, by completing the pertinent part of, and signing, the Election
accompanying this Prospectus (a form of which is attached hereto as Exhibit A)
and returning it to the Company (Attention: Samuel C. Beale, Vice President and
General Counsel), 12777 Jones Road, Suite 400, Houston, Texas 77070 as soon as
practicable, but in no event should it be delivered to the Company later than
the Expiration Date. The Election should be completed to indicate whether the
Offeree accepts or rejects the Rescission Offer. Any Offeree accepting the
Rescission Offer must enclose with the Election the original certificates or
other instruments representing the Subject Securities, properly endorsed for
transfer, with the signature(s) guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program). All
acceptances of the Rescission Offer will be deemed to be effective on the
Expiration Date and, unless the offer is accepted on or before such date, the
right to accept the Rescission Offer shall terminate. Nevertheless, in the event
the aggregate amount necessary to fund the Rescission Offer exceeds $5,000,000,
the Company shall have the right (but not the obligation) to declare the
Rescission Offer ineffective and return the certificates or other instruments
representing the Subject Securities to the Offerees who have accepted the
Rescission Offer. Acceptances or rejections may be revoked in a written notice
received by the Company prior to the Expiration Date. Payment for Subject
Securities as to which the Rescission Offer has been accepted will be made
within five business days after the Expiration Date.

Any Offeree who has not delivered a completed Election by the Expiration
Date shall be conclusively deemed to have rejected the Rescission Offer, except
to the extent applicable state laws provide otherwise. See "Exhibit B" attached
to this Prospectus.

The Election and the stock certificates or other instruments representing
the Subject Securities may be delivered by hand or courier service, or by mail.
The method of delivery of all documents is at the election and risk of the
Offeree. If delivery is by mail, delivery will be deemed to have occurred on the
date the Election is postmarked.

IF OFFEREES DESIRING TO ACCEPT THIS RESCISSION OFFER INTEND TO MAKE USE OF THE
MAILS TO RETURN THEIR STOCK CERTIFICATES OR OTHER INSTRUMENTS EVIDENCING THE
SUBJECT SECURITIES TO THE COMPANY, INSURED REGISTERED MAIL, RETURN RECEIPT
REQUESTED, IS RECOMMENDED.

23
<PAGE>

Funding the Rescission Offer

The Company has entered into an Underwriting Agreement with the Rescission
Underwriters to provide the Rescission Financing to fund the repurchase of the
Subject Securities from Offerees who accept the Rescission Offer. The Rescission
Underwriters include, among others, HEOF, a limited partnership whose general
partner is HEOF Management Corp., an affiliate of Enron Economic Development
Corporation, a wholly-owned subsidiary of Enron Corporation, a Houston,
Texas-based Fortune 500 energy company. Subject to the terms and conditions of
the Underwriting Agreement, the Company has agreed to sell and the Rescission
Underwriters have agreed to purchase the number of shares of Class A Common
Stock set forth opposite their respective names in the table below, at a price
of $1.37 per share.

Rescission Underwriter Number of
---------------------- ---------
Shares
------
Houston Economic Opportunity Fund, L.P. ..................... 1,605,840
Northern Neck Outfitters, Inc. .............................. 729,927
Cress Brothers Investments, L.L.C ........................... 620,438
Leonard Childress ........................................... 411,672
TKNET Investments, Inc. ..................................... 119,708
Nancy Montherfer ............................................ 72,993
Cynet Holdings, LLC ......................................... 89,057
---------
Total ............................... 3,649,635
=========

The Underwriting Agreement provides, among other things, that the
obligation of the Rescission Underwriters to purchase such shares of Class A
Common Stock is subject to the successful completion of the Rescission Offer. As
of the date of this Prospectus, the funds comprising the Rescission Financing
have been deposited into an interest-bearing escrow account with First Bank
Texas, N.A. of Houston, Texas, and will be disbursed as needed to Offerees who
accept the Rescission Offer. In addition, the Company will deposit such
additional amounts required to be held in escrow under Texas law, which requires
a minimum escrow deposit equal to the amount of the Rescission Offer being made
to Texas residents including accrued interest. As of September 15, 1999, the
minimum escrow balance required will be $5,048,223.01 and will continue to
increase at a rate of $733.39 per day thereafter.

The proceeds from the Rescission Financing will be used to fund $5,000,000
of the Rescission Offer. In the event that funds in excess of $5,000,000 are
needed to fund the Rescission Offer, the Company shall have the right to either
(i) with the consent of the Rescission Underwriters, secure additional financing
through the issuance of equity securities or the sale of assets in amounts
sufficient to satisfy the Company's rescission liabilities and complete the
Rescission Offer, or (ii) declare the entire Rescission Offer ineffective and
return all completed Elections, together with the certificates or other
instruments representing the Subject Securities, to the Offerees who accepted
the Rescission Offer and direct the escrow agent to return the funds comprising
the Rescission Financing to the Rescission Underwriters. Subject to the
foregoing, any unused proceeds of the Rescission Financing remaining after the
funding of the Rescission Offer will be, with the consent of the Rescission
Underwriters, paid to the Company for additional shares of Class A Common Stock
and used by the Company for general corporate purposes. See "Risk Factors --
Lack of Sufficient Capital to Fund Rescission Offer; Potential Rescission
Liability," "Use of Proceeds" and "Management's Decision and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

As additional consideration for its participation in the Rescission
Financing, the Company has agreed to grant HEOF the right to require the Company
to repurchase the shares of Class A Common Stock issued to HEOF pursuant to the
Underwriting Agreement at a price of $1.51 per share (the "HEOF Put Option").
The HEOF Put Option will have a duration of one year from the closing of the
Rescission Financing.

24
<PAGE>

In the event the Company is required to pay more than $5,000,000 to fund
the Rescission Offer, but nevertheless elects to complete the Rescission Offer,
there can be no assurance that sufficient financing can be obtained or that the
Rescission Underwriters will consent to the Company obtaining such additional
financing or completing the Rescission Offer. See "Risk Factors -- Need for
Additional Capital and Capital Requirements and -- Lack of Sufficient Capital to
Fund Rescission Offer; Potential Rescission Liability."

Other Terms and Conditions

The proceeds from the Rescission Financing will be used to fund the
Rescission Offer. The Company will cancel all of the Subject Securities as to
which the Rescission Offer has been properly accepted.

The Company has not retained, nor does it intend to retain, any person to
make solicitations or recommendations to the Offerees in connection with the
Rescission Offer.

If a fully completed and executed Election is not delivered by the
Expiration Date by each person actually receiving notice of the Rescission Offer
through this Prospectus, the Rescission Offer will be deemed to have been
rejected by such person, except to the extent applicable state laws provide
otherwise.

Neither the Company, nor its officers and directors, may make any
recommendations to any holders of the Subject Securities with respect to the
Rescission Offer contained herein. Each person is urged to read this Prospectus
carefully and to make an independent evaluation with respect to the Rescission
Offer.

All questions as to the validity, form, eligibility (including time of
delivery) and proper completion of the Election will be determined by the
Company, which determination will be final and binding. The Company reserves the
absolute right to reject any Election not properly completed or if the completed
Election, in the opinion of counsel to the Company, would be unlawful. The
Company reserves the right to waive any irregularity in the Election. The
Company's interpretation of the terms and conditions of the Rescission Offer
will be final and binding. The Company will not be under any duty to give
notification of defects in connection with Elections or incur any liability for
failure to give such information.

Effect of Rescission Offer

The Company has been advised by its counsel that it is unclear whether the
Rescission Offer will terminate the Company's liability, if any, for failure to
register the issuances of the Subject Securities under the Securities Act or
applicable state and foreign securities laws. The staff of the Commission takes
the position that a person's right of rescission under federal securities law
may, under certain circumstances, survive a rescission offer, while most state
securities laws provide that a person may lose any rescission rights by
rejecting or failing to respond to a valid rescission offer. Generally, the
statute of limitations for noncompliance with the requirement to register
securities under the Securities Act is one year, while under the various state
securities laws, the statute of limitations ranges from one to seven years from
the date of the transaction. The Company is also subject to the anti-fraud
provisions of applicable securities law or rights under common law or equity in
respect of the issuance of the Subject Securities. Subject Securities held by
Offerees who choose not to accept the Rescission Offer will, for purposes of
applicable federal and state securities laws, be registered securities as of the
Expiration Date and, unless held by persons who may be deemed to be "affiliates"
of the Company, will be freely tradeable in the public market. Subject
Securities held by affiliates of the Company will be subject to certain
restrictions on resale contained in Rule 144 under the Securities Act. See
"Shares Eligible for Future Sale" for a discussion of Rule 144.

Specific provisions of the laws of certain states in which the Offerees
now reside or resided at the time they were issued the Subject Securities are
set forth in Exhibit B attached hereto.

25
<PAGE>

Tax Considerations of the Rescission Offer

The following discussion is a general summary of certain United States
federal income tax consequences associated with the Rescission Offer. No attempt
has been made to comment on all United States federal tax matters relevant to
the Rescission Offer. The summary is based on existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department
regulations promulgated thereunder, published revenue rulings and revenue
procedures of the Internal Revenue Service ("IRS"), applicable legislative
history, and judicial decisions. All such authorities are subject to change at
any time, either prospectively or retroactively, and any such change could
adversely affect the federal income tax consequences associated with the
Rescission Offer. No ruling has been requested from the IRS regarding any of the
matters discussed in this summary.

This summary represents the judgment of the Company and its advisors
regarding the United States federal income tax consequences of the Rescission
Offer. However, there is no assurance that the tax consequences discussed in
this summary will be accepted by the IRS or the courts if the Rescission Offer
becomes the subject of administrative or judicial proceedings. Realization of
the tax consequences discussed in this summary with respect to the Rescission
Offer is subject to the risk that the IRS may challenge the tax treatment and
that a court could sustain such challenge. In such case, the federal income tax
consequences of the Rescission Offer could be materially and adversely affected.

This summary does not attempt to specifically address the United States
federal income tax consequences of each Offeree who accepts the Rescission
Offer. Additionally, this summary does not discuss all of the tax consequences,
including state, local, and foreign tax consequences, that may be significant to
particular Offerees, such as dealers in securities, foreign persons, Offerees
who are not individuals, and Offerees who are subject to the alternative minimum
tax. ACCORDINGLY, ALL OFFEREES WHO ACCEPT THE RESCISSION OFFER ARE STRONGLY
URGED TO CONSULT, AND MUST RELY UPON, THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM WITH RESPECT TO AN ACCEPTANCE OF THE RESCISSION OFFER,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, AND FOREIGN TAX LAWS.

The transaction resulting from an acceptance of the Rescission Offer
should be analyzed as a taxable redemption of the shares of Company stock
involved in the transaction. In such case, the redemption will be treated as a
sale or exchange of the shares only if the redemption satisfies the requirements
of one or more of the provisions of Section 302(b) of the Code. This
determination is made separately for each Offeree who accepts the Rescission
Offer. Assuming that a redemption satisfies the requirements of one or more of
the provisions of Section 302(b) of the Code, the Offeree recognizes gain or
loss on the redemption in an amount equal to the difference between the
Offeree's adjusted basis in the shares immediately prior to the redemption and
the proceeds that the Offeree receives in connection with the redemption
(including the portion of the proceeds measured by applying an interest factor
to the Offeree's original purchase price for the shares). The character of any
such gain or loss will depend on whether the shares constitute a capital asset
in the hands of the Offeree.

If a redemption does not satisfy the requirements of one or more of the
provisions of Section 302(b) of the Code, it will be treated as a distribution
by the Company that is subject to Section 301 of the Code. In such case, the
proceeds will be treated first as a dividend (taxed as ordinary income) to the
extent of the Company's current and accumulated earnings and profits, if any, at
the time of the redemption (on a pro rata basis taking into account other
Section 301 distributions made by the Company during the year, including other
redemptions resulting from the Rescission Offer that are treated as Section 301
distributions), next as a non-taxable return of the Offeree's adjusted basis in
the shares immediately prior to the redemption, and finally as amounts received
from the sale or exchange of the shares. The Company should not have either
current or accumulated earnings and profits for these purposes.

Under Section 302(b) of the Code, a redemption will be treated as a sale
or exchange of the shares if it either: (i) results in a "complete redemption"
of the Offeree's interest in the Company; (ii) is substantially
disproportionate" with respect to the Offeree; or (iii) is "not essentially
equivalent to a dividend" with respect to the Offeree. These three

26
<PAGE>

tests, which are more fully described below, are collectively referred to as the
"Redemption Tests" for purposes of this summary. The Redemption Tests are
applied on an Offeree-by-Offeree basis. As a result, it is possible that some
redemptions will satisfy the requirements of one or more of the Redemption
Tests, while other redemptions do not satisfy the requirements of one or more of
the Redemption Tests. Accordingly, it is possible that some persons will receive
sale or exchange treatment under Section 302(b) with respect to their
redemptions while other persons will be subject to Section 301 with respect to
their redemptions.

In determining whether the requirements of any of the Redemption Tests are
satisfied, an Offeree must take into account not only shares of Company stock
that are actually owned by the Offeree (including without limitation shares of
Class A Common Stock and Class B Common Stock received upon conversion of the
Series A Preferred Stock and Series B Preferred Stock) but also shares of
Company stock that the Offeree is deemed to own within the meaning of the
constructive ownership rules under Section 318 of the Code. Under Section 318,
an Offeree may constructively own shares of Company stock actually owned (and,
in some cases, constructively owned) by certain individuals or entities that are
considered related to the Offeree for this purpose, as well as shares of Company
stock that the Offeree has the right to acquire by exercise of an option,
warrant or a conversion right. Additionally, contemporaneous or related
transactions involving the stock, or rights to acquire the stock, of the Company
may affect an Offeree's ability to satisfy one or more of the Redemption Tests.

A redemption will constitute a "complete redemption" of all shares of
Company stock owned by an Offeree for purposes of the first Redemption Test
specified above if all shares of Company stock owned by such Offeree are sold
pursuant to the Rescission Offer. For this purpose, an individual Offeree can
disregard shares of Company stock that he or she constructively owns by
attribution from family members if certain requirements specified in Section
302(c) of the Code are satisfied. A redemption will be considered "substantially
disproportionate" with respect to an Offeree if the following requirements are
satisfied: (i) the percentage of the voting stock of the Company owned by the
Offeree immediately after the redemption (taking into account all transactions
consummated pursuant to the Rescission Offer) equals less than 80 percent of the
percentage of the voting stock of the Company owned by such Offeree immediately
before the redemption; (ii) the percentage of the common stock of the Company
(whether voting or nonvoting) owned by the Offeree immediately after the
redemption (taking into account all transactions consummated pursuant to the
Rescission Offer) equals less than 80 percent of the percentage of the common
stock of the Company owned by such Offeree immediately before the redemption;
and (iii) the Offeree owns, immediately after the redemption (taking into
account all transactions consummated pursuant to the Rescission Offer), less
than 50% of the total combined voting power of all classes of stock of the
Company entitled to vote. A redemption will satisfy the "not essentially
equivalent to a dividend" test with respect to an Offeree if, in light of the
particular facts and circumstances surrounding the Offeree's ownership of
Company stock, the redemption results in a "meaningful reduction" of the
Offeree's interest in the Company (taking into account all transactions
consummated pursuant to the Rescission Offer).

THE FOREGOING SUMMARY IS FOR GENERAL INFORMATION ONLY, AND IS NOT INTENDED TO
CONSTITUTE, AND SHALL NOT BE CONSTRUED TO ANY EXTENT AS, LEGAL, TAX, OR
FINANCIAL ADVICE. EACH OFFEREE IS STRONGLY URGED TO CONSULT THE OFFEREE'S OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THE OFFEREE FROM THE
RESCISSION OFFER IN LIGHT OF THE OFFEREE'S SPECIFIC CIRCUMSTANCES, INCLUDING THE
TRANSACTION(S) IN WHICH THE OFFEREE ACQUIRED OWNERSHIP OF SHARES OF THE
COMPANY'S STOCK.

Transactions Not Subject to Rescission

Since its inception, the Company has raised capital through the issuance
of its securities pursuant to transactions which are not subject to the
Rescission Offer. The Company believes the issuance or sale of its securities in
these transactions was in accordance with applicable federal and state
securities laws as transactions not involving a public offering and exempt from
registration pursuant to Sections 3(b) or 4(2) of the Securities Act. The
following summary of the transactions not subject to the Rescission Offer is
qualified in its entirety by reference to the descriptions

27
<PAGE>

contained in Part II of the Registration Statement of which this Prospectus is a
part under the caption, "Transactions Not Subject to Rescission Offer."

1. In May and August of 1995 the Company issued an aggregate of 10,000,000
shares of Class A Common Stock (after giving effect to a nine for one
share dividend) to its founding shareholders. See "Management -- Certain
Transactions."

2. Between May 1996 and July 1996, the Company issued Vickroy Stone an
aggregate of 500,000 shares of Class A Common Stock for services rendered
valued at $500,000. In February 1997, the Company repurchased 450,000 of
such shares of Class A Common Stock from Mr. Stone at a purchase price of
$1.00 per share. In February 1997, Mr. Stone sold the remaining 50,000
shares of Class A Common Stock to a partnership related to Ray C. Davis,
the founder of the Company, for $1.00 per share. See "Management --
Certain Transactions."

3. In July 1996, the Company issued an aggregate of 1,050,000 of Class A
Common Stock to the principals of International Fax Corporation ("IFC")
and IMedia, S.A. of France ("Imedia") in connection with (i) an agreement
granting the Company a right of first refusal to acquire all of the
outstanding capital stock of IMedia, (ii) the right to utilize IMedia's
European network of fax broadcasting equipment and (iii) the agreement of
IMedia to use the Company's network for fax broadcast traffic to the
United States. The shares of Class A Common Stock were valued by the
Company at $1.00 per share. Subsequent to this series of transactions, the
Company wrote off the value of its investment. See "Management-- Certain
Transactions."

4. In May 1997, the Company issued a five-year warrant to Vickroy Stone
entitling Mr. Stone to purchase an aggregate of 450,000 shares of Class A
Common Stock at an exercise price of $2.00 per share. Inasmuch as the
exercise price of this warrant exceeded the fair market value of the
underlying Class A Common Stock, the Company determined that these
warrants had no value at the date of issuance. See "Management --Certain
Transactions."

5. In July 1997, the Company issued Sam McKinley 400,000 shares of Class B
Common Stock in payment of a loan commitment fee. The Company subsequently
determined that it received no value in exchange for such shares.

6. From December 1997 through January 1998, the Company issued 2,421,580
shares of its Class A Common Stock to a limited number of investors in
exchange for their members' net equity interests in certain affiliated
limited liability companies.

7. On November 14, 1997, the Company entered into a Settlement Agreement and
Mutual Release with Keith Shaffner for services rendered by him during
1996 and 1997. In exchange for a complete release of all claims by Mr.
Shaffner and his affiliate, CyFax, Inc. ("CyFax"), against the Company,
the Company issued to Mr. Shaffner: (i) a warrant entitling Mr. Shaffner
to purchase 1,150,000 shares of Class B Common Stock at a price of $1.00
per share, exercisable on or before August 30, 1999 (which the Company
has agreed to extend until August 30, 2000 in exchange for certain
agreements not to sell the underlying shares of Class B Common Stock
prior to April 30, 2000), (ii) a warrant entitling Mr. Shaffner to
purchase 1,050,000 shares of Class B Common Stock at a price of $1.00
per share, exercisable on or before February 28, 2000, (iii) 500,000
shares of Class A Common Stock and (iv) $51,000 in cash. In addition,
the Company issued 200,000 shares of Class A Common Stock to CyFax for
the termination of an exclusive agent management agreement with the
Company. During 1996 and 1997, the Company paid Mr. Shaffner,
individually, an aggregate of $202,951 for services rendered and
paid CyFax an aggregate of $893,527 for services rendered. See
"Management-- Certain Transactions." Mr. Shaffner subsequently assigned
his right to receive such warrants to certain individuals and entities.
See "Plan of Distribution and Selling Shareholders."

28
<PAGE>

8. In April 1998 the Company issued a five-year warrant entitling Ray Davis
to purchase an aggregate of 2,000,000 shares of Class A Common Stock at a
price of $1.00 per share in connection with the execution of his
Employment Agreement with the Company. See "Management -- Employment
Agreements" and "Management -- Certain Transactions." Mr. Davis
subsequently assigned this warrant to certain individuals. See "Principal
Shareholders."

9. In May 1998 the Company issued five-year warrants entitling certain
individuals and entities to purchase an aggregate of 348,954 shares of
Class B Common Stock at prices of $1.00 and $2.00 per share. Inasmuch as
the exercise prices of these warrants exceeded the fair market value of
the underlying Class B Common Stock, the Company determined that these
warrants had no value at the date of issuance.

10. In July 1998, the Company entered into the Holdings Subscription
Agreement, pursuant to which Cynet Holdings committed to purchase up to
10,000,000 shares of Class A Common Stock of the Company for $1.00 per
share prior to December 31, 1998. The Holdings Subscription Agreement was
subsequently amended to extend the duration of the agreement to December
31, 1999. As of the date of this Prospectus, Cynet Holdings has purchased
an aggregate of 3,871,000 shares of Class A Common Stock pursuant to the
Holdings Subscription Agreement. Also pursuant to the Holdings
Subscription Agreement, the Company issued a five- year warrant entitling
Cynet Holdings to purchase an aggregate of 4,800,000 shares of Class A
Common Stock at a price of $1.00 per share. See "Management -- Certain
Transactions."

29
<PAGE>

USE OF PROCEEDS

Neither the Rescission Offer nor the resale of Class B Common Stock
underlying the Shaffner Warrants will result in any proceeds to the Company.
However, any exercise of the Shaffner Warrants will result in gross proceeds to
the Company up to a maximum amount of $2,200,000. See "Plan of Distribution and
Selling Shareholders." The Company will use the proceeds, if any, from the
exercise of the Shaffner Warrants for general corporate purposes.

The proceeds to be received by the Company from the Rescission Financing
are $5,000,000. The Company will use the proceeds of the Rescission Financing to
fund $5,000,000 of the Rescission Offer. To the extent funds in excess of
$5,000,000 are needed to fund the Rescission Offer, the Company shall have the
right (but not the obligation) to (i) with the consent of the Rescission
Underwriters, secure additional financing through the issuance of equity
securities or the sale of assets in amounts sufficient to satisfy the Company's
rescission liabilities and complete the Rescission Offer, or (ii) declare the
entire Rescission Offer ineffective and return all completed Elections, together
with the certificates or other instruments representing the Subject Securities,
to the Offerees who accepted the Rescission Offer and direct the escrow agent to
return the funds comprising the Rescission Financing to the Rescission
Underwriters. Subject to the foregoing, any unused proceeds of the Rescission
Financing remaining after the funding of the Rescission Offer which are not
returned to the Rescission Underwriters will be used for working capital,
capital expenditures and general corporate purposes.

DIVIDEND POLICY

The Company has not declared or paid cash dividends on its Common Stock to
date. The current policy of the Board of Directors is to retain earnings, if
any, to provide funds for operating and expansion of the Company's business.
Such policy will be reviewed by the Board of Directors of the Company from time
to time in light of, among other things, the Company's earnings and financial
position. The Company is required to pay dividends on its Series A and Series B
Preferred Stock prior to the payments, if any, of dividends on its Class A and
Class B Common Stock. As of March 31, 1999, the Company had accrued, but unpaid,
dividends of $362,235 on its Series A Preferred Stock and $185,808 on its Series
B Preferred Stock. During the fiscal year ended December 31, 1998, the Company
has not paid any dividends on its Series A or Series Preferred Stock since June,
1997.

30
<PAGE>

CAPITALIZATION

The following table sets forth the unaudited capitalization of the Company
as of March 31, 1999, and as adjusted to reflect $1,000,000, $3,000,000 and
$5,000,000 acceptance of the Rescission Offer.(1)

<TABLE>
<CAPTION>
March 31, $1,000,000 (1)(3) $3,000,000 (1)(3) $5,000,000 (3)
1999 Acceptance Acceptance Acceptance
------------ ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Assets:
Cash ................................ $ 519,457 $ 4,519,457 $ 2,519,457 $ 519,457
Deferred offering costs (2) ......... 2,078,825 -- -- --
------------ ------------ ------------ ------------
$ 2,598,282 $ 4,519,457 $ 2,519,457 $ 519,457
============ ============ ============ ============

Liabilities:
Accrued stock rights ................ $ 50,000 $ 50,000 $ 50,000 $ 50,000
============ ============ ============ ============
Stock and warrants subject to
rescission:
Preferred stock - Series A .......... 201,265 -- -- --
Preferred stock - Series B .......... 259,923 -- -- --
Common stock - Class A .............. 7,952,134 -- -- --
Common stock - Class B .............. 5,365,047 -- -- --
Common stock warrants - Class A .... 201,640 -- -- --
------------ ------------ ------------ ------------
$ 13,980,009 $ -- $ -- $ --
============ ============ ============ ============

Redeemable voting Class A Common Stock,
1,605,840 shares at $1.37 per share,
subject to a put option valid through
one year from effective date of
rescission offer at $1.51 per share ... $ -- $ 2,425,000 $ 2,425,000 $ 2,425,000
============ ============ ============ ============

Capital deficit: (4)
Cumulative convertible
preferred stock:
Series A .......................... $ -- $ 164,415 $ 139,101 $ 113,787
Series B .......................... -- 207,421 175,466 143,515
Common stock:
Class A ........................... 4,116,703 13,080,763 12,131,626 11,182,487
Class B ........................... 700,000 4,990,348 4,329,461 3,668,575
Outstanding warrants ................ 362,500 521,877 497,320 472,762
Deficit ............................. (17,079,508) (17,809,999) (18,324,724) (18,839,450)

Treasury stock ...................... (317,767) (22,730) (68,190) (113,650)
------------ ------------ ------------ ------------
Total Capitalization ................ $(12,218,072) $ 1,132,095 $ (1,119,940) $ (3,371,974)
============ ============ ============ ============
</TABLE>

- ----------
(1) The table assumes that the Rescission Underwriters elect to acquire
3,649,635 shares of Class A Common Stock pursuant to the terms of the
Rescission Financing.

(2) See Note 3 in the Notes to the Consolidated Financial Statements for a
discussion regarding the treatment of deferred offering costs upon
acceptance or rejection of the Rescission Offer.

(3) For each level of acceptance, the following pro forma adjustments,
including amounts are needed to properly reflect the effect of the
proposed rescission offer and rescission financing on total capitalization
of the Company. The acceptance amount was prorated based on the securities
subject to rescission and the acceptance amount, see adjustments as
follows:

31
<PAGE>

<TABLE>
<CAPTION>
(a) Adjustment to Shares Amount $1,000,000 $1,000,000 $3,000,000 $3,000,000 $5,000,000 $5,000,000
shares and amount Subject to Subject to Acceptance Acceptance Acceptance Acceptance Acceptance Acceptance
subject to rescission Rescission Rescission Shares Amount Shares Amount Shares Amount
adjusted for rescission ---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
financing:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash $4,000,000 $2,000,000 $ --

To record issuance of
1,605,840 redeemable
voting Class A shares
at $1.37 per share,
subject to a put
option valid through
one year from
effective date of
rescission offer at
$1.51 per share,
issued in connection
with financing the
rescission offer 1,605,840 $2,200,000 1,605,840 $2,200,000 1,605,840 $2,200,000

To record issuance of
2,043,795 shares of
voting Class A common
stock issued in
connection with
the financing of
rescission offer 2,043,795 $2,800,000 2,043,795 $2,800,000 2,043,795 2,800,000

Cumulative convertible
preferred stock:
Series A 103,500 $201,265 96,097 $186,868 81,290 $158,075 66,483 $129,282
Series B 87,349 $259,923 81,101 $241,331 68,604 $204,145 56,108 $166,961
Common stock:
Class A 5,514,491 $7,952,134 5,120,036 $7,383,312 4,331,125 $6,245,669 3,542,214 $5,108,025
Class B 2,719,733 $5,365,047 2,525,189 $4,981,281 2,136,100 $4,213,750 1,747,011 $3,446,219
Outstanding warrants 799,000 $201,640 741,847 $187,217 627,541 $158,370 513,235 $129,523
</TABLE>

(b) Reclassification of amounts $1,000,000 $3,000,000 $5,000,000
recorded in treasury stock that are Acceptance Acceptance Acceptance
no longer subject to rescission Amount Amount Amount
---------- ---------- ----------
$(295,037) ($249,577) $(204,117)
========== ========== ==========

(c) Adjustment recording cost of $1,000,000 $3,000,000 $5,000,000
capital: Acceptance Acceptance Acceptance
Amount Amount Amount
---------- ---------- ----------
Cumulative convertible preferred
stock:
Series A $ 27,787 $ 23,506 $ 19,224
Series B 35,886 30,357 24,827
Common stock:
Class A 1,097,897 928,729 759,562
Class B 740,715 626,584 512,452
Outstanding warrants 27,840 23,550 19,261
---------- ---------- ----------
$1,930,125 $1,632,726 $1,335,326
========== ========== ==========

(d) Recording of interest $1,000,000 $3,000,000 $5,000,000
expense: Acceptance Acceptance Acceptance
Amount Amount Amount
---------- ---------- ----------
$ 126,017 $ 378,052 $ 630,087
========== ========== ==========

(e) Adjustment recognizing $1,000,000 $3,000,000 $5,000,000
deferred offering Acceptance Acceptance Acceptance
costs as expense: Amount Amount Amount
---------- ---------- ----------
$ 148,700 $ 446,099 $ 743,499
========== ========== ==========

(f) Adjustment reclassifying $1,000,000 $3,000,000 $5,000,000
dividends paid recorded as a Acceptance Acceptance Acceptance
reduction of rescission liability: Amount Amount Amount
---------- ---------- ----------
Cumulative convertible preferred
stock:
Series A $ 5,334 $ 4,532 $ 3,729
Series B 1,976 1,678 1,381

32
<PAGE>

Common stock:
Class A 173,682 147,560 121,438
Class B 49,782 42,295 34,808
---------- ---------- ----------
$ 230,774 $ 196,065 $ 161,356
========== ========== ==========

(g) Adjustment to accrete the put $1,000,000 $3,000,000 $5,000,000
option Acceptance Acceptance Acceptance
Amount Amount Amount
---------- ---------- ----------
$ 225,000 $ 225,000 $ 225,000
========== ========== ==========

(4) Outstanding stock and $1,000,000 $3,000,000 $5,000,000
warrants subsequent Acceptance Acceptance Acceptance
to proposed rescission offer Amount Amount Amount
---------- ---------- ----------
Cumulative convertible preferred
stock:
Series A 96,097 81,290 66,483
Series B 81,101 68,604 56,108
Common stock:
Class A 25,335,252 24,546,341 23,757,430
Class B 2,943,259 2,554,170 2,165,081
Outstanding warrants
Class A 7,991,847 7,877,541 7,763,235
Class B 2,548,954 2,548,954 2,548,954

33
<PAGE>

SELECTED FINANCIAL INFORMATION

The following table presents summary historical data of the Company on a
consolidated basis (i) from the audited financial statements of the Company for
the years ended December 31, 1998 and 1997 and (ii) from the unaudited financial
statements of the Company for the three months ended March 31, 1999 and 1998.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.

December 31, March 31
1998 1999
------------ ------------
Balance Sheet Data:
Working Capital Deficit(1) ................... $ (885,068) $ (205,326)
Total assets ................................. 5,297,713 5,507,640
Stock and warrants subject to rescission ..... 13,980,009 13,980,009
Capital deficit .............................. (12,218,072) (11,856,490)

- ----------
(1) Includes $2,078,825 of deferred offering costs. See Note 3 of the Notes to
the Consolidated Financial Statements.

34
<PAGE>

BUSINESS

Services

The Company is an Internet business solutions provider. The Company's
products and services are offered through Messaging which includes fax, data,
voice, e-mail and mobile messaging, and Internet Services which includes
custom application development, e-commerce development, web content creation,
web hosting and Internet access.

The Company is a Texas corporation and was founded in 1995 to provide
fax services for business-to-business communication. The Company capitalized
on the dramatic increase in the usage of third-party fax services and created
a niche market for itself with its HyperCast fax broadcast desktop client
software and related services. In 1997, the Company introduced HyperLine, its
point-to-point desktop software and fax service in order to expand its fax
service.

In response to the rapid growth and popularity of e-mail and the
Internet as a primary communications medium, the Company has set out to
become a full service Internet messaging provider. In 1998, the Company added
to its product offering HyperWeb, its Internet-to-fax service; HyperMail, its
fax-to-e-mail service; WebCast, its e-mail broadcast service; TeleCast, its
voice broadcast service; and HyperComm, its teleconferencing service. To
further enhance its messaging services, the Company, through its subsidiary,
Worldwide Marketing Services, Inc., added enhancement services such as list
procurement, full-service graphic design and copy development services for
its customers. These additional services enabled the Company to provide its
customers with complete messaging solutions with "end-to-end" control of the
solutions.

In July 1999, the Company began offering Internet-based services by
acquiring Cynet Interactive, a wholly-owned subsidiary of Cynet Holdings. The
acquisition of Cynet Interactive allowed the Company to expand its messaging
and broadcast enhancement services to include web site design, Internet
application development for e-commerce and other Internet-based applications,
and web site hosting. Through a series of projects, the Company has
integrated its messaging services with Internet applications, creating more
effective solutions for its customers. The Company's current Internet
projects include the development of on-line shopping malls, integrated
procurement centers, live auctions and Internet web-based magazines for
customers. In July 1999, the Company entered into a strategic alliance with
IXC Communications to enable the Company to further expand its products and
services to include Internet access for business customers. The Company
expects its alliance with IXC Communications will enable the Company to
provide complete, "end-to-end" Internet business solutions just as it is able
to provide complete, "end-to-end" messaging business solutions. The Company's
solutions selling approach allows the Company to effectively deliver its
customers' messages irrespective of the transmission medium.

Strategy

The Company's objective is to become a "hypergrowth" company providing
high quality Internet business solutions to corporate clients. Among other
things, the Company's strategy to achieve its objective includes (i)
diversifying its product line through the continued introduction of new
technology in the areas of messaging and Internet services, (ii) merging, to the
extent possible, the features and functions of messaging and Internet solutions
to make the Company's products and services easier to use, (iii) expanding and
reorganizing the Company's sales force to develop vertical value-added markets
in large corporate accounts and (iv) pursuing acquisitions and strategic
alliances that will allow the Company to compete more effectively with larger,
more diversified companies and to respond more readily to dynamic changes in the
messaging and Internet services industries.

35
<PAGE>

Current Messaging and Internet Markets

The Internet

The Internet has experienced rapid growth and has developed into a
significant tool for global communications, commerce and media, enabling
millions of people to share information and transact business electronically.
International Data Corporation, a leading technology research firm ("IDC"),
estimates that there were over 51 million web users in the United States and
over 97 million worldwide at the end of 1998. IDC projects these numbers to
increase to over 135 million web users in the United States and over 319 million
worldwide by the end of 2002. Internet-based businesses have emerged to offer a
variety of products and services over the Internet. Advances in online security
and payment mechanisms have also prompted more businesses and consumers to
engage in electronic commerce. IDC estimates that the value of purchases of
goods and services, excluding fund transfers and stock transfers, on the
Internet will grow from $32.4 billion worldwide in 1998 to $425.7 billion
worldwide in 2002.

Trends in Internet Messaging

E-mail is the most widely adopted Internet application, ranging from a
personal messaging tool to a strategic business tool. According to Electronic
Mail & Messaging Systems, an Internet publication, there were approximately 325
million e-mail accounts in operation at the end of 1998. E-mail messages have
increased in volume and functionality, and this trend is expected to continue.
For example, e-mail is expected to become a major vehicle for e-commerce
transactions. Forrester Research predicts that the typical online consumer will
participate in eight to ten commerce-related exchanges via e-mail per week by
2001. The e-mail box as a locating and delivery device has become the platform
for additional applications such as directory services, scheduling and document
sharing. Furthermore, the e-mail box can function as a central repository to
receive, send, forward, organize and prioritize voice mail, fax and e-mail
messages, thus creating unified messaging.

With continuing developments in modern technology, the various message
media are currently in the process of converging. Communication channels are
becoming interchangeable as consumers can send the same message through e-mail,
voice mail and fax. With the unification of these functions, consumers
increasingly value messaging services that are "device-independent." Consumers
appreciate the ability to send and retrieve messages in any form and in the most
convenient manner - e-mail, voice mail or fax - with the telephone, personal
computer, traditional fax machine or through web access.

As e-mail continues to grow and a portion of fax traffic migrates to the
Internet, industry analysts are predicting rapid growth of services that unify
and simplify the messaging and communications needs of e-mail users. IDC defines
unified messaging as a "single 'in-box' for voice, e-mail and fax messages that
is accessible by both telephone and PC." IDC predicts that the market for
unified messaging will grow from approximately 90,000 unified messaging
mailboxes in 1998 to over 12.9 million boxes in 2002 in the United States alone
with each generating $20 million in unified messaging revenue per month.

Trends in Faxing

The fax machine is a valuable tool for communication for businesses and
individuals. Although e-mail traffic is growing rapidly, faxing continues to
grow because telephone rates continue to decrease and computer-based fax
facilitates broadcast fax and fax-enabled applications. IDC estimates that
worldwide fax transmissions will increase from 395 billion minutes in 1998 to
647 billion minutes in 2002. According to IDC, fax transmissions generated
estimated revenues of $92 billion in 1998 and are projected to generate $103
billion in 2002.

The transmission of faxes over the Internet has become an increasingly
popular tool and provides a low cost method to send and receive faxes. In
addition to Internet faxing, users are increasingly faxing documents directly
from their computers over traditional phone lines, thereby growing less
dependent on traditional fax machines. IDC estimates

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that the share of faxes sent using a fax machine in the United States was 82% in
1997 and is projected to be 58% in 2002.

Recent advances in technology allow users to send and receive faxes from
their computers using e-mail to transmit data over the Internet. Internet faxing
using e-mail reduces labor costs associated with traditional faxing by allowing
users to send, receive and manage faxes from their computers, and reduces
carrier costs because of the use of the Internet rather than telephone lines as
the transmission medium.

Internet Commerce

The Company believes the worldwide Internet commerce application market is
growing at significant rates. According to IDC's Internet Commerce Software
Applications Market Review and Forecast, revenues soared 154% to $444 million in
1998 and are expected to increase another 280% to approximately $1.7 billion in
1999. The Company believes many companies will be developing e-commerce sites
over the next two years as e-commerce presents vendors with sales opportunities.

The proliferation of Internet Service Providers (ISPs) has enabled more
vendors to utilize the Internet as a marketing and sales tool. As vendors shift
marketing strategies toward on-line buyers, the Company believes they will seek
single service providers who are able to meet all of their business marketing
needs, including high priority messaging, in addition to web hosting and
Internet content development.

Need for Cost-Effective Solutions

The Company believes businesses are constantly seeking to cost-effectively
manage expanding and increasingly sophisticated communications systems making it
preferable for them to utilize third parties to manage their messaging and
Internet needs. Moreover, the Company believes businesses often find it
difficult to implement state-of-the-art technology in their own infrastructure
as individuals with the appropriate expertise are scarce and costly to hire,
train and retain. Consequently, the Company believes organizations, in an effort
to lower costs and reduce time-to-market with complex technologies, will look to
Internet-based solutions to outsource non-core competencies.

The Company provides businesses convenient, cost-effective and reliable
Internet-based messaging and communications services. The Company provides a
commercially available Internet-based messaging service that supports business
fax, e-mail, voice mail, and supporting services. The Company deploys an
integrated Internet and Public Switched Telephone Network solution based on
economy and reliability. The Company also provides a host of electronic commerce
solutions as well as Internet content support and ISP services. The Company
believes that by providing a fully integrated suite of products and services,
its customers are able to minimize complexity in messaging and e-commerce
services and maximize productivity.

Operations

The Company's operations are comprised of forwarding customer messages and
delivering Internet services. The Messaging services are customer driven using
Microsoft WindowsTM based desktop client software to electronically transfer to
the Company the customer's message document and delivery instructions (fax
telephone numbers, e-mail addresses, voice mail telephone numbers, and merge
fields for personalizing the message). The customer elects whether to transfer
the document and instructions to the Company by way of the Internet (e-mail) or
direct dial (modem-to-modem) connection. The Company receives the document and
instructions in an electronic format and automatically executes those
instructions without the necessity of human intervention. The Company's
operation software connects the delivery instructions with the customer's
document, organizes the packets of data and transmits the information to the
destination telephone numbers or e-mail addresses as designated. The Company's
technical staff monitors the job queue on a 24 hour, 7 day per week basis to
ensure that the system is efficiently delivering customer jobs. The Company's
customer service staff is available on a 24 hour, 7 day per week basis to assist
customers with questions they

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may have concerning the submission of jobs, the status of the jobs or any
problems needing resolution. After any customer job has been executed, the
customer may electronically view a detailed log showing the document delivery
status for each intended recipient.

Internet access, transmission, co-location and related Internet
services are directly handled by IXC Communications. Web site hosting
services are monitored by the Company's technical staff who are also
monitoring the messaging job queues. Other Internet services are handled by
the Company's production staff which accepts the specifications on customer
projects, interfaces with the customer and determines which of the Company's
resources are needed to meet customer requirements.

The Company's operations include Network Operations (technical staff to
monitor the servers and messaging queues), Customer Service, Engineering
(developers for custom messaging and Internet application development), Graphics
(document, web site and web content design), and Copy (writing for document, web
site and web content).

The Company uses various long distance carriers. Major telecommunications
carriers have competed and are expected to continue to compete to obtain the
Company as a customer. See "-- Competition." Deregulation in the
telecommunications industry has enabled the Company to enter into agreements
with several carriers to provide long distance service at cost-effective rates.
The Company will be required to add additional telecommunications facilities and
enhance its network infrastructure to meet the anticipated traffic needs and
maintain excess capacity to accommodate expected increases in demand for its
services.

The Company has developed safeguards to minimize the impact of power
outages and other operational problems. It has installed power backup systems at
its computer center in Houston, Texas, and all network locations throughout the
U.S. to provide an uninterrupted power supply in the event of a disruption in
local utility services. The Company has not suffered any material interruption
in its business due to power outages or similar problems. As the Company grows,
it intends to add another primary computer center hub for back-up and expansion.

CyNet Services

Fax Broadcast

HyperCast is the Company's automated fax broadcasting service. It allows
the Company's customers to mass-distribute business documents over broad
geographical areas in specified periods of time. After the customer submits a
batch order for a broadcast, the Company's system automatically generates and
delivers a complete report that details information about the order, such as
destination cities, area codes, number of pages and all costs associated with
transmission. After the Company has completed the broadcast, customers can
access a detailed report, which can be used for monitoring results, updating
phone lists and other external applications.

Point to Point Fax

HyperLine is the Company's point-to-point enhanced fax service. This
service allows customers to fax directly from their desktops to recipients
utilizing the Company's system. HyperLine can be fully customized to each
customer's individual faxing needs. The features include (i) customized cover
pages, (ii) implemented accounting codes, (iii) development of a control center
that maintains and manages faxes, (iv) delivery and non-delivery reports via
e-mail, and (v) daily journal production.

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Fax to E-mail

HyperMail is the Company's fax-to-email service, which provides customers
an automated, easy-to-use desktop solution that interfaces with most Internet
e-mail services. This service is ideal for professionals performing high-volume
sales and marketing operations or operating inbound call centers. HyperMail
customers are assigned a toll-free or local virtual fax number which is linked
to their e-mail address as well as the Company's fax viewer software. The
HyperMail program receives inbound faxes and sends them directly to the
customer's desktop as e-mail. This service allows a customer to receive, view,
store, forward and print confidential inbound faxes from any location where they
have e-mail access.

Internet to Fax

HyperWeb integrates traditional e-mail with point-to-point fax
capabilities. This service allows customers to transmit high volume,
web-generated documents to other e-mail addresses, telex addresses and fax
numbers simultaneously. This service allows any merchant to do e-commerce with
or without a PC. Additionally, customers receive delivery confirmation reports
either by e-mail or fax. An added feature is the ability to include custom logos
and to insert automatic headers into outgoing messages. HyperWeb can also be
customized for customers to assign individual billing codes and tracking
reference numbers on faxes and telexes for easy recordkeeping.

E-mail to E-mail

WebCast gives customers the ability to broadcast e-mail messages to any
number of recipients simultaneously. The Company's service is unmatched in
terms of speed, having the capability to deliver approximately 200 e-mail
messages per second or 720,000 per hour. To utilize this service, the
customer simply forwards an e-mail address list to the Company. The customer
then submits a message. The Company's systems automatically broadcast the
message to the addresses electronically over the Internet. Added features of
WebCast are (i) the ability to attach documents, (ii) a special e-mail
address for forwarding outbound messages and (iii) delivery priority options:
InstaMail for immediate delivery or Scheduled for a specific time.

Image Resolution/Document Enhancement

HyperRes is an image resolution service that can be used in conjunction
with any of the Company's messaging services. To utilize this service, the
customer submits graphics, photos, brochure layouts, catalogs with pictures and
artwork or any other type of document before transmission. The Company's
graphics technicians and engineers then enhance the document to ensure top
quality output to any receiver.

Cell/Modem

The Company's Cell/Modem is an all-in-one cellular phone and fax card.
Designed to fit any laptop or portable computer equipped with a PCMCIA Type III
Slot, this cellular fax card contains its own cell phone. The Cell/Modem also
fits into a standard RJ-11 jack for landline use, thereby completely eliminating
the need for a stand-alone cellular telephone. A miniature combination in-ear
speaker and microphone allows customers to place and receive phone calls simply
and easily. The back bone of Virtual Office, the Company's bundled hardware and
software product, Cell/Modem can be used to access the Internet, exchange
important data, send and receive e-mail, retrieve voice mail, send and receive
faxes, and make phone calls from any place at any time.

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Voice Broadcast

The Company's TeleCast service gives customers voice broadcast
capabilities without having to navigate through various types of telephone PBX
systems. Once an account has been established, the customer is given a toll free
access number to call to record a message for broadcast. The customer then
submits name and voice number lists in digital format to schedule the broadcast
delivery time. The Company's live operators navigate the requisite
auto-attendant systems and drop the messages into the voice mail boxes the
customer specifies. This service results in a 90% delivery rate.

Voice Teleconferencing

HyperComm offers two distinct conference-calling services. The first
service, "Meet Me," is a conference call scheduling service. Customers provide
to the Company the names and numbers of all parties desired for a conference
call and the Company's live operators relay the date, time and call-in phone
number to all specified parties before the scheduled date. The second service,
"Dial Out," allows customers to have the Company's operators dial out and
connect all parties at the scheduled meeting time. These services are ideal for
business, medical, educational and political organizations that frequently
engage in conference calls.

ISP Services

The Company offers full-service ISP capabilities, providing its business
customers with Internet connectivity in addition to e-commerce and messaging
services. This service includes 150 hours of monthly usage, 56K Flex and X2
modem support, 24-hour technical support, national ISDN access, 800 number
access while traveling away from home or office territory, personalized home
page service, 6MB of storage for e-mail messages and web site content, one
e-mail account, online news services and online viewing of monthly usage.

Internet Solutions

As a result of the acquisition of Cynet Interactive, the Company provides
its customers with advanced Internet solutions, including web content, graphic
and copy design, application development and web hosting. The Company's current
Internet projects include on-line shopping malls, integrated procurement
centers, live auctions and Internet Web-based magazines.

Marketing Solutions

Worldwide Marketing Services is a subsidiary of the Company. Worldwide
specializes in providing verified list, graphics and copy writing services. The
list services are expansive and may be ordered to fill simple marketing
specifications or highly customized requirements for sophisticated clients
requiring specialized data. Worldwide's services include corporate logo design,
brochures, letterhead and stationery design and a variety of related items.

Equipment Safeguards and Suppliers

The success of the Company is largely dependent upon the efficient and
uninterrupted operation of its messaging and Internet system infrastructure.
Within 120 days from the date of this Prospectus, the Company will have in place
a disaster recovery plan with a redundant network switching center. The
Company's systems and operations are vulnerable to damage or interruption from
fire, earthquake or other natural disaster and from power loss,
telecommunications failure, break-ins and similar events. Furthermore, the
hardware, software and network systems developed by the Company are relatively
new and, therefore have not withstood the demands of the larger volume
associated with the Company's revenue projections. See "Risk Factors -- Company
System Failure." Substantially all of the Company's computing equipment is
readily available from large, well-known suppliers.

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Customers

Historically, the Company's customers consisted of small and medium-sized
businesses with messaging services needs. Those customers purchased messaging
products and services from the Company pursuant to specific purchase orders and
other short-term arrangements. Presently, the Company targets medium-sized to
large corporate clients, establishing customer relationships with Fortune 500
and middle tier companies seeking full service Internet business solutions.
Although the Company actively pursues long term contracts with its present
customers and prospects, no single customer accounted for more than 4% of the
Company's revenues during 1998 or during the three months ended March 31, 1999.

Sales and Marketing

From inception through 1997, the Company marketed its products and
services almost exclusively through a telephone sales program. The basis of the
Company's marketing strategy was price-based selling and the Company sought to
acquire customers by providing the lowest cost service in the messaging
industry. Beginning in 1998, the Company underwent a fundamental shift away from
price-based selling to solution-based selling and increased its offerings to
include more value-added services.

To enhance the promotion and sale of its solution-based suite of
products and services, the Company has expanded and reorganized its sales
force during 1999 with the goal of developing and maintaining a professional
sales team consisting of individuals with specialized and technical
knowledge. As of July 31, 1999, the Company employed a team of 42 sales and
support personnel in its Houston office, six in its Yorba Linda, California
location and four in Portland, Oregon. The Company's sales personnel are
trained to target large and middle tier corporate accounts with the charge to
build vertical value-added markets for the Company's Internet-based products
and services.

The Company expects to continue to employ significant telephone contact as
part of its marketing efforts. In addition, the Company now engages, and expects
to continue to engage, in more direct contact with customers and prospects. The
Company also actively seeks to forge major strategic alliances to enable the
Company to market its products and services through alternate distribution
channels. The Company expects to include, as part of its marketing campaign (i)
advertisements in trade journals, (ii) television and radio promotions, (iii)
concentrated marketing through large reseller channels, (iv) Internet-based
advertising and promotions, (v) Internet business solutions seminars and (vi)
participation in trade shows.

Strategic Relationships

The Company is actively pursing strategic relationships that the Company
expects will complement its existing services or increase the amount and variety
of services it currently offers. The service providers with whom the Company
engages in strategic transactions generally have pre-existing relationships with
their customers who, typically, require messaging and Internet services the
Company provides. Consequently, the Company expects these strategic
relationships will provide the Company with access to likely consumers for its
services.

The following is a summary of certain of the strategic relationships which
the Company has established or is currently pursuing. All strategic transactions
into which the Company enters are subject to a variety of risks and conditions,
including conditions beyond the Company's control. Furthermore, most of these
relationships are in the early stages of development and have not been
finalized. Although the Company believes that individually none of these
relationships is material to its business, the Company considers its strategic
alliances in their entirety to be important to future success. See "Risk Factors
- -- Risks Associated With Acquisitions, Investments and Strategic Alliances."

BrookTrout Technology, Inc. ("BrookTrout"). The Company is currently
pursuing a marketing and technology sharing alliance with BrookTrout. The
Company expects the alliance will provide that (i) the Company and BrookTrout
will synergize marketing efforts at trade shows, (ii) the Company will become a
Beta Testing customer for new

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BrookTrout technology pertaining to faxing, unified messaging and other related
technology, and (iii) the Company and BrookTrout will have regular joint
technology round table discussions with their respective research and
development, engineering and software development teams, which discussions could
result in additional technology agreements and understandings.

TeleSystems Marketing, Inc. ("Telesystems"). The Company has entered
into a joint marketing alliance with TeleSystems, pursuant to which
TeleSystems provides its e-mail broadcast, voice broadcast and conference
calling to the Company for resale under the Company's private brand. In
consideration for the foregoing, the Company provides TeleSystems its full
suite of messaging products for resale. The agreement also provides for the
mutual promotion and marketing of respective products and services.

IXC Communications. IXC Communications currently provides Internet
access to the Company's business customers. In August 1999, the Company
entered into a Strategic Alliance Agreement with IXC Communications providing
a framework under which the Company and IXC Communications can complete
additional collaberation projects. In addition to providing Internet access,
the Company expects IXC Communications will provide web hosting, co-location,
bandwidth and related products and services to the Company for resale under
the Company's private brand. The Company also expects IXC Communications will
utilize its approximately 300 salespersons in the promotion and resale of the
Company's products and services.

Competition

The market and demand for business-to-business messaging services and
Internet application services is highly competitive and growing rapidly and the
Company faces a high degree of competition in each of its service areas. The
Company believes there are no dominant market leaders in the industries in which
the Company competes. The Company's ability to compete successfully depends on a
number of factors, including (i) market presence, (ii) the capacity, reliability
and security of the Company's network infrastructure, (iii) the pricing policies
of the Company's competitors and suppliers, (iv) the timing of the introduction
of new services and service enhancements, and (v) how the industry responds to
general economic trends.

Due to the changing messaging industry and the explosive growth in the
Internet services industry, the Company is unable to identify direct competitors
except with respect to the Company's specific product and service offerings. The
Company's current and potential competitors fall into the following categories:

(1) Telecommunications companies and resellers (e.g., AT&T, MCI
Worldcom);

(2) Internet Service Providers (e.g., Uunet Technologies, NETCOM On-Line
Communications Services, Inc.);

(3) Enhanced fax service providers (e.g., FaxSav, Inc., Premiere
Technologies, Inc.);

(4) Unified Internet messaging providers (Jfax.com. FaxNet Corp.); and

(5) Various web design and electronic commerce service providers.

The Company is unaware of any other entity that combines Messaging and
Internet products and services in a unified service offering as does the
Company. Nevertheless, the Company believes that its current business strategy
will be emulated by competitors in the future and such competitors will enter
the markets served by the Company. Some of those competitors may possess
significantly greater financial, marketing, technical and other resources than
the Company. However, the Company believes its software and product development
and sales approach distinguishes it from its competitors. The Company's internal
software development team enables it to develop and introduce new products and
react to changes in customer requirements more quickly than many of its
competitors. In addition, the Company offers pricing policies that result in
competitive cost-saving solutions for its customers. The Company's sales
personnel are trained to utilize selling techniques aimed at specific customer
needs.

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Although the Company will continue to offer competitive products and
services and seek to maintain and enlarge its market share, there can be no
assurance that additional competitors will not enter markets that the Company
plans to serve or that the Company will be able to compete successfully.
Increased competition may result in price reductions, reduced gross margins or
erosion of the Company's market share, any of which would have a material
adverse effect on the Company's business, financial condition and results of
operations.

Government Regulations

The telecommunications industry is subject to regulation by the FCC, by
various state public service and public utility commissions and by various
international regulatory authorities. The FCC has the power to impose regulatory
requirements on the Company and currently classifies the Company as a
"nondominant carrier." Generally, the FCC has chosen not to closely regulate the
charges or practices of nondominant carriers. The FCC also has the power to
impose more stringent regulatory requirements on the Company and to change its
regulatory classification. As a result, there can be no assurance that the FCC
will not change the Company's regulatory classification or otherwise subject the
Company to more burdensome regulatory requirements that would have a material
adverse effect on the Company's business, financial condition or results of
operations.

The Company is subject to federal and state laws regulating the
unsolicited transmission of fax and e-mail transmissions for advertisement
purposes. The Company has adopted a policy to refrain from transmitting fax and
e-mail advertisements except to its customers and other recipients who have
expressed an interest in receiving the transmitted information or otherwise have
given their permission to receive such transmissions. The Company encourages its
customers to familiarize themselves with the relevant laws and to conduct their
businesses in accordance with applicable laws. Nevertheless, the Company
believes it is not responsible or liable for customer transmissions in violation
of governmental regulations.

In connection with its anticipated international operations, the Company
may be required to satisfy a variety of foreign regulatory requirements. The
Company intends to explore and seek to comply with these requirements on a
country-by-country basis. There can be no assurance that the Company will be
able to satisfy the regulatory requirements in foreign countries and the failure
to satisfy such requirements may prevent the Company from operating in such
countries. The failure to comply with foreign regulatory requirements could have
a material adverse effect on the Company's business, financial conditions and
results of operations.

Employees

As of July 31, 1999, the Company employed 113 persons, substantially all
of whom are full-time employees, and none of whom are now covered by a
collective bargaining arrangement. The majority of the Company's employees are
located at the Company's headquarters in Houston, Texas. The Company also has
employees in Yorba Linda, California and Portland, Oregon. The Company considers
its relationships with its employees to be satisfactory.

Intellectual Property

The Company currently holds no United States or foreign patents. The
Company has registered the trademark names HyperCast and HyperLine in the United
States. The Company regards certain of its computer software as proprietary and
seeks to protect such software with common law copyrights, trade secret laws,
non-disclosure agreements and other safeguards. There can be no assurance,
however, that the steps taken by the Company to protect its proprietary rights
will be adequate or that others will not independently develop technologies
similar or superior to the Company, or obtain access to the Company's know-how
or software codes, concepts, ideas or documentation. Further, there can be no
assurance that the Company's non-disclosure agreements with its employees will
adequately protect the Company's trade secrets.

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Properties

The Company does not own any real property. The Company's headquarters
facility, which includes its administrative, sales, marketing, management
information systems and development offices and its operations center, is
located in approximately 21,000 square feet of leased space in Houston, Texas.
The lease on the Houston facility expires in March 2000. The Company also has
approximately 1,000 square feet of leased space in Yorba Linda, California and
900 square feet of leased space in Portland, Oregon. The Company believes its
existing facilities are adequate to meet current requirements and that suitable
additional space in close proximity to its headquarters will be available as
needed to accommodate growth of its operations.

Insurance

The Company maintains insurance covering risks incurred in the ordinary
course of business, including general liability, special and business property
coverage (including coverage of electronic data processing equipment and media),
and business interruption insurance. The Company believes its insurance coverage
is adequate.

Legal Proceedings

The Company is not a party to any legal proceedings which the Company
believes could have a material adverse effect on the Company. From time to time
the Company becomes involved in complaints related to the distribution of
unsolicited faxes for a customer of the Company. The distribution of unsolicited
faxes is subject to restriction under federal law and some state laws. The
Company has developed procedures designed to minimize its exposure to claims of
this type. The Company may have rescission liability in connection with the
sales of the Subject Securities. See "Rescission Offer."

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

The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1998 and 1997 and the
three months ended March 31, 1999 and 1998. It should be read in conjunction
with "Selected Financial Information" and the financial statements and the notes
thereto included elsewhere in this Prospectus. The following information
contains forward-looking statements. For a discussion of certain limitations
inherent in such statements, see "Risk Factors--Forward-Looking Statements."

Overview

The Company has committed significant resources in developing and
enhancing its messaging and Internet technologies. From the Company's
inception through early 1996, the Company obtained approximately $1.9 million
of start-up capital to develop its fax broadcasting network and install nodes
in selected locations throughout the United States. Between August 1996 and
December 31, 1997, the Company obtained additional capital in the amount of
approximately $15.3 million which includes $14,228,137 from the issuance or
sale of the Subject Securities, in order to, among other things, improve the
network, develop new products and services, expand its marketing and sales
efforts, invest in capital expenditures and satisfy its working capital
requirements. The sale of the Subject Securities created potential securities
law liabilities which resulted in the Company's need to make the Rescission
Offer. Since December 1997, Cynet Holdings has contributed additional capital
by way of cash infusions in the amount of $3,871,000 in exchange for the
issuance of 3,871,000 shares of the Company's Class A Common Stock. In
addition, Cynet Holdings transferred all of the outstanding membership
interests of Cynet Interactive to the Company. See "Management -- Certain
Transactions."

While undergoing rapid development and internal expansion, the Company
experienced weak and deteriorating financial performance, which was further
hampered by the need to conduct the Rescission Offer. In January 1998, the
Company underwent a change of control and management. The new management team
substantially improved the Company's financial performance, diversified the
Company's products and services and reorganized and expanded the Company's sales
efforts. In 1999, the Company transitioned itself from a messaging company
(delivering fax, e-mail, voice and data between businesses) to an Internet
solutions provider incorporating full messaging and Internet capabilities.

The Company derives its operating revenues from providing messaging and
Internet services to business customers. Although the Company generally does not
have long-term contractual service agreements with its customers, the Company
believes its superior delivery and customer service encourages its customers to
continue using the Company's products and services. As a result, the Company
expects its operating results will benefit from recurring monthly revenues and
transaction fees from such customers. The Company also receives revenues from
the sale of its specialized software to its customers.

State of the Company at the Change of Management

From its inception until the January 28, 1998 change of management, the
Company was a fax broadcast service provider that developed its own client
interface software featuring ease of use and expanded connectivity. The Company
provided its client interface software free of charge and the Company's service
offerings were discounted below its competitors' prices. The Company projected
the image of a technology leader in fax broadcasting with the lowest price for
delivery. The Company incurred heavy losses each year of operation because of
its commodity pricing strategy coupled with the ordinary and usual start-up,
administrative, sales, marketing and development costs. The Company prematurely
expended its available capital, leaving the Company in substantial debt to its
trade vendors. In January 1999, the Company was in poor financial condition and
its working capital deficits raised serious doubts about the Company's ability
to continue as a going concern. The Company required a substantial investment in
research and development and

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capital equipment to stabilize the fax broadcasting system, lower operating
costs, and diversify the product and service lines to keep pace with industry
and market changes. The Company needed a professional management team capable of
executing a turnaround strategy transitioning it from a start-up to a
hypergrowth company. In addition, the Company's potential securities law
liabilities effectively prevented the Company from attracting institutional
investors. In effect, the Company's business life cycle was headed to an abrupt
end.

In 1997, the year preceding a change in management, the Company's
financial performance was as follows: (i) revenues of $4,960,355, (ii) gross
margins of 9%, (iii) pre-tax net loss of $7,762,863 and (iv) cash flow (EBITDA
and other non-cash non-recurring expenses) losses of $6,850,078. In December
1997, the Company had more than 850 shareholders and approximately 26.8 million
shares issued (calculated on a fully diluted basis giving effect to outstanding
warrants); the financial condition of the business had deteriorated and the
Company had more than $14,000,000 in potential rescission liability.

What New Management Accomplished in 1998

Pursuant to an agreement with the Company's founder, then Chief Executive
Officer and major shareholder, Ray C. Davis ("Davis"), in January 1998 Cynet
Holdings acquired all of Davis' ownership in the Company. As a result, Vincent
W. Beale, Sr., the President and major shareholder of Cynet Holdings assumed
control of the management of the Company. Mr. Beale immediately installed a
professional management team that included, among others, Bernard B. Beale as
Executive Vice President, Samuel C. Beale as Vice President and General Counsel,
and David R. Hearon, Jr. as Vice President of Operations. In August 1998, R.
Greg Smith joined the management team as the Chief Financial Officer. See
"Management." The management team's immediate tasks were (i) to reduce operating
losses, (ii) assess the true state of the Company, (iii) identify the necessary
steps to rebuild the Company, (iv) turn the Company toward profitability and a
more competitive position, (v) resolve the rescission liability issue, and (vi)
take the Company into the public capital markets in order to fuel growth and
enhance shareholder value.

With limited resources, the management team increased the Company's
revenues by 80% from $4,960,355 in 1997 to $8,947,732 in 1998. Cost of revenues
were decreased such that gross margins increased from 9% in 1997 to 32% in 1998
with each calendar quarter showing a significant improvement over the preceding
quarter. Pre-tax net losses were reduced from $7,762,863 in 1997 to $4,396,883
in 1998. Cash flow losses were reduced from $6,850,078 in 1997 to $3,251,857 in
1998. The Company's base product and service (fax broadcasting) was stabilized
and greatly improved, products and services were diversified from one product
and service in 1997 to more than a dozen products and services in 1998 covering
a complete range of messaging solutions. The Company raised its prices as it
created more value-added services, reconstructed its client base to include
larger and more successful clients, and changed from commodity priced selling to
"solution" selling of value-added products and services. Cynet Holdings infused
$1,511,000 cash into the Company's capital. The Company filed its initial
registration statement with the SEC to begin the final part of the complete
turnaround of the Company. In 1998, the Company was unable to attract a
significant financial partner while in the shadow of the 1997 financial
performance and under the cloud of the potential rescission liability.

What Management Has Accomplished to Date in 1999

In 1999, the Company expects its financial performance to continue to
improve as compared to its 1998 performance. Specifically, the Company expects
to achieve continued improvements in its revenues, gross margins, cash flow and
net income. Toward that end, the Company achieved a 12% increase in its revenues
in the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998. More importantly, the Company's gross margins increased to 46%
for the three months ended March 31, 1999 from 23% for the three months ended
March 31, 1998. The Company's projected performance improvements are based upon
realizing the benefits of the 1998 improvements in the business, the transition
of the Company from a "Fax" company to an "Internet Services" company with a
full compliment of messaging and Internet solutions, the expansion of strategic
alliance partners, the reorganization of the sales force, and the change in
marketing strategy. Nevertheless, there can be no assurance that the Company
will be able to achieve its performance objectives.

46
<PAGE>

The factors contributing to the Company's current success are the trends
in the Internet services and telecommunications industries. Deregulations in the
telecommunications industry have spawned numerous telecommunications providers
delivering parts of the overall telecommunications solution (local telephone,
long distance telephone, mobile telephone, data transmission, Internet access,
web hosting and web content). Business customers find this multiplicity to be
inefficient and confusing. The Company's strategy is to position itself as a
"one-stop-shop" for the messaging and Internet services solutions. It proposes
to coordinate the delivery and support these diverse but related services
through a series of seamless strategic alliances connecting through the
Company's core products and services. The Company's sales efforts are being
refocused to target large corporate (and Fortune 500) and medium-sized companies
with a unified service solution. This sales effort should be further enhanced by
the vertical market segmentation of the Company's sales force. With a vertical
market focused sales force, the Company expects to better interface with a
number of strategic alliance and reseller agent sales persons who sell the
Company's products and services. See "Business -- Strategic Relationships."

Future Plans and Prospects

The Company expects to expand existing alliances and form new alliances
that will enable the Company to (i) increase revenues, (ii) continue to expand
and diversify products and services to meet market demand, (iii) accelerate
research and development to deploy new technology and (iv) increase financial
resources to execute the Company's merger and acquisition plans. In future
public offerings, the Company expects to finance its growth and expansion plans
such that the Company become a hypergrowth company. However, there can be no
assurance that the Company will be able to realize these plans and objectives.

Certain Accounting Policies

Revenues from messaging and Internet services are recognized
as services are performed. Revenues from sales of customer lists and other
related services are recognized when the list is provided, or the other services
are performed. Expenditures for research and development of telecommunication
technology as it relates to messaging and Internet application services needs
are charged to expense as incurred. For the years ended December 31, 1998 and
1997, research and development expenditures were approximately $398,000 and
$419,000, respectively.

Deferred taxes result from temporary differences between the financial
statement and income tax bases of assets and liabilities. The Company adjusts
the deferred tax asset valuation allowance based on judgments as to future
realization of the deferred tax benefits supported by demonstrated trends in the
Company's operating results.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires the Company to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the
Company has not entered into derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2001 to affect its financial
statements.

Effective for all fiscal years beginning after December 31, 1998, SOP
98-5, "Reporting on the Costs of Start-up Activities," requires all start-up and
organizational costs to be expensed as incurred. It also requires all remaining
historically capitalized amounts of these costs existing at the date of adoption
to be expensed and reported as the

47
<PAGE>

cumulative effect of a change in accounting principles. The Company adopted SOP
98-5 in the first quarter of 1999 and it did not have a material effect on its
financial statements.

Results of Operations

Three months ended March 31,1999 compared to three months ended March 31,1998

Revenues increased to $2,153,832 for the three months March 31, 1999 from
$1,926,892 for the three months ended March 31,1998. The increase of $226,940 or
12% was due primarily to an increase in sales of the Company's list and database
services product offering.

Cost of revenues decreased to $1,166,656 for the three months ended March
31,1999 from $1,493,004 for the three months ended March 31,1998. The decrease
of $326,348 or 22% was attributable primarily to the decrease in telephone
charges resulting from more advantageous pricing from the Company's primary
telephone carriers. Gross margin increased to 46% for the three months ended
March 31,1999 from 23% for the three months ended March 31,1998 due to the
decrease in telecommunication costs. Management expects additional telephone
rate reductions along with the delivery of higher gross margin value added
products and services to further improve gross margins.

Selling, and general and administrative expenses increased to $1,305,438
for the three months ended March 31, 1999 from $1,049,068 for the three months
ended March 31, 1998. The increase was attributable primarily due to an increase
in personnel costs from an expansion of the Company's sales force.

Depreciation and amortization increased to $340,958 for the three months
ended March 31,1999 from $204,323 for the three months ended March 31,1998. The
increase was attributable primarily to additional equipment acquired in 1998,
including equipment acquired in the expansion of the Company's messaging
infrastructure.

Other expense totaled $76,322 for the three months ended March 31, 1999
compared to other income of $2,360 for the three months ended March 31, 1998.
The increase in other expense was primarily attributable to (i) interest expense
of $38,064 on a revolving accounts receivable lending agreement and (ii) an
increase in other expense of $38,299.

The Company had a net loss of $735,542 for the three months ended March
31,1999 compared to a net loss of $817,143 for the three months ended March
31,1998. The decrease in net loss is due to the factors discussed above.

Net loss per common share decreased to $0.03 from $0.04 for the three
months ended March 31,1999 compared to the three months ended March 31,1998.

Year ended December 31,1998 compared to year ended December 31, 1997

Revenues increased to $8,947,732 for the year ended December 31, 1998 from
$4,960,355 for the year ended December 31, 1997. The increase of $3,987,377 or
80% was primarily attributable to (i) market share gains for the Company's
messaging products, (ii) increased customer awareness and expansion of the size
of the customer base, (iii) expansion of the Company's sales force and (iv) the
introduction of the Company's lists and database services product offerings.

Cost of revenues increased to $6,069,184 for the year ended December 31,
1998 from $4,490,505 for the year ended December 31, 1997. The cost of revenues
as a percentage of revenues decreased to 68% for the period ended December 31,
1998 as compared to 91% for the period ended December 31, 1997. The decrease in
cost of revenues as a percentage of revenues was primarily attributable to (i) a
decrease in the Company's telecommunications rates, (ii)

48
<PAGE>

more favorable pricing of the Company's products resulting from value added
services, (iii) introduction of ancillary messaging products yielding higher
gross margins, (iv) increased efficiency gains resulting from a implementation
of new communications technologies and (v) fixed costs being spread over a
larger revenue base.

Selling, and general and administrative expenses decreased to $6,107,978
for the year ended December 31, 1998 from $7,517,935 for the year ended December
31, 1997. The decrease in expenses was primarily attributable to (i) a reduction
of the Company's advertising and promotional costs of approximately $1,100,000,
(ii) a reduction of external consulting fees of approximately $1,000,000, (iii)
a reduction of the Company's legal and accounting fees of approximately
$100,000, (iv) increases in personnel costs of approximately $600,000, and (v)
increases in bad debt expenses of approximately $100,000.

Depreciation and amortization increased to $728,975 for the year ended
December 31, 1998 from $414,652 for the year ended December 31, 1997. The
increase was attributable primarily to additional equipment acquired in 1997,
including equipment acquired in the expansion of the Company's messaging
infrastructure.

Impairment loss on long lived assets decreased to $271,957 for the year
ended December 31, 1998 from $496,133 for the year ended December 31, 1997. In
the third quarter of 1998, the Company under its new management, reviewed its
operations and equipment and determined certain computer equipment was not being
used in the operations of the business prior to December 31, 1997, and had no
salvage value. Accordingly, the Company restated its 1997 financial statements
and wrote off $496,133 of computer and telephone equipment during the year ended
December 31, 1997. During 1998, the Company acquired telecommunications
equipment that is more efficient and has a higher fax transmission capacity than
certain of its existing equipment. The Company determined that its nodes, which
is primarily computer equipment that is located in various cities throughout the
United States, were cost prohibitive. The computer equipment from the nodes was
implemented in the Company's operations to the extent possible. Accordingly, the
Company recorded a write-down of property and equipment of $163,079 for the year
ended December 31, 1998 for property and equipment that is not currently being
utilized.

In addition, during 1998 the Company wrote-down certain art work and
artifacts to their estimated market value based on an independent appraisal and
recorded an impairment loss of $108,878.

Other expense totaled $126,278 for the year ended December 31, 1998
compared to other income of $56,821 for the year ended December 31, 1997. The
increase in other expense was primarily attributable to (i) interest expense of
$66,877 on a revolving accounts receivable lending agreement and (iii) a
reduction of interest income totaling $64,532.

Minority interest in net loss of consolidated subsidiaries decreased to
zero for the year ended December 31, 1998 compared to $139,186 for the year
ended December 31, 1997 due to the Company acquiring the minority interest in
the LLCs in December 1997. See Note 7 in the Notes to the Consolidated Financial
Statements.

The Company incurred a net loss of $4,356,640 for the year ended December
31, 1998 compared to a net loss of $7,762,863 for the year ended December 31,
1997. The decrease in net loss was due to the factors discussed above.

Net loss per common share decreased to $0.19 from $0.60 for the year ended
December 31, 1998 compared to the year ended December 31, 1997.

The Company may in the future experience significant fluctuations in its
results of operations. Such fluctuations may result in volatility in the price
and/or value of the Company's common stock if any market develops. Results of
operations may fluctuate as a result of a variety of factors, including the
demand for the Company's services, the introduction of new services and service
enhancements by the Company or its competitors, market acceptance of new
services, the mix of revenues between Internet-based versus telephony-based
delivery, the timing of significant marketing programs, the number and timing of
hiring of additional personnel, competitive conditions in the industry and

49
<PAGE>

general economic conditions. Shortfalls in revenues may adversely and
disproportionately affect the Company's results of operations because a high
percentage of the Company's operating expenses are relatively fixed.
Accordingly, the Company believes that period to period comparisons of results
of operations are not necessarily meaningful and should not be relied upon as an
indication of future results of operations. There can be no assurance that the
Company will be profitable or that the Company's operating results will meet
management's current expectations.

Liquidity and Capital Resources

From its inception, the Company has financed its operations and expansion
primarily through funds raised through the formation of LLCs (approximately $1.9
million) and a series of private offerings (approximately $15.3 million). At
March 31, 1999, the Company had a cash position of $519,457 and a negative
working capital position of $205,326, which includes the $2,078,825 of deferred
offering costs. See Note 3 in the Notes to the Consolidated Financial
Statements.

Net cash used in operating activities was $1,783,793 and $7,624,801 for
the years ended December 31, 1998 and 1997, respectively. The decrease in net
cash used in operating activities for the year ended December 31, 1998 was
primarily due to a reduction in the net operating loss of the Company. Net cash
used in operating activities was $591,124 and $597,536 for the three-month
periods ended March 31, 1999 and 1998, respectively. The decrease in net cash
used in operations for the three-month period ended March 31, 1999 was primarily
due to the decrease in net operating loss of the Company.

Net cash used in investment activities was $812,585 and $3,172,458 for the
years ended December 31, 1998 and 1997, respectively. Net cash used in
investment activities was $54,426 and $127,871 for the periods ended March 31,
1999 and 1998, respectively. These amounts were due primarily to capital
expenditures for operating equipment, including computer equipment and software,
furniture and fixtures and telecommunications equipment.

Net cash provided by financing activities was $1,934,985 and $11,169,123
for the years ended December 31, 1998 and 1997, respectively. Net cash provided
by financing activities was $1,110,000 and $124,898 for the periods ended March
31, 1999 and 1998, respectively. The Company has obtained financing primarily
through a series of issuances of its Common and Preferred Stock. Through the
date of this prospectus, the Company has raised approximately $20.3 million from
these issuances of which $14,228,137 is subject to the proposed Rescission
Offer.

The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. As of
December 31, 1998, the Company's sources of external and internal financing were
limited. The Company does not expect that internal sources of liquidity will
improve until additional operating revenues are generated and, until such time,
the Company will continue to rely on external sources for liquidity. Until the
Company can obtain monthly gross revenues of approximately $1,200,000, which the
Company believes would be sufficient to fund working capital needs, there is
uncertainty as to the ability of the Company to expand its business and continue
as a going concern. There is no assurance that the current working capital will
be sufficient to cover cash requirements during that period or to bring the
Company to a positive cash flow position. In addition, lower than expected
earnings resulting from adverse economic conditions or otherwise, could restrict
the Company's ability to expand its business as planned, and, if severe enough,
may shorten the period in which the current working capital may be expected to
satisfy the Company's requirements, force curtailed operations, or cause the
Company to sell assets.

The Company has reached agreements with the Rescission Underwriters to
provide the Rescission Financing to fund the Rescission Offer. The Rescission
Financing will be completed prior to the date of this Prospectus. The Company
has also secured a commitment from Cynet Holdings pursuant to which Holdings
will provide up to $10,000,000 ("Holdings Commitment") of equity capital to the
Company prior to December 31, 1999. As of July 31, 1999, Cynet Holdings had
contributed to the Company $3,871,000 in cash in exchange for 3,871,000 shares
of the Company's Class A Common Stock. In addition, Cynet Holdings transferred
all of the outstanding membership interests in Cynet Interactive to the Company.
See "Management -- Certain Transactions." The proceeds from the Holdings
Commitment will be used primarily for the Company's working capital, expansion
and acquisitions needs. The proceeds

50
<PAGE>

from the Rescission Financing will be used to fund $5,000,000 of the Rescission
Offer. In the event that funds in excess of $5,000,000 are needed to fund the
Rescission Offer, the Company shall have the right to either (i) with the
consent of the Rescission Underwriters, secure additional financing through the
issuance of equity securities or the sale of assets in amounts sufficient to
satisfy the Company's rescission liabilities and complete the Rescission Offer,
or (ii) declare the entire Rescission Offer ineffective and return all completed
Elections, together with the certificates or other instruments representing the
Subject Securities, to the Offerees who accepted the Rescission Offer and direct
the escrow agent to return the funds comprising the Rescission Financing to the
Rescission Underwriters. Subject to the foregoing, any unused proceeds of the
Rescission Financing remaining after the funding of the Rescission Offer will be
used by the Company for general corporate purposes. See "Risk Factors -- Need
for Additional Capital and Capital Requirements" and -- Lack of Sufficient
Capital to Fund Rescission Offer; Potential Rescission Liability" and "Use of
Proceeds."

Year 2000 Compliance

The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue. The Year 2000 issue is
the result of computer programs being written using two digits (rather than
four) to define the applicable year and equipment with time-sensitive embedded
components. Any of the Company's programs that have time-sensitive software or
equipment that has time-sensitive embedded components may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations.

The Company instituted a Year 2000 compliance plan and schedule in
September 1998. The Company has incorporated a compliance standard with rules
and definitions into its operations systems. The Company's compliance plan is to
ensure all of its software, hardware, information systems, products and services
are Year 2000 compatible. The Company has also structured its plan to
incorporate all identifiable vendors from whom it obtains services. In addition
to its internally developed software, the Company utilizes software, hardware
and other services from third party vendors. To the extent possible, the Company
has tested such third-party software and hardware to determine Year 2000
compliance. In addition, the Company has received written assurances from key
vendors that their systems are Year 2000 compliant. Based upon an initial
evaluation of its broader list of vendors, the Company believes that all of
these providers are in the process of reviewing and implementing their own Year
2000 compliance programs. The Company will work with these providers to address
the Year 2000 issue and to continue to seek assurances that their systems are
Year 2000 compliant.

As of July 1, 1999, the Company successfully completed its Year 2000
compliance test plan and determined that all of its systems are Year 2000
compliant. The Company has not incurred any significant expenses for Year 2000
remediation efforts. The Company conducted an independent audit of its software
and upgraded the bios and clocks in its hardware. The Company does not
anticipate that any future costs associated with this project will be material.
However, if the Company, its customers, its providers of hardware and software
or other third parties with whom the Company does business fail to remedy any
Year 2000 issues, the Company's services could be interrupted and it could
experience a material loss of revenues that could have a material, adverse
effect on its business, prospects, results of operations and financial
condition. The Company is unable to reasonably estimate the duration and extent
of any such interruption, or quantify the effect it may have on future revenues.

51
<PAGE>

MANAGEMENT

Directors and Officers

The following table sets forth the directors and officers of the Company
and their respective ages and positions (ages as of July 31, 1999):

Name Age Position
- --------------------- ---- -----------------------------------------------
Vincent W. Beale, Sr. 51 Chairman of the Board, Chief Executive Officer,
President and Director
Bernard B. Beale 42 Executive Vice President and Chief Operating
Officer
David R. Hearon, Jr. 62 Vice President, Chief Technical Officer
Samuel C. Beale 43 Vice President, General Counsel and Secretary
R. Greg Smith 40 Vice President, Chief Financial Officer
Wayne Schroeder 57 Director

Vincent W. Beale, Sr. was elected Chairman of the Board of Directors,
Chief Executive Officer and President of the Company on January 28, 1998. Mr.
Beale acted as a consultant to the Company from June 1997 until January 1998.
Mr. Beale is the President and majority owner of Cynet Holdings, a limited
liability company which is the largest shareholder of the Company. Mr. Beale
is also the President and Managing Director of BNB Capital, Inc., an
investment banking firm. Prior to joining the Company, Mr. Beale was employed
for more than fifteen years with various investment banking firms including
Merrill Lynch, Pierce, Fenner & Smith, Inc., Kidder Peabody & Co., Inc.,
PaineWebber, Inc. and Shearson Lehman Hutton, Inc.

Bernard B. Beale joined the Company in January 1998 as a special
consultant to the Chairman to assist in the reorganization of the Company's
business operations. In July 1998 Mr. Beale was named Executive Vice
President and Chief Operating Officer of the Company. Prior to joining the
Company, Mr. Beale was employed by The Equitable Company, a financial
services firm, and certain other investment banking firms from 1985 to 1998.
From 1979 to 1986, he was employed in various positions including accounting,
human resources and project management with Western Electric and AT&T.
Mr. Beale holds a Master of Science degree in Business Management from Aurora
University, Aurora, Illinois, and a Bachelor of Arts degree from Oakwood
College, Huntsville, Alabama.

David R. Hearon, Jr. was employed by the Company in March 1998 as Vice
President and Chief Technical Officer. From July 1996 until joining the Company,
Mr. Hearon was President of Hearon & Associates, an independent consulting firm
providing consulting services in the areas of information technology,
manufacturing, customer support, re-engineering and human resource development.
From 1959 to May 1996, Mr. Hearon was employed by Lucent Technologies and its
predecessors, AT&T and Western Electric, in management positions related to
telecommunications and information technology, including engineering,
manufacturing voice and data networks, and call centers. Mr. Hearon holds a
Bachelor's degree in Mechanical Engineering from the City College of New York
and has participated in post-graduate business and engineering programs at the
University of Chicago and City College of New York.

Samuel C. Beale became Vice President, General Counsel and Secretary of
the Company in May 1998. Mr. Beale was an attorney engaged in private law
practice for eight years prior to joining the Company. Prior to entering the
practice of law in November 1990, Mr. Beale spent more than ten years in the
computer industry with companies such as IBM Corporation, Sperry Univac, Martin
Marietta and IOCS, in positions ranging from systems engineer to data processing
manager to sales. Mr. Beale holds a Juris Doctor degree from the Ohio State
University College of Law and a Bachelor of Arts degree from Harvard University.

R. Greg Smith joined the Company in August 1998 as Vice President and
Chief Financial Officer. Mr. Smith was employed for more than 12 years in the
health care information systems industry prior to joining the Company. Mr.

52
<PAGE>

Smith was most recently employed by ADAC Healthcare Information Systems ("ADAC")
as Vice President Finance and Chief Financial Officer from 1995 until joining
the Company. In 1996, ADAC became the first health care manufacturer to receive
the Malcolm Baldridge National Quality Award. Prior to joining ADAC, Mr. Smith
held numerous financial management positions from 1985 through 1995 for
Community Health Computing, Inc. ("CHC"), including Vice President Finance and
Chief Financial Officer from 1994 through 1995. ADAC acquired CHC in 1995 and
retained Mr. Smith as the Chief Financial Officer for their combined health care
information systems businesses. Mr. Smith holds a Bachelor of Business
Administration degree in Finance from Sam Houston State University.

Wayne Schroeder joined the Company in October 1997 as Chief Financial
Officer and Secretary and was elected to the Board of Directors in February
1998. In April 1998 Mr. Schroeder resigned as an officer of the Company to
become the Controller of Capstar Broadcasting Corporation. Mr. Schroeder was
Vice President - Finance, Secretary and Director of Boundless Corporation from
November 1996 to October 1997. Mr. Schroeder was self-employed as a financial
and accounting consultant from June 1994 to October 1996. From July 1987 to May
1994, Mr. Schroeder served as Chief Operating Officer, Chief Financial Officer
and a director of Arrhythmia Research Technology, Inc. Mr. Schroeder graduated
from the University of Texas at Austin with a degree in finance and accounting.

Vincent W. Beale, Sr., Bernard B. Beale and Samuel C. Beale are siblings.
There are no other family relationships among any of the Company's directors and
executive officers.

Director Compensation

Directors who are employees or consultants of the Company do not receive
any compensation for serving as directors. All directors are reimbursed for
ordinary and necessary expenses incurred in attending any meeting of the Board
of Directors or any committee thereof or otherwise incurred in their capacity as
directors.

Executive Compensation

The following table sets forth information with respect to all forms of
compensation paid by the Company to the named individuals for the years ended
December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
Long-Term
Compensation
Securities
Name and Fiscal Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation Options(1) Compensation
------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Vincent W. Beale, Sr. 1998 $133,693 $30,000 -- 100,000 shares --
President and Chief
Executive Officer
(since 1/98)

Ray C. Davis, President 1998 $110,287 -- -- -- $188,326(2)
and Chief Executive 1997 $198,430 $50,000 $7,500(3) -- $250,000(4)
Officer 1996 $116,923 -- -- --
(until 1/98)
</TABLE>

53
<PAGE>

<TABLE>
<CAPTION>
Long-Term
Compensation
Securities
Name and Fiscal Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation Options(1) Compensation
------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Bernard B. Beale 1998 $131,696 -- -- 150,000 shares --
Executive Vice
President, Chief
Operating Officer
(since 1/98)

David R. Hearon, Jr. 1998 $122,226 $30,000 -- 75,000 shares --
Vice President, Chief
Technical Officer
(since 3/98)

Samuel C. Beale 1998 $90,845 -- -- 100,000 shares --
Vice President, General
Counsel and Secretary
(since 3/98)

Wayne Schroeder 1998 $40,385 -- -- 100,000 shares --
Chief Financial Officer
and Secretary
(10/97 to 4/98)

R. Greg Smith 1998 $42,308 -- -- 100,000 shares --
Vice President, Chief
Financial Officer
(since 8/98)

Vickroy Stone 1997 -- -- --(5) -- --
Chief Financial Officer 1996 -- -- $617,401(6) -- --
(9/95 to 2/97)

John Kim 1997 $262,302 $6,000 -- -- --
Vice President, Sales 1996 $34,854 $31,450 -- -- --
(4/96 to 2/98)
</TABLE>

54
<PAGE>

<TABLE>
<CAPTION>
Long-Term
Compensation
Securities
Name and Fiscal Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation Options(1) Compensation
------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Keith Shaffner 1997 $9,231 -- -- -- $1,976,663(7)
Vice President
(6/97 to 11/97)
</TABLE>

- ----------
(1) Refers to incentive stock options to purchase shares of Class A Common
Stock at a purchase price of $0.39 per share granted to Vincent W. Beale,
Sr., Bernard B. Beale, David R. Hearon, Jr., Samuel C. Beale and R. Greg
Smith under the 1997 Restated Stock Option Plan in accordance
with their respective employment agreements with the Company. (See "--
Employment Agreements" and "-- Stock Option Plan" below).
(2) Represents (i) a $121,043 account receivable owed by Mr. Davis to the
Company which was forgiven in exchange for the termination of Mr. Davis'
employment agreement pursuant to the Settlement Agreement and Mutual
Release in Full executed between the Company and Mr. Davis. See
"--Employment Agreements" below and (ii) $67,283 of property transferred
to Mr. Davis as compensation for services rendered. See "-- Certain
Transactions."
(3) Represents the value of providing Mr. Davis the use of an automobile owned
by the Company.
(4) Represents consideration paid to Mr. Davis in exchange for his assignment
to the Company of all of his "intellectual property." See "-- Certain
Transactions."
(5) Excludes (i) the repurchase by the Company of 450,000 shares of Class A
Common Stock from Mr. Stone for $450,000 and (ii) the issuance of warrants
to purchase 450,000 shares of Class A Common Stock which were deemed to
have no value on the date of issuance. See "-- Certain Transactions."
(6) Represents $117,401 paid and 500,000 shares of Class A Common Stock,
valued at $500,000, issued to Mr. Stone for financial advisory services
rendered. See "-- Certain Transactions."
(7) Represents $1,005,136 paid to Mr. Shaffner individually and $971,527 paid
to his affiliate, CyFax, Inc. See "-- Certain Transactions."

No other director or executive officer received salary and bonus which
exceeded $100,000 during any of the three fiscal years ended December 31, 1998.
See "-- Employment Agreements" below for information regarding the current
compensation of certain of the Company's directors and officers.

55
<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)

<TABLE>
<CAPTION>
Number of Percent Of Total
Securities Options/SARS
Underlying Granted To
Options/SARs Employees In Fiscal Exercise of
Name Granted (1) Year Base Price Expiration Date
- ---------------------- -------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Vincent W. Beale, Sr. 100,000 shares 6.8% $0.39 per share January 31, 2003
Bernard B. Beale 150,000 shares 10.2% $0.39 per share July 21, 2003
David C. Hearon, Jr. 75,000 shares 5.1% $0.39 per share February 28, 2003
Samuel C. Beale 100,000 shares 6.8% $0.39 per share July 21, 2003
Wayne Schroeder 100,000 shares 6.8% $0.39 per share March 31, 2003
R. Greg Smith 100,000 shares ___% $0.39 per share August 25, 2003
</TABLE>

- --------------
(1) See "-- Employment Agreements" for information regarding the vesting of
these options. Mr. Schroeder's options are 100% vested as of the date
granted.

None of the Company's executive officers exercised any options during the
fiscal year ended December 31, 1998. The Company has not issued any SARs during
the fiscal year ended December 31, 1998.

None of the Company's executive officers were granted awards under any
long-term incentive plan during the fiscal year ended December 31, 1998.

Employment Agreements

On June 17, 1997, the Company entered into a Consulting Agreement with
Vincent W. Beale, Sr., pursuant to which Mr. Beale agreed to assist the Company
with respect to an initial public offering and certain proposed mergers and
acquisitions. Mr. Beale was paid an aggregate of $189,000 in consulting fees
under the terms of the Consulting Agreement.

Effective February 1, 1998, the Company terminated his Consulting
Agreement and entered into an employment agreement with Vincent W. Beale, Sr.
pursuant to which Mr. Beale serves as the Chairman of the Board and Chief
Executive Officer of the Company. The agreement has an initial term of five
years and can continue for additional one-year periods upon the agreement of Mr.
Beale and the Company, and requires Mr. Beale to devote substantially all of his
business time, attention and energy exclusively to the business of the Company,
and to use his best efforts to promote the success of the Company's business. In
exchange, Mr. Beale is entitled to (i) receive an annual salary, commencing
February 1, 1998, of $180,000 (subject to annual review by the Board of
Directors), (ii) earn an incentive bonus in accordance with the Company's bonus
plan to be established for its executives, (iii) receive a signing bonus of
$30,000, (iv) an option under the Company's 1997 Amended and Restated Stock
Option Plan to purchase 100,000 shares of Class A Common Stock at a price of
$0.39 per share which vests immediately when granted and (v) participate in the
Company's other employee benefit plans. Mr. Beale's employment agreement is
terminable by the Company at any time for "cause," as specified in the
agreement, and in certain other events. The employment agreement also contains
covenants limiting Mr. Beale's right to compete with the Company during the term
of the employment agreement and for two years after the termination of his
employment.

Effective March 1, 1998, the Company entered into an employment agreement
with David R. Hearon, Jr. pursuant to which Mr. Hearon serves as the Vice
President of Operations of the Company. The agreement has an initial term of
four years and can continue for additional one-year periods upon the agreement
of Mr. Hearon and the

56
<PAGE>

Company, and requires Mr. Hearon to devote substantially all of his business
time, attention and energy exclusively to the business of the Company, and to
use his best efforts to promote the success of the Company's business. In
exchange, Mr. Hearon is entitled to (i) receive an annual salary, commencing
March 1, 1998, of $150,000 (subject to annual review by the Board of Directors),
(ii) earn an incentive bonus in accordance with the Company's bonus plan to be
established for its executives, (iii) receive a signing bonus of $30,000, (iv)
an option under the Company's 1997 Amended and Restated Stock Option Plan to
purchase 75,000 shares of Class A Common Stock at a price of $0.39 per share
which vests ratably over a four-year period and (v) participate in the Company's
other employee benefit plans. Mr. Hearon's employment agreement is terminable by
the Company at any time for "cause," as specified in the agreement, and in
certain other events. The employment agreement also contains covenants limiting
Mr. Hearon's right to compete with the Company during the term of the employment
agreement and for two years after his termination of employment.

Effective March 3, 1997, the Company entered into a three-year executive
employment agreement with Ray C. Davis, the founder of the Company. The
agreement was automatically renewable at the end of its initial term for
consecutive one-year terms and provided for an annual base salary of $220,000,
and incentives (annual and long-term), retirement benefits, welfare benefits,
and fringe benefits which were available to other executive employees of the
Company. Mr. Davis received a $50,000 signing bonus from the Company upon
execution of his agreement. The agreement also contained provisions for the
acceleration of certain compensation due to Mr. Davis in the event of a "change
of control" of the Company, as defined in the agreement.

Effective April 13, 1998, the employment agreement between the Company and
Ray C. Davis was terminated and Mr. Davis entered into a new employment
agreement with the Company. The agreement had an initial term of five years, and
provided for Mr. Davis to (i) receive an annual salary, commencing April 13,
1998, of $150,000 (subject to annual review by the Board of Directors), (ii)
receive a warrant to purchase an aggregate of 2,000,000 shares of Class A Common
Stock at a price of $1.00 per share and (iii) participate in certain of the
Company's other employee benefit plans. The employment agreement provided that
Mr. Davis devote approximately one-half of his business time and attention to
the business of the Company. All inventions and technological improvements to
the Company's software developed by Mr. Davis during the term of the employment
agreement became the property of the Company and the Company is not required to
compensate Mr. Davis for any such inventions or improvements. The employment
agreement also contained covenants limiting Mr. Davis's right to compete with
the Company during the term of the employment agreement and for three years
after his termination of employment. Effective August 31, 1998, Mr. Davis
resigned from the Company, and the Company and Mr. Davis entered into a
Settlement Agreement and Mutual Release in Full (the "Davis Settlement"),
providing for (i) the termination of Mr. Davis' employment agreement with the
Company, (ii) the Company's forgiveness and release of $121,043.14 in
indebtedness owed by Mr. Davis to the Company, and (iii) Mr. Davis' release of
claims against the Company with respect to his employment agreement. See "--
Certain Transactions."

Effective July 22, 1998, the Company entered into an employment agreement
with Bernard B. Beale pursuant to which Mr. Beale serves as the Executive Vice
President of the Company. The agreement has an initial term of four years and
can continue for additional one-year periods upon the agreement of Mr. Beale and
the Company, and requires Mr. Beale to devote substantially all of his business
time, attention and energy exclusively to the business of the Company, and to
use his best efforts to promote the success of the Company's business. In
exchange, Mr. Beale is entitled to (i) receive an annual salary, commencing July
22, 1998, of $150,000 (subject to annual review by the Board of Directors), (ii)
earn an incentive bonus in accordance with the Company's bonus plan to be
established for its executives, (iii) receive a signing bonus of $30,000, (iv)
an option under the Company's 1997 Amended and Restated Stock Option Plan to
purchase 150,000 shares of Class A Common Stock at a price of $0.39 per share
which vests immediately when granted and (v) participate in the Company's other
employee benefit plans. Mr. Beale's employment agreement is terminable by the
Company at any time for "cause," as specified in the agreement, and in certain
other events. The employment agreement also contains covenants limiting Mr.
Beale's right to compete with the Company during the term of the employment
agreement and for two years after his termination of employment.

Effective July 22, 1998, the Company entered into an employment agreement
with Samuel C. Beale pursuant to which Mr. Beale serves as the Vice President,
General Counsel and Secretary of the Company. The agreement has an initial term
of three years and can continue for additional one-year periods upon the
agreement of Mr. Beale and the

57
<PAGE>

Company, and requires Mr. Beale to devote substantially all of his business
time, attention and energy exclusively to the business of the Company, and to
use his best efforts to promote the success of the Company's business. In
exchange, Mr. Beale is entitled to (i) receive an annual salary, commencing July
22, 1998, of $108,000 (subject to annual review by the Board of Directors), (ii)
earn an incentive bonus in accordance with the Company's bonus plan to be
established for its executives, (iii) receive a signing bonus of $30,000, (iv)
an option under the Company's 1997 Amended and Restated Stock Option Plan to
purchase 100,000 shares of Class A Common Stock at a price of $0.39 per share
which vests immediately when granted and (v) participate in the Company's other
employee benefit plans. Mr. Beale's employment agreement is terminable by the
Company at any time for "cause," as specified in the agreement, and in certain
other events. The employment agreement also contains covenants limiting Mr.
Beale's right to compete with the Company during the term of the employment
agreement and for two years after his termination of employment.

Effective August 26, 1998, the Company entered into an employment
agreement with R. Greg Smith pursuant to which Mr. Smith serves as the Vice
President Finance and Chief Financial Officer of the Company. The agreement has
an initial term of three years and can continue for additional one-year periods
upon the agreement of Mr. Smith and the Company, and requires Mr. Smith to
devote substantially all of his business time, attention and energy exclusively
to the business of the Company, and to use his best efforts to promote the
success of the Company's business. In exchange, Mr. Smith is entitled to (i)
receive an annual salary, commencing August 26, 1998, of $125,000 (subject to
annual review by the Board of Directors), (ii) earn an incentive bonus in
accordance with the Company's bonus plan to be established for its executives,
(iii) receive a signing bonus of $30,000, (iv) an option under the Company's
1997 Amended and Restated Stock Option Plan to purchase100,000 shares of Class A
Common Stock at a price of $0.39 per share which vests ratably over a three-year
period and (v) participate in the Company's other employee benefit plans. Mr.
Smith's employment agreement is terminable by the Company at any time for
"cause," as specified in the agreement, and in certain other events. The
employment agreement also contains covenants limiting Mr. Smith's right to
compete with the Company during the term of the employment agreement and for two
years after his termination of employment.

Stock Option Plan

On October 20, 1997, the Board of Directors and a majority of the holders
of the Class A Common Stock adopted the Company's 1997 Stock Option Plan, which
plan was restated effective July 31, 1999 (the "1997 Plan").

The 1997 Plan provides for the granting of stock options ("Options") to
key employees of the Company. Within certain limitations provided by the 1997
Plan, such Options may include provisions regarding vesting, exercise price, the
amount of each grant and other terms as shall be approved by the Board of
Directors or by a committee designated by the Board of Directors. Options
granted under the 1997 Plan may be either options that qualify as "incentive
stock options," within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended ("Incentive Options"), or those that do not qualify as such
"incentive stock options" ("Non-qualified Options"). The 1997 Plan, which
permits up to 2,000,000 shares of the Company's Class A Common Stock to be
issued, terminates on October 19, 2007.

The 1997 Plan is administered by the Board or by a Compensation Committee
of the Board of Directors, which committee, to the extent required to qualify
for certain exemptions under Rule 16b-3 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, to satisfy the requirements of Section
162(m) of the Code, will at all times consist of at least two non-employee
directors. Subject to the terms of the 1997 Plan, the Board of Directors or a
Compensation Committee determines the persons to whom Options are granted and
the terms and the number of shares covered by each Option. The term of each
Option may not exceed ten years from the date the option is granted, or five
years in the case of an Incentive Option granted to a holder of more than 10% of
the fully-diluted capital stock of the Company. Non-qualified Options and
Incentive Options may become exercisable six months after the date of grant and
may continue to be exercisable, in whole or in part, up to ten years after the
date of grant, as determined by the Board of Directors or the Compensation
Committee.

58
<PAGE>

The 1997 Plan provides that all Incentive Options and Incentive Options
which are not exercisable on the date of termination of an option holder's
employment generally expire when the optionee ceases to be employed by the
Company; however, the Board of Directors or the Compensation Committee may, in
its discretion, permit the holder to exercise unvested options upon such
termination. Options may not be transferred other than by will or the laws of
descent and distribution, and during the lifetime of an optionee may be
exercised only by the optionee. The 1997 Plan provides that each stock option
agreement with respect to any Non-qualified Option or Incentive Option shall
specify the effects of termination of employment on exercisability of such
options.

The 1997 Plan contains a provision accelerating the exerciseablity of
Options upon the occurrence of specified events, including a merger,
consolidation, dissolution or liquidation of the Company. The acceleration of
vesting of the Options in the event of a merger or other similar event may have
the effect of discouraging a proposal for merger, a takeover attempt or other
efforts to gain control of the Company.

Incentive Options to purchase shares of the Class A Common Stock have
been granted to Vincent W. Beale, Sr., Bernard B. Beale, David R. Hearon,
Jr., Samuel C. Beale and R. Greg Smith under the 1997 Plan in accordance with
their respective employment agreements described in "-- Employment
Agreements" above as follows: 100,000 shares to Vincent W. Beale, Sr. which
vest immediately on the date of grant, 150,000 shares to Bernard B. Beale
which vest immediately on the date of grant, 100,000 shares to Samuel C.
Beale which vest immediately on the date of grant, 75,000 shares to David R.
Hearon, Jr. which vest ratably over a four-year period, 100,000 shares to
Wayne Schroeder which vest immediately on the date of grant, and 100,000
shares to R. Greg Smith which vest ratably over a three-year period. Each of
these stock options has an exercise price of $0.39 per share.

Consulting Services

In August 1999, the Company entered into a Consulting Agreement (the
"Enron Advisory Agreement") with HEOF, a Rescission Underwriter and an affiliate
of Enron Corporation, pursuant to which HEOF agreed to provide certain business
advisory services to the Company. Pursuant to the Enron Advisory Agreement, the
Company has issued a warrant entitling HEOF to purchase up to 376,000 shares of
Class A Common Stock at a purchase price of $2.00 per share. The warrant may be
exercised, in whole or in part, at any time during the three-year period
beginning on the date of issuance.

Limitation on Directors' Liability; Indemnification

Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary
damages under certain conditions and circumstances. The Articles of
Incorporation of the Company limit the liability of directors of the Company (in
their capacity as directors, but not in their capacity as officers) to the
Company or its shareholders to the fullest extent permitted by Texas law.
Specifically, no director of the Company will be personally liable to the
Company or its shareholders for monetary damages for any act or omission in such
director's capacity as a director, except for (i) a breach of the director's
duty of loyalty to the Company or its shareholders, (ii) acts or omissions not
in good faith which involve intentional misconduct or a knowing violation of the
law, (iii) an act or omission for which the liability of a director is expressly
provided for by an applicable statute or (iv) any transaction from which the
director derived an improper personal benefit, whether or not the benefit
resulted from an action taken in the person's official capacity.

The inclusion of this provision in the Company's Articles of Incorporation
may have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter shareholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
shareholders. However, such limitation on liabilities does not affect the
standard of conduct with which directors must comply, the availability of
equitable relief or any causes of action based on federal law.

59
<PAGE>

The Company's Articles of Incorporation provide for the indemnification of
its current and former officers and directors to the fullest extent permitted by
applicable law.

Certain Transactions

Ray C. Davis. In May and August of 1995, the Company issued an aggregate
of 10,000,000 shares of Class A Common Stock (after giving effect to a nine for
one share dividend) to the Davis Family Partnership, Ltd., the Charles C. Davis
Trust, the Nicholas M. Davis Trust and the Rachel I. Davis Trust (collectively,
the "Davis Interests") for services rendered by Ray C. Davis in connection with
the organization of the Company. The Company valued such services at $1,000.

In August 1996, the Company purchased 277,000 shares of Class A Common
Stock from the Davis Family Partnership, Ltd. for $277,000. The purchase price
of $1.00 per share of Class A Common Stock was deemed by Mr. Davis, the then
sole director of the Company, to be equal to the fair market value of the shares
purchased based upon sales of shares of Class A Common Stock by the Company to
private investors, at or near the time of the purchase of shares from the Davis
Family Partnership, Ltd. A majority of the proceeds from the sale of shares of
Class A Common Stock to the Company was used by Mr. Davis to repay certain loans
and advances made to him by the Company during prior periods.

Effective March 3, 1997, Mr. Davis assigned to the Company all right,
title and interest to all "intellectual property" which Mr. Davis owned. In
exchange for such assignment, the Company paid Mr. Davis $250,000. The
Assignment of Intellectual Property executed by Mr. Davis in favor of the
Company defines "intellectual property" to include (i) all patents, patent
applications, patent disclosures and related documents, (ii) all trademarks,
service marks, trade dress logos and trade names, (iii) all copyrights and
registrations and applications for registration thereof, (iv) all mask works and
registrations and applications for registrations, (v) all computer software,
data and documentation, (vi) all trade secrets and confidential business
information, know how, and related business information, (vii) all proprietary
rights relating to any of the foregoing items and (viii) all copies and tangible
embodiments of any of the foregoing.

In April 1998, the Company transferred certain property having a net book
value of $67,283 to Mr. Davis and recorded such transfers as compensation. This
amount is in addition to compensation paid to Mr. Davis under his employment
agreements. See Note 6 of the Notes to Consolidated Financial Statements.

Effective August 31, 1998, Mr. Davis resigned as a director, officer and
employee of the Company and the Company and Mr. Davis entered into the Davis
Settlement providing for (i) the termination of Mr. Davis' employment agreement
with the Company, (ii) the Company's forgiveness and release of claims of
$121,043 in indebtedness owed by Mr. Davis to the Company, and (iii) Mr. Davis'
release of claims against the Company with respect to his employment agreement.

Jean-David Benichou. In July 1996, the Company issued an aggregate of
1,050,000 of Class A Common Stock to the principals of International Fax
Corporation ("IFC") and IMedia, S.A. of France ("Imedia") in connection with (i)
an agreement granting the Company a right of first refusal to acquire all of the
outstanding capital stock of IMedia, (ii) the right to utilize IMedia's European
network of fax broadcasting equipment and (iii) the agreement of IMedia to use
the Company's network for fax broadcast traffic to the United States. The shares
of Class A Common Stock were valued by the Company at $1.00 per share. In
connection with this transaction, Ray C. Davis caused the Davis Interests to
sell Jean-David Benichou, a principal of IFC and IMedia, 250,000 shares of Class
A Common Stock at a price of $1.00 per share. Subsequent to this series of
transactions, the Company wrote off the value of its investment.

Vickroy Stone. Between May 1996 and July 1996, the Company paid $117,401
and issued 500,000 shares of Class A Common Stock (valued at $1.00 per share) to
Vickroy Stone in exchange for services rendered. In February 1997, the Company
repurchased 450,000 of such shares of Class A Common Stock from Mr. Stone at a
purchase price of $1.00 per share. In February 1997, Mr. Stone sold the
remaining 50,000 shares of Class A Common Stock to a

60
<PAGE>

partnership affiliated with Ray C. Davis for $1.00 per share. In May 1997, the
Company issued a five-year warrant to Vickroy Stone entitling Mr. Stone to
purchase an aggregate of 450,000 shares of Class A Common Stock at an exercise
price of $2.00 per share.

Keith Shaffner. In November 1996, the Company issued warrants to purchase
an aggregate of 738,000 shares of Class A Common Stock at an exercise price of
$1.00 per share to various persons for assistance in the organization and
formation of the LLCs. Among the persons receiving such warrants was Keith
Shaffner, formerly a Vice President of the Company. Mr. Shaffner received a
warrant to purchase 145,500 shares of Class A Common Stock in this transaction,
the value of which was $37,830. Also in 1996, the Company paid Mr. Shaffner an
aggregate of $111,315 for services rendered. On November 14, 1997, the Company
entered into a Settlement Agreement and Mutual Release with Mr. Shaffner for
services rendered by him during 1996 and 1997. In exchange for a complete
release of all claims by Mr. Shaffner and his affiliate, CyFax, Inc. ("CyFax"),
against the Company, the Company issued to Mr. Shaffner: (i) a warrant to
purchase 1,150,000 shares of Class B Common Stock at a price of $1.00 per share,
exercisable on or before August 30, 2000, valued at $184,000, (ii) a warrant to
purchase 1,050,000 shares of Class B Common Stock at a price of $1.00 per share,
exercisable on or before February 28, 2000, valued at $178,500, (iii) 500,000
shares of Class A Common Stock, valued at $500,000, and (iv) $51,000 in cash. In
addition, the Company issued 200,000 shares of Class A Common Stock, valued at
$78,000, to CyFax for the termination of an exclusive agent management agreement
with the Company. The Company also paid Mr. Shaffner, individually, $91,636, and
CyFax an aggregate of $893,527 for services rendered in 1997.

Cynet Holdings, LLC. From February 1998 through July 1998, Cynet Holdings
purchased an aggregate of 9,473,000 shares of Class A Common Stock from the
Davis Interests for an aggregate amount of $1,250,000. The funds utilized by
Cynet Holdings to purchase such shares were generated from Cynet Holdings'
equity capital. Vincent W. Beale, Sr. is the President and majority owner of
Cynet Holdings. In July 1998 the Company entered into a Holdings Subscription
Agreement with Cynet Holdings, pursuant to which Cynet Holdings committed to
purchase up to 10,000,000 shares of Class A Common Stock of the Company for
$1.00 per share prior to December 31, 1998. The Subscription Agreement was
subsequently amended to extend the duration of the Agreement to December 31,
1999 and (ii) permit the issuance of Class B Common Stock to the extent that no
authorized Class A Common Stock is available. As soon as practicable after the
completion of the Rescission Offer, the Company intends to offer the holders of
the Class B Common Stock the right to exchange their shares of Class B Common
Stock for an equal number of shares of Class A Common Stock. In addition, the
Company intends to increase the number of authorized shares of its Common Stock
to 100 million shares at a special meeting of the Company's shareholders. As of
July 31, 1999 Cynet Holdings had contributed to the Company $3,871,000 in cash
in exchange for 3,871,000 shares of Class A Common Stock. As of the date of this
Prospectus, Cynet Holdings has purchased an aggregate of 3,871,000 shares of
Class A Common Stock pursuant to the Holdings Subscription Agreement. Also
pursuant to the Holdings Subscription Agreement, the Company (i) issued a
five-year warrant entitling Cynet Holdings to purchase an aggregate of 4,800,000
shares of Class A Common Stock at a price of $1.00 per share and (ii) entered
into a registration rights agreement granting Cynet Holdings certain
registration rights covering the Company's securities held by Cynet Holdings.

In July 1999, the Company entered into a Purchase and Sale Agreement with
Cynet Holdings (the "Cynet Interactive Agreement"), pursuant to which Cynet
Holdings transferred all of the outstanding membership interests of Cynet
Interactive to the Company, resulting in Cynet Interactive becoming a
wholly-owned subsidiary of the Company. In consideration for this transfer, the
Company forgave a $118,936 account receivable due from Cynet Interactive.

Executive Employment Agreements. In 1998 the Company entered into
employment agreements with each of Vincent W. Beale, Sr., Bernard B. Beale,
David P. Hearon, Jr., Samuel C. Beale and R. Greg Smith. See "-- Employment
Agreements."

Cynet Interactive. On July 31, 1999, the Company acquired from Cynet
Holdings all of the outstanding membership interests of Cynet Internactive, a
wholly-owned subsidiary of Cynet Holdings, pursuant to the terms of the Cynet
Interactive Agreement between the Company and Cynet Holdings. Cynet Interactive
is a Houston, Texas-based Internet content provider, whose services include
graphic and copy design, application development and web hosting services.
Pursuant to the Cynet Interactive Agreement, the Company acquired all of the
membership interests of Cynet

61
<PAGE>

Interactive from Cynet Holdings in exchange for the Company's forgiveness of a
$118,936 account receivable due from Cynet Interactive. As a result of the
acquisition of Cynet Interactive, Cynet Interactive became a wholly-owned
subsidiary of the Company. The acquisition of Cynet Interactive was approved by
the disinterested members of the Company's Board of Directors.

Company Policy

Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal and will be approved in advance by
a majority of the disinterested members of the Board of Directors.

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<PAGE>

PRINCIPAL SHAREHOLDERS

Assuming 100% rejection of the Rescission Offer and the successful
completion of the Rescission Financing, the following table sets forth, as of
July 31, 1999, the number of outstanding shares of Class A Common Stock (the
Company's only class of voting securities) owned by (i) each person known by the
Company to beneficially own more than 5% of its outstanding Class A Common
Stock, (ii) each director, (iii) each named executive officer and (iv) all
officers and directors as a group.

Shares of Class A Common
Name of Beneficial Owner Stock Beneficially Owned Percent of Class(1)
- ------------------------- ------------------------ -------------------
Cynet Holdings, LLC 18,233,057 shares(2) 50.2%
Vincent W. Beale, Sr. 20,043,057 shares(3) 55.2%
Bernard B. Beale 150,000 shares(4) *%
David R. Hearon, Jr. 18,750 shares(4) *%
Samuel C. Beale 100,000 shares(4) *%
Wayne Schroeder 100,000 shares(4) *%
R. Greg Smith ___(4) ___
All directors and
executive officers
as a group (6 people) 20,322,750 shares(5) 55.9%

- -----------------
* Less than one percent.

(1) Percentages shown are based upon (i) 26,979,706 shares of Class A Common
Stock presently outstanding, (ii) warrants to purchase 8,425,000 shares of
Class A Common Stock and (iii) 935,313 shares subject to vested stock
options.

(2) Includes (i) 9,473,000 shares purchased from the Davis Interests, (ii)
3,871,000 shares purchased pursuant to the Holdings Subscription Agreement
and (iii) 4,800,000 shares which may be purchased at any time prior to
April 13, 2003, at a purchase price of $1.00 per share, upon exercise of a
warrant issued pursuant to the Holdings Subscription Agreement. See
"Management -- Certain Transactions".

(3) Represents (i) 18,144,000 shares of Class A Common Stock beneficially
owned of record by Cynet Holdings, of which Mr. Beale is the President and
majority owner, (ii) 1,710,000 shares subject to warrants which Mr. Beale
received from Ray C. Davis in July 1998 and (iii) 100,000 shares subject
to vested stock options.

(4) Represents shares subject to vested stock options.

(5) Includes an aggregate of 6,978,750 shares of Class A Common Stock that
such persons have the right to acquire within 60 days pursuant to warrants
and options held by such persons.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 60,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. The following summary
description of certain terms of the capital stock of the Company is qualified in
its entirety by reference to the Company's Articles of Incorporation, which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part.

Common Stock

The Company has authorized 60,000,000 shares of Common Stock, no par
value, of which 40,000,000 shares have been designated as Class A Common Stock
and 20,000,000 shares have been designated as Class B Common Stock. As of the
date of this Prospectus, assuming the successful completion of the Rescission
Offer and the Rescission

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<PAGE>

Financing, 26,979,706 shares of Class A Common Stock and 3,119,762 shares of
Class B Common Stock will be outstanding. In addition, warrants to purchase
8,425,000 shares of Class A Common Stock and warrants to purchase 2,548,954
shares of Class B Common Stock will be outstanding. Except as required by
applicable law, including the Texas Business Corporation Act ("TBCA"), the
holders of Class B Common Stock have no voting rights. The holders of Class B
Common Stock are entitled under the TBCA to vote in connection with the
voluntary dissolution of the Company. The holders of both Class A and Class B
Common Stock are entitled to receive such dividends, if any, as may be declared
by the Board of Directors from time to time out of legally available funds. Upon
liquidation or dissolution of the Company, the holders of both Class A and Class
B Common Stock are entitled to share ratably in all assets of the Company that
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Holders of Class A and Class B Common Stock have no preemptive
rights to acquire new securities issued by the Company and have no rights to
convert their Common Stock into any other securities of the Company.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of Preferred Stock,
no par value ("Preferred Stock"). The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion, redemption rights and
sinking fund provisions.

The Company has an aggregate of 190,849 shares of Preferred Stock
outstanding as of the date of this Prospectus. The Company has no present plans
for the issuance of additional shares of Preferred Stock.

Series A Preferred Stock

The Board of Directors has authorized the issuance of 3,600,000 shares of
Series A Preferred Stock. As of the date of this Prospectus, 103,500 shares of
Series A Preferred Stock are outstanding.

Ranking. The Series A Preferred Stock ranks senior to the Company's Class
A and Class B Common Stock and Series B Preferred Stock with respect to
dividends and rights upon liquidation or dissolution of the Company. As long as
any Series A Preferred Stock is outstanding, the Company cannot create,
authorize or issue any class of securities that is senior to or on parity with
the Series A Preferred Stock without the approval of holders of at least 662/3%
of the Series A Preferred Stock.

Voting Rights. Except as required by applicable law, holders of Series A
Preferred Stock are not entitled to vote.

Dividend Rights. The holders of Series A Preferred Stock are entitled to
receive out of funds of the Company legally available therefor, dividends at an
annual rate of $0.24 per share. Such dividends are payable semi-annually in
arrears in equal installments of $0.12 on June 15 and December 15. Dividends
accrue and cumulate from the date of first issuance and are paid to holders of
record as of the record date of the last day of May and November in each year.
Accumulated dividends do not bear interest. So long as any shares of the Series
A Preferred Stock is outstanding, the Company may not declare or pay any
dividend on the Class A or Class B Common Stock until all accumulated, unpaid
dividends on the Series A Preferred Stock have been paid in full.

Conversion and Mandatory Conversion. Shares of Series A Preferred are
convertible by the holder at any time before September 1, 1998 at a conversion
rate of 1.1 shares of Class A Common Stock for each share of Series A Preferred
Stock, and thereafter at a conversion rate of one for one. Any accrued and
unpaid dividends are payable to holders of the Series A Preferred Stock at the
time of conversion. At any time on or after January 1, 1999, the Company may
cause the conversion of the Series A Preferred Stock, in whole or in part, at
the rate of one share of Class A

64
<PAGE>

Common Stock for each share of Series A Preferred Stock. The Company intends to
exercise its rights to convert the Series A Preferred Stock within 60 days after
the completion of the Rescission Offer.

Liquidation Rights. In the event of liquidation or dissolution of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts and other liabilities of the Company, the holders of the Series A
Preferred Stock are entitled to receive, out of the remaining net assets of the
Company available for distribution to shareholders before any distribution or
payment made to holders of Class A or Class B Common Stock or other junior
capital stock, the Series A Preferred Stock stated value of $2.00 per share,
plus any accrued and unpaid dividends. Upon payment of the full amount of such
stated value plus any unpaid dividends, the holders of Series A Preferred Stock
are not entitled to any further participation in any distribution of assets of
the Company.

Series B Preferred Stock

The Board of Directors has authorized the issuance of 2,000,000 shares of
Series B Preferred Stock. As of the date of this Prospectus, 87,349 shares of
Series B Preferred Stock are outstanding.

Ranking. The Series B Preferred Stock ranks junior to the Series A
Preferred Stock and senior to the Company's Class A and Class B Common Stock
with respect to dividends and rights upon liquidation or dissolution of the
Company. As long as any Series B Preferred Stock is outstanding, the Company
cannot create, authorize or issue any class of securities that is senior to or
on parity with the Series B Preferred Stock without the approval of holders of
at least 66 2/3% of the Series B Preferred Stock.

Voting Rights. Except as required by applicable law, holders of Series B
Preferred Stock are not entitled to vote.

Dividend Rights. The holders of Series B Preferred Stock are entitled to
receive, out of funds of the Company legally available therefor, dividends at an
annual rate of $0.30 per share. Such dividends are payable semi-annually in
arrears in equal installments of $0.15 on June 15 and December 15. Dividends
accrue and cumulate from the date of first issuance and are paid to holders of
record as of the record date of the last day of May and November in each year.
Accumulated, unpaid dividends do not bear interest. So long as any shares of the
Series A or B Preferred Stock is outstanding, the Company may not declare or pay
any dividend on the Class A or Class B Common Stock or other capital stock until
all accumulated, unpaid dividends on the Series A and Series B Preferred Stock
have been paid in full.

Conversion and Mandatory Conversion. Shares of Series B Preferred Stock
are convertible by the holder at any time before September 1, 1998 at a
conversion rate of 1.1 shares of Class B Common Stock for each share of Series B
Preferred Stock, and thereafter at a conversion rate of one for one. Any accrued
and unpaid dividends are payable to holders of the Series B Preferred Stock at
the time of conversion. At any time on and after January 1, 1999, the Company
may cause the conversion of the Series B Preferred Stock, in whole or in part,
at the rate of one share of Class B Common Stock for each share of Series B
Preferred Stock. The Company intends to exercise its rights to convert the
Series B Preferred Stock within 60 days after the completion of the Rescission
Offer.

Liquidation Rights. In the event of liquidation or dissolution of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts, other liabilities of the Company, and Series A Preferred
shareholders, the holders of the Series B Preferred Stock are entitled to
receive, out of the remaining net assets of the Company available for
distribution to shareholders, before any distribution or payment made to holders
of Class A or Class B Common Stock or other junior capital stock, the Series B
Preferred Stock stated value of $3.00 per share plus any accrued and unpaid
dividends. Upon payment of the full amount of such stated value plus any unpaid
dividends, the holders of Series B Preferred Stock are not entitled to any
further participation in any distribution of assets by the Company.

65
<PAGE>

Warrants

The Company has issued warrants to purchase an aggregate of 8,425,000
Shares of Class A Common Stock at exercise prices ranging from $1.00 to $2.00
per share expiring no later than July 2003, and warrants to purchase an
aggregate of 2,548,954 shares of Class B Common Stock at exercise prices ranging
from $1.00 to $2.00 per share, expiring no later than May 2003.

Transfer Agent

The Transfer Agent and Registrar for the Class A Common Stock and Class B
Common Stock is American Securities Transfer & Trust, Inc.

PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS

This Prospectus also relates to the issuance of 3,649,635 shares of Class
A Common Stock to the Rescission Underwriters pursuant to the terms of the
Rescission Financing.

This Prospectus also relates to the resale of up to 2,200,000 shares of
Class B Common Stock by Keith Shaffner and his assignees (collectively, the
"Selling Shareholders") upon exercise of outstanding warrants (the "Shaffner
Warrants") to purchase up to 2,200,000 shares of Class B Common Stock.

The table below sets forth information concerning the resale by the
Selling Shareholders of shares of Class B Common Stock subject to the Shaffner
Warrants.

Resale of Class B Common Stock

Underlying Warrants

66
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Subject to Amount Offered (assuming Shares Subject to
Warrant Holder Warrants Before Resale all shares are sold) Warrants After Resale Percentage
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buetson Trust 64,000 64,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Shirley Sadowski 15,500 15,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Greg & Judy Horner 10,000 10,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Lorenzo & Catherine Alongi 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Ron & Rose Que 2,500 2,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Leanne Kozup 7,500 7,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Ken Gradeless 2,000 2,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Tony Medina 2,000 2,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Irene Maurey 10,000 10,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Richard C. Filippone 250 250 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Craig Fuller 3,200 3,200 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Bradley Horner 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Veronica Horner 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dwight Lafoon 1,000 1,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Emery Ozdych 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Horner 108,000 108,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Amy B. Grice 10,000 10,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Regina B. Grice 25,000 25,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Midstates Marketing 314,580 314,580 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
David Marshall 2,500 2,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dan Rice 6,000 6,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
George Cretu 2,000 2,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dennis Habite 3,000 3,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Greg Karguia 1,500 1,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
John Benchick 7,000 7,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
John Benchick 10,000 10,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Tom Fransico 2,800 2,800 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Tim Francisco 800 800 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Matt Seeley 1,000 1,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dolly Briston 1,000 1,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Tim Alvaro 1,000 1,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Norman Jordan 3,250 3,250 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Murtin M. Grice 15,000 15,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Amos Greene 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dean Meisenger 6,000 6,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Miles Reese 12,000 12,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Joyce Graves 2,000 2,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Charles (Kim) Sparre 5,000 5,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Pardo 3,000 3,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Don Toth 2,500 2,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
John Barnes 3,000 3,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Pauline Cassidy 326 326 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Hamul Trust (Mike J.) 300 300 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Jim Mann 900 900 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Will Steger 600 600 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Marcus Sanchez 10,000 10,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Isador Cipriano 25,000 25,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent Trust, Isidore Cipriano 12,500 12,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Lorenzo & Catherine Alongi 6,000 6,000 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Ron & Rose Que 2,500 2,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony V. Ciarmitaro 1,500 1,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony V. Ciarmitaro 12,500 12,500 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Keith Shaffner(1) 1,009,995 1,009,995 -0- 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,200,000 2,200,000 -0- 0%
========= ========= === ==
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

67
<PAGE>

- --------------
(1) From June 1997 to August 1997, Mr. Shaffner served as a Vice President of
the Company.

The Company will bear the costs incidental to the registration of these
shares, except that each Selling Shareholder will bear his proportional share of
underwriting discounts and commissions and the costs of any separate counsel
retained. The Company will not receive any proceeds from the resale of Class B
Common Stock by the Selling Shareholders; however, the Company will receive the
exercise price of $1.00 per share for each share of Class B Common Stock
purchased by the Selling Shareholders upon exercise of their warrants.

The Company has extended the expiration of certain of the Shaffner
Warrants (currently expiring on August 30, 1999) until August 30, 2000 on the
condition that such Selling Shareholders not sell any of their shares underlying
their warrants for a period of six months following the completion of the
Rescission Offer.

The 3,649,645 shares of Class A Common Stock to be issued to the
Rescission Underwriters and the 2,200,000 shares of Class B Common Stock
underlying the Shaffner Warrants offered by the Selling Shareholders, may be
sold by one or more of the following methods, without limitation: (i) ordinary
brokerage transactions and transactions in which the broker solicits purchases;
and (ii) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Rescission
Underwriters or the Selling Shareholders may arrange for other brokers or
dealers to participate. Such brokers or dealers may receive commissions or
discounts from the Rescission Underwriters or the Selling Shareholders in
amounts to be negotiated. Such brokers and dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act. The Rescission Underwriters or the Selling Shareholders or any
broker or dealer effecting a transaction in the registered securities, whether
or not participating in a distribution, is required to deliver a prospectus. As
a result of such shares being registered under the Securities Act, holders who
subsequently resell such shares to the public may be deemed to be underwriters
with respect to such shares of Class B Common Stock, with the result that they
may be subject to certain statutory liabilities if the registration statement to
which this Prospectus relates is defective by virtue of containing a material
misstatement or omitting to disclose a statement of material fact. The Company
has not agreed to indemnify any Selling Shareholders regarding such liabilities.

SHARES ELIGIBLE FOR FUTURE SALE

The Subject Securities will be freely tradeable to the extent Offerees
reject the Rescission Offer. The Company's securities not subject to the
Rescission Offer were issued by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act. Any of the Company's
securities issued upon the exercise of options or warrants not subject to the
Rescission Offer will constitute "restricted securities." Restricted securities
may be resold publicly only following their effective registration under the
Securities Act or pursuant to an exemption from the registration requirements of
that act, such as Rule 144 thereunder.

In general, under Rule 144 as currently in effect, a person, including an
affiliate of the Company, who has beneficially owned restricted securities for a
period of at least one year from the date such restricted securities were
acquired from the Company or an affiliate, is entitled to sell, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1% of the
then-outstanding shares of Common Stock or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and the availability of current public information
about the Company.

Under Rule 144(k), if a period of at least two years has elapsed from the
date restricted securities were acquired from the Company or an affiliate, a
holder of such restricted securities who is not an affiliate of the Company at
the time of the sale and has not been an affiliate for at least three months
prior to the sale would be entitled to sell the shares immediately after the
date of this Prospectus without regard to the volume and manner of sale
limitations described above.

68
<PAGE>

There has been no public trading market for the Company's Class A and
Class B Common Stock and there can be no assurance that one will develop.
Management will attempt to develop a public market in the Class A and Class B
Common Stock immediately after the closing of the Rescission Offer by means of
the OTC Bulletin Board Service ("OTCBB") by engaging market makers in the shares
in such a manner that will permit trading. Upon the completion of the Rescission
Offer, the Company intends to take the necessary actions to allow its Class A
and Class B Common Stock to be traded by means of the Nasdaq National Market
System ("NMS"). However, there can be no assurance that a market for the
Company's Class A and Class B Common Stock will ever develop on the OTCBB or the
NMS. If any market is developed it should be assumed that such market will be
highly illiquid, sporadic and volatile. The sale of substantial amounts of Class
A or Class B Common Stock in the open market, or the availability of shares for
sale, may adversely affect the market price of the Class A or Class B Common
Stock and the ability of the Company to raise funds through equity offerings in
the future. See "Risk Factors -- Lack of Public Market."

The Company also expects that the Company, its directors, executive
officers and certain shareholders would agree not to offer or sell any of their
shares for an agreed-to "lockup" period from the date of this Prospectus without
the prior written consent of Cynet Holdings and the stand-by underwriters,
except for issuances in connection with (i) future acquisitions, subject to
certain conditions, and (ii) and upon the exercise of outstanding warrants and
pursuant to options granted under the 1997 Plan.

LEGAL MATTERS

The validity of the shares of Common Stock subject to the Rescission Offer
will be passed upon for the Company by Chamberlain, Hrdlicka, White, Williams &
Martin, Houston, Texas.

EXPERTS

The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form SB-2 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with the Commission under the
Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance that a reference is made to a contract or other document
filed as an exhibit to the Registration Statement, each such statement is
qualified in all respects by such reference. A copy of the Registration
Statement may be examined without charge at the Commission's principal offices
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission upon payment of
certain fees prescribed by the Commission. Copies of such materials may also be
obtained over the Internet at http://www.sec.gov.

The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited and reported upon by its
independent public accounting firm and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.

69
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CyNet, Inc. Consolidated Financial Statements:

Report of Independent Certified Public Accountants..................F-2
Consolidated Balance Sheets ........................................F-3 - F-4
Consolidated Statements of Loss.....................................F-5
Consolidated Statements of Capital Deficit..........................F-6 - F-9
Consolidated Statements of Cash Flows ..............................F-10
Notes to Consolidated Financial Statements..........................F-11 - F-29
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

CyNet, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheet of CyNet, Inc. as of
December 31, 1998 and the related consolidated statements of loss, capital
deficit and cash flows for each of the two years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CyNet,
Inc. at December 31, 1998 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred losses for the years
ended December 31, 1998 and 1997 totaling $4,356,640 and $7,762,863,
respectively, and at December 31, 1998 had a capital deficit of $12,218,072. The
Company will require additional working capital to develop and support its
technologies and business until the Company either (1) achieves a level of
revenues adequate to generate sufficient cash flows from operations; or (2)
receives additional financing necessary to support its working capital
requirements. Also, the Company is expected to issue a rescission offer
pertaining to (1) certain private placements of the Company's common and
preferred stock during 1996, 1997 and 1998 and (2) the issuance of certain
common and preferred stock and stock warrants issued for services provided
during the same periods. The potential liability of the Company, less dividends
paid and excluding interest, for the proposed rescission offer totaled
$13,980,009 as of December 31, 1998 and March 31, 1999, respectively. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

As discussed in Note 13, the Company's financial statements for the year ended
December 31, 1997 have been restated.

BDO SEIDMAN, LLP

Houston, Texas
April 23, 1999, except footnote 15,
which is as of August 6, 1999

F-2
<PAGE>

December 31, March 31,
1998 1999
---------- ----------
(unaudited)
Assets

Current Assets:
Cash ........................................... $ 55,007 $ 519,457

Accounts receivable, less allowance for
doubtful accounts of $99,104 and $120,085 .... 463,033 508,825

Prepaid expenses:
Deferred offering costs (Note 3) ............. 2,078,825 2,078,825
Other ........................................ 53,843 71,688
---------- ----------

Total Current Assets ......................... 2,650,708 3,178,795

Property and Equipment, less accumulated
depreciation and amortization (Note 4) ......... 2,628,457 2,328,845

Organization costs, less accumulated
amortization of $28,578 ........................ 18,548 --
---------- ----------
$5,297,713 $5,507,640
========== ==========

F-3
<PAGE>

CYNET, INC.
CONSOLIDATED BALANCE SHEETS

December 31, March 31,
1998 1999
------------ ------------
(unaudited)
Liabilities and Capital Deficit

Current Liabilities:
Accounts payable and accrued expenses ...... $ 2,611,522 $ 2,470,805
Dividends payable .......................... 535,167 548,043
Note Payable, including accrued
interest (Note 5) ........................ 339,087 315,273
Accrued stock rights ....................... 50,000 50,000
------------ ------------

Total Current Liabilities .................. 3,535,776 3,384,121
------------ ------------

Stock and warrants subject to rescission (Note 8):
Preferred stock - Series A ................. 201,265 201,265
Preferred stock - Series B ................. 259,923 259,923
Common stock - Class A ..................... 7,952,134 7,952,134
Common stock - Class B ..................... 5,365,047 5,365,047
Common stock warrants - Class A ............ 201,640 201,640
------------ ------------
13,980,009 13,980,009
------------ ------------

Commitments and Contingencies
(Notes 8 and 11)

Capital Deficit (Note 8):
Cumulative Convertible Preferred Stock:
Series A, non-voting, $2.00 and
$1.43 stated value; 3,600,000 shares
authorized; 103,500 shares
issued and outstanding ................. -- --
Series B, non-voting, $3.00 stated
value; 2,000,000 shares
authorized; 87,349 shares
issued and outstanding ................. -- --
Common stock:
Class A voting, no par value;
40,000,000 shares authorized;
20,970,972 and 22,080,072 shares
issued and outstanding ................. 4,116,703 5,226,703
Class B nonvoting, no par value;
20,000,000 shares authorized;
3,137,803 shares issued and
outstanding ............................ 700,000 700,000
Outstanding warrants ..................... 362,500 362,500
Deficit .................................. (17,079,508) (17,827,926)
------------ ------------
(11,900,305) (11,538,723)

Less - treasury stock at cost,
18,041 shares of Class B
common stock ........................... (317,767) (317,767)
------------ ------------

Total Capital Deficit .................... (12,218,072) (11,856,490)
------------ ------------

$ 5,297,713 $ 5,507,640
============ ============

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF LOSS

<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
---------------------------- ----------------------------
1998 1997 1999 1998
------------ ------------ ------------ ------------
(Restated - (unaudited) (unaudited)
Note 13)
<S> <C> <C> <C> <C>
Revenues ...................... $ 8,947,732 $ 4,960,355 $ 2,153,832 $ 1,926,892

Cost of revenues .............. 6,069,184 4,490,505 1,166,656 1,493,004
------------ ------------ ------------ ------------

Gross profit .................. 2,878,548 469,850 987,176 433,888

Selling, general and
administrative expenses
(Note 1) .................... 6,107,978 7,517,935 1,305,438 1,049,068

Depreciation and amortization . 728,975 414,652 340,958 204,323

Write-down of long-lived assets
(Notes 13 and 14) .......... 271,957 496,133 -- --
------------ ------------ ------------ ------------

Loss from operations .......... (4,230,362) (7,958,870) (659,220) (819,503)
------------ ------------ ------------ ------------

Other income (expense):
Interest expense (Note 5) ... (103,851) (2,000) (38,064) --
Interest income ............. 2,816 67,348 41 2,360
Other ....................... (25,243) (8,527) (38,299) --
------------ ------------ ------------ ------------

(126,278) 56,821 (76,322) 2,360
------------ ------------ ------------ ------------

Net loss before minority
interest in net loss of
consolidated subsidiaries ... (4,356,640) (7,902,049) (735,542) (817,143)

Minority interest in net loss
of consolidated subsidiaries -- 139,186 -- --
------------ ------------ ------------ ------------

Net loss before dividends
on preferred stock .......... (4,356,640) (7,762,863) (735,542) (817,143)

Dividends on preferred stock .. (40,243) (739,204) (12,876) (13,145)
------------ ------------ ------------ ------------

Net loss applicable to
common stockholders ......... $ (4,396,883) $ (8,502,067) $ (748,418) $ (830,288)
============ ============ ============ ============

Net loss per common
share - basic and
assuming dilution ........... $ (.19) $ (.60) $ (.03) $ (.04)
============ ============ ============ ============

Weighted average number
of common shares
outstanding ................. 23,109,154 14,086,177 25,012,501 22,317,316
============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
--------------- ---------------
For the years ended December 31, 1998 and 1997 Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1996 ................................... 213,200 $ -- -- $ --
Reclassification of common stock and warrants
subject to rescission ......................................... -- -- -- --
Issuance of Class B common stock subject to rescission .......... -- -- -- --
Issuance of Series A and B preferred stock issued
for compensation ............................................. 3,500 -- 13,033 --
Issuance of Class A common stock for compensation
and services .................................................. -- -- -- --
Issuance of Class B common stock for compensation
and services .................................................. -- -- -- --
Issuance of Class B common stock on conversion of notes
payable and for loan commitment fees .......................... -- -- -- --
Issuance of Series A preferred stock through a private
placement subject to rescission ............................... 3,251,154 -- -- --
Issuance of Series B preferred stock through a private
placement subject to rescission ............................... -- -- 1,755,541 --
Issuance of Class A common stock warrants for services .......... -- -- -- --
Issuance of Class B common stock warrants for services .......... -- -- -- --
Purchase of treasury shares, Class A common stock ............... -- -- -- --
Issuance of Class A common stock from treasury, 115,767
shares subject to rescission .................................. -- -- -- --
Issuance of Class A common stock to purchase minority
interests ..................................................... -- -- -- --
Issuance of Class A common stock on conversion of
Series A preferred stock ...................................... (3,359,354) -- -- --
Issuance of Class B common stock on conversion of
Series B preferred stock ...................................... -- -- (1,691,225) --
Accrued dividends on preferred stock ............................ -- -- -- --
Net loss - Restated (Note 13) ................................... -- -- -- --
---------- ------------- ---------- -------------
Balance, at December 31, 1997 - Restated (Note 13) .............. 108,500 -- 77,349 --
Issuance of Class B common stock subject to rescission .......... -- -- -- --
Issuance of Class A common stock ................................ -- -- -- --
Issuance of Series B preferred stock through a private
placement subject to rescission ............................... -- -- 36,666 --
Issuance of Class A common stock warrants for services .......... -- -- -- --
Issuance of Class B common stock warrants for services .......... -- -- -- --
Purchase of treasury shares, Class B common stock ............... -- -- -- --
Issuance of Class A common stock from treasury,
10,000 shares subject to rescission ........................... -- -- -- --
Issuance of Class A common stock to purchase minority
interests ..................................................... -- -- -- --
Issuance of Class A common stock on conversion of
Series A preferred stock ...................................... (5,000) -- -- --
Issuance of Class B common stock on conversion of
Series B preferred stock ...................................... -- -- (26,666) --
Accrued dividends on preferred stock ............................ -- -- -- --
Net loss ........................................................ -- -- -- --
---------- ------------- ---------- -------------
Balance, at December 31, 1998 ................................... 103,500 $ -- 87,349 $ --
========== ============= ========== =============
</TABLE>

(1) Outstanding warrants consisted of the following at December 31:
1997 1998
---- ----
Shares Amount Shares Amount
--------- -------- ---------- ---------
Class A common stock warrants 1,249,000 $201,645 8,049,000 $ 201,645
Class B common stock warrants 2,200,000 362,500 2,548,954 362,500
--------- -------- ---------- ---------
3,449,000 $564,145 10,597,954 $ 564,145
========= ======== ========== =========

F-6
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
Class A Class B Outstanding
Common Stock Common Stock Warrants (1) Treasury Stock
------------------------ --------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount Deficit Shares Amount Total
---------- ----------- --------- --------- ---------- --------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12,600,000 $1,644,720 -- $ -- 738,000 $ 191,880 $ (4,428,687) 85,000 $(272,000) $ (2,864,087)

-- (93,720) -- -- -- (191,880) -- -- (5,000) (290,600)
-- -- 25,000 -- -- -- -- -- -- --

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

810,000 578,000 -- -- -- -- -- -- -- 578,000

-- -- 100,000 -- -- -- -- -- -- --

-- -- 800,000 700,000 -- -- -- -- -- 700,000

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

-- -- -- -- -- -- -- -- -- --
-- -- -- -- 511,000 -- -- -- -- --
-- -- -- -- 2,200,000 362,500 -- -- -- 362,500
-- -- -- -- -- -- -- 450,000 (450,000) (450,000)

-- -- -- -- -- -- -- (115,767) -- --

2,328,940 885,936 -- -- -- -- -- -- -- 885,936

4,031,225 -- -- -- -- -- -- -- -- --

-- -- 2,029,470 -- -- -- -- -- -- --
-- -- -- -- -- -- (491,075) -- -- (491,075)
-- -- -- -- -- -- (7,762,863) -- -- (7,762,863)
- ------------ ---------- --------- -------- ---------- --------- ------------ -------- --------- ------------

19,770,165 3,014,936 2,954,470 700,000 3,449,000 362,500 (12,682,625) 419,233 (727,000) (9,332,189)
-- -- 154,000 -- -- -- -- -- -- --
1,101,767 1,101,767 -- -- -- -- -- -- -- 1,101,767

-- -- -- -- -- -- -- -- -- --
-- -- -- -- 6,800,000 -- -- -- -- --
-- -- -- -- 348,954 -- -- -- -- --
-- -- -- -- -- -- -- 18,041 -- --

-- -- -- -- -- -- -- (419,233) 409,233 409,233

92,640 -- -- -- -- -- -- -- -- --

5,500 -- -- -- -- -- -- -- -- --

-- -- 29,333 -- -- -- -- -- -- --
-- -- -- -- -- -- (40,243) -- -- (40,243)
-- -- -- -- -- -- (4,356,640) -- -- (4,356,640)
- ------------ ---------- --------- -------- ---------- --------- ------------ -------- --------- ------------

20,970,072 $4,116,703 3,137,803 $700,000 10,597,954 $ 362,500 $(17,079,508) 18,041 $(317,767) $(12,218,072)
============ ========== ========= ======== ========== ========= ============ ======== ========= ============
</TABLE>

F-7
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
For the three months ended March 31, 1998 Series A Series B
and 1997 (unaudited): Preferred Stock Preferred Stock
-------------------------- --------------------------
Shares Amount Shares Amount
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1997 - Restated (Note 13) .................. 108,500 $ -- 77,349 $ --

Issuance of Class A common stock in connection with
the purchase of minority interests ................................ -- -- -- --
Issuance of Class A common on conversion of
Series A preferred stock .......................................... (5,000) -- -- --
Issuance of Series B preferred stock through a private
placement subject to rescission ................................... -- -- 33,333 --
Issuance of Class B common on conversion of Series B
preferred stock ................................................... -- -- (3,333) --
Issuance of Class A common stock from treasury,
10,000 shares subject to rescission ............................... -- -- -- --
Purchase of treasury shares, Class B common stock previously
subject to rescission ............................................. -- -- -- --
Accrued dividends on preferred stock ................................ -- -- -- --
Net loss ............................................................ -- -- -- --
-------- ------------- -------- -------------

Balance, at March 31, 1998 .......................................... 103,500 $ -- 107,349 $ --
======== ============= ======== =============

Balance, at December 31, 1998 ....................................... 103,500 $ -- 87,349 $ --

Issuance of Class A common stock .................................... -- -- -- --
Accrued dividends on preferred stock ................................ -- -- -- --
Net loss ............................................................ -- -- -- --
-------- ------------- -------- -------------

Balance, at March 31, 1999 .......................................... 103,500 $ -- 87,349 $ --
======== ============= ======== =============
</TABLE>

(1) Outstanding warrants consisted of the following at March 31:

1998 1999
---- ----
Shares Amount Shares Amount
--------- -------- ---------- --------
Class A common stock warrants 1,249,000 $201,645 8,049,000 $201,645
Class B common stock warrants 2,200,000 362,500 2,548,954 362,500
--------- -------- ---------- --------
3,449,000 $564,145 10,597,954 $564,145
========= ======== ========== ========

F-8
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
Class A Class B Outstanding
Common Stock Common Stock Warrants (1) Treasury Stock
- --------------------------- --------------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount Deficit Shares Amount Total
- ------------ ------------ --------- -------- ---------- -------- ------------ ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19,770,165 $ 3,014,936 2,954,470 $700,000 3,449,000 $362,500 $(12,682,625) 419,233 $(727,000) $ (9,332,189)

92,640 -- -- -- -- -- -- -- -- --

5,500 -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --

-- -- 3,666 -- -- -- -- -- -- --

-- -- -- -- -- -- -- (60,000) 50,000 50,000

-- -- -- -- -- -- -- 18,041 -- --
-- -- -- -- -- -- (13,145) -- -- (13,145)
-- -- -- -- -- -- (817,143) -- -- (817,143)
- ------------ ------------ --------- -------- ---------- -------- ------------ ------- --------- ------------

19,868,305 $ 3,014,936 2,958,136 $700,000 3,449,000 $362,500 $(13,512,913) 377,274 $(677,000) $(10,112,477)
============ ============ ========= ======== ========== ======== ============ ======= ========= ============

20,970,072 $ 4,116,703 3,137,803 $700,000 10,597,954 $362,500 $(17,079,508) 18,041 $(317,767) $(12,218,072)

1,110,000 1,110,000 -- -- -- -- -- -- -- 1,110,000
-- -- -- -- -- -- (12,876) -- -- (12,876)
-- -- -- -- -- -- (735,542) -- -- (735,542)
- ------------ ------------ --------- -------- ---------- -------- ------------ ------- --------- ------------

22,080,072 $ 5,226,703 3,137,803 $700,000 10,597,954 $362,500 $(17,827,926) 18,041 $(317,767) $(11,856,490)
============ ============ ========= ======== ========== ======== ============ ======= ========= ============
</TABLE>

F-9
<PAGE>

CYNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash

<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------------------------- -------------------------------
1998 1997 1999 1998
------------ ------------ ------------ ------------
(Restated - (unaudited) (unaudited)
(Note 13)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $ (4,356,640) $ (7,762,863) $ (735,542) $ (817,143)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ...................... 728,975 414,652 340,958 204,323
Write-down of long-lived assets .................... 271,957 496,133 -- --
Loss on disposal of equipment ...................... 25,243 -- 31,628 --
Property transferred for compensation .............. 67,283 -- -- --
Forgiveness of receivable as compensation .......... 121,043 -- -- --
Minority interest in net income
of consolidated subsidiaries ..................... -- (139,186) -- --
Provision for bad debts ............................ 349,327 245,638 29,579 21,201
Stock issued for compensation and services ......... -- 266,999 -- --
Stock rights and warrants issued for loan
costs and services ............................... -- 60,000 -- --
Changes in assets and liabilities:
Accounts receivable .............................. (658,594) (390,602) (75,371) (188,367)
Prepaid expenses and other assets ................ 54,926 (1,397,627) (17,845) (64,928)
Accounts payable and accrued expenses ............ 1,612,687 582,055 (164,531) 247,378
------------ ------------ ------------ ------------

Net cash used in operating activities ............... (1,783,793) (7,624,801) (591,124) (597,536)
------------ ------------ ------------ ------------

Cash flows from investing activities:
Purchase of property and equipment .................. (867,835) (3,172,458) (91,426) (127,871)
Proceeds from sale of property and equipment ........ 55,250 -- 37,000 --
------------ ------------ ------------ ------------

Net cash used in investing activities ............... (812,585) (3,172,458) (54,426) (127,871)
------------ ------------ ------------ ------------

Cash flows from financing activities:
Issuance of preferred stock - Series A .............. -- 6,462,308 -- --
Issuance of preferred stock - Series B .............. 110,000 5,266,623 -- 100,000
Issuance of common stock - Class A .................. 1,101,767 -- 1,110,000 --
Issuance of common stock - Class B .................. -- 50,000 -- --
Dividends paid ...................................... -- (248,128) -- --
Repayment of note payable to stockholder ............ -- (59,680) -- --
Proceeds from note payable .......................... 600,000 -- -- --
Payments on note payable ............................ (260,913) -- -- --
Purchase of treasury stock .......................... (45,102) (450,000) -- (45,102)
Sale of treasury stock .............................. 429,233 144,000 -- 70,000
------------ ------------ ------------ ------------

Net cash provided by financing activities ........... 1,934,985 11,165,123 1,110,000 124,898
------------ ------------ ------------ ------------

Net increase (decrease) in cash ..................... (661,393) 367,864 464,450 (600,509)
Cash, beginning of period ........................... 716,400 348,536 55,007 716,400
------------ ------------ ------------ ------------
Cash, end of period ................................. $ 55,007 $ 716,400 $ 519,457 $ 115,891
============ ============ ============ ============
</TABLE>

F-10
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

The accompanying consolidated financial statements include the accounts of
CyNet, Inc., its 50% (prior to December 1, 1997) owned limited liability
companies ("LLC's") and its wholly-owned subsidiary Worldwide Marketing, Inc.
formed April 24, 1998. Pursuant to a private placement memorandum, the Company
acquired the remaining 50% ownership in the LLCs as of December 1, 1997 (See
Note 7). CyNet, Inc.'s profit (loss) participation in the LLC's ranged from 50%
to 60% prior to the purchase of the minority interests in the LLCs and 100%
thereafter. All significant intercompany accounts and transactions have been
eliminated. CyNet, Inc., Worldwide Marketing, Inc. and the LLCs are referred to
herein as the Company. During 1998, the Company dissolved each of the LLCs.

The Company is an Internet business solutions provider. The Company's
products and services are offered through messaging which includes Fax, Data,
Voice, E-Mail and Mobile Messaging, and Internet services which includes custom
application development, e-commerce development, web content creation, web
hosting and Internet access.

The Company is a Texas corporation and was founded in April 1995 to
provide fax services for business-to-business communication. The Company
capitalized on the dramatic increase in the usage of third-party fax services
and created a niche market for itself with its HyperCast fax broadcast desktop
client software and service. In 1997, the Company introduced HyperLine, its
point-to-point desktop software and fax service in order to expand its existing
fax service.

Having built a reputation for high performance in communications through
its fax services, the Company responded to the rapid growth and popularity of
e-mail and the Internet as a primary communications medium and set out to become
a full service Internet messaging provider. In 1998, the Company added to its
product offering HyperWeb, its e-mail-to-fax service; HyperMail, its
fax-to-e-mail service; WebCast, its e-mail broadcast service, TeleCast, its
voice broadcast service; and HyperComm, its teleconferencing service. To further
enhance its messaging services, the Company, through its subsidiary Worldwide
Marketing Services, Inc., also added enhancement services such as list
procurement, full-service graphic design and copy development services for its
customers. These additional services enabled the Company to sell complete
messaging solutions with end-to-end control of the solution.

In July 1999, the Company acquired Cynet Interactive, LLC from Cynet
Holdings, LLC, a 56.4% stockholder of the Company, prior to the proposed
rescission offer and rescission financing, (see Note 15). The acquisition of
Cynet Interactive, LLC allowed the Company to expand its messaging and broadcast
enhancement services to include web site design, Internet application
development for e-commerce and other Internet-based applications, and web site
hosting. In July 1999, the Company entered into a strategic alliance with IXC
Communications to enable the Company to further expand its products and services
to include Internet access for business customers. This alliance with IXC
Communications enables the Company to provide complete, "end-to-end" Internet
business solutions just as it is able to provide complete "end-to-end" messaging
business solutions.

Interim Financial Information

The consolidated financial statements as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 are unaudited. In the opinion of the
Company's management, such unaudited consolidated financial statements include
all adjustments necessary, which include only normal recurring items, to present
fairly the information set forth therein. Results for the interim periods are
not necessarily indicative of the results that may be expected for any other
interim period or a full year.

F-11
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
Maintenance and repairs are charged to operations as incurred.

The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate the carrying value of an asset may not be
fully recoverable.

Income Taxes

Deferred taxes result from temporary differences between the financial
statement and income tax bases of assets and liabilities (see Note 9). The
Company adjusts the deferred tax asset valuation allowance based on judgments as
to future realization of the deferred tax benefits supported by demonstrated
trends in the Company's operating results.

The LLCs are not subject to state and federal income taxes. Accordingly,
the operating results of each respective LLC are reported in the individual
state and federal tax returns of the member.

Research and Development

Expenditures for research and development of telecommunication technology
as it relates to fax broadcasting and to various customer interface and
application needs are charged to expense as incurred. For the years ended
December 31, 1998 and 1997, research and development expenditures were
approximately $398,000 and $419,000, respectively.

Revenue Recognition

Messaging and Internet service revenues are recognized as services are
performed. Revenues from sales of customer lists and other related services are
recognized when the list is provided, or the other services are performed.

Loss Per Common Share

The Company is required to provide basic and dilutive earnings (loss) per
common share information.

The basic net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding.

Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the years ended December 31, 1998 and 1997, potential dilutive
securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share.

These securities at December 31, 1998 and 1997 were as follows:

December 31,
-------------------------
1998 1997
-------- --------
(shares) (shares)
Conversion of Series A
preferred stock - Class A .................... 103,500 119,350
Conversion of Series B
preferred stock - Class B .................... 87,349 85,084
Incentive stock option plan - Class A .......... 1,465,000 --
Stock warrants outstanding - Class A ........... 8,049,000 1,249,000
Stock warrants outstanding - Class B ........... 2,548,954 2,200,000
---------- ----------
12,253,803 3,653,434
========== ==========

F-12
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Stock Options and Warrants

The Company accounts for stock options and warrants issued to employees in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. For financial statement disclosure purposes and issuance of
options and warrants to non-employees for services rendered, the Company follows
statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation.

Risks and Uncertainties

The Company is subject to the business risks inherent in the
telecommunications industry. These risks include, but are not limited to, a high
degree of competition within the telecommunications industry and continuous
technological advances. Future technological advances in the telecommunications
industry may result in the availability of new services or products that could
compete with the enhanced messaging and Internet services currently provided by
the Company or decreases in the cost of existing products or services that could
enable the Company's established or potential customers to fulfill their own
needs for enhanced messaging and Internet services more cost efficiently. There
can be no assurance that the Company would not be adversely affected in the
event of such technological change.

Fair Market Value of Financial Instruments and Concentrations of Credit Risk

The Company's financial instruments include accounts receivable, accounts
payable and a note payable. The fair market value of accounts receivable,
accounts payable and note payable approximates their carrying values because
their maturities are generally less than one year in duration. Accounts
receivable subject the Company to a concentration of credit risk with customers
in the retail sector. The risk is spread over a large number of geographically
dispersed customers.

Management's Estimates and Assumptions

The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.

Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2001 to
affect its financial statements.

Effective for all fiscal years beginning after December 31, 1998, SOP
98-5, "Reporting on the Costs of Start-up Activities", requires all start-up and
organizational costs to be expensed as incurred. It also requires all remaining
historically capitalized amounts of these costs existing at the date of adoption
to be expensed and reported as the cumulative effect of a change in accounting
principles. The Company adopted SOP 98-5 in the first quarter of 1999 and it did
not have a material effect on its financial statements.

F-13
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 2 - FINANCIAL CONDITION AND GOING CONCERN

For the years ended December 31, 1998 and 1997, the Company incurred net
losses totaling $4,356,640 and $7,762,863, respectively, and at December 31,
1998 had a capital deficit of $12,218,072. Because of these recurring losses,
the Company will require additional working capital to develop and support its
technologies and business until the Company either (1) achieves a level of
revenues adequate to generate sufficient cash flows from operations; or (2)
receives additional financing necessary to support the Company's working capital
requirements.

During 1996, 1997 and 1998, the Company sold certain common and preferred
stock which were not registered pursuant to the federal and state securities
laws, but were sold in a series of three private placement offerings in reliance
upon the exemptions from registration afforded by (i) Sections 3(b) and 4(2) of
the Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
and (ii) various state limited offering provisions, respectively. In addition,
the Company issued certain common and preferred stock and stock warrants for
services provided to the Company during the same period.

However, the Company has been advised that under the integration
provisions of Regulation D, the private placement offerings may be viewed by the
Securities and Exchange Commission as one continuous offering and, as such, may
not have been conducted in compliance with all applicable Regulation D limited
offering conditions. If the private placement offerings were not conducted in
compliance with the securities laws, the purchasers of the common and preferred
stock would have the right to have such securities repurchased by the Company
for an amount equal to the purchase price paid less any dividends received plus
interest, or if the common and preferred stock have been disposed of by the
holder at a loss, the difference between the purchase price and the price
received upon disposal less dividends received plus interest. In addition, the
Company has determined that certain issuances of common and preferred stock and
stock warrants issued for services are also subject to rescission for an amount
equal to the estimated value of services rendered to the Company. As a result,
the Company has elected to make a rescission offer to the holders of certain
issuances of common and preferred stock and stock warrants. The Company
originally filed a registration statement in August 1998 and intends to file an
amended registration statement with the Securities and Exchange Commission that
contains the proposed rescission offer as previously discussed and provide for
the registration of the Company's common stock and the resale of certain common
stock by certain selling stockholders. The Company expects the rescission offer
to be effective by the fall of 1999, at which time the offer will be outstanding
for thirty days. The potential liability of the Company, less dividends paid and
excluding interest, for the proposed rescission offer totaled $13,980,009 as of
December 31, 1998 and March 31, 1999. It is management's opinion that
substantially all the existing stockholders and warrant holders subject to
rescission will elect to retain their stock ownership and stock warrants, and
the proposed rescission offer will not have a material adverse effect on the
Company's financial position. See Note 15 for discussion regarding the status
and proposed commitment for stand-by investors.

Regarding any funding of the rescissions liability that may be paid out by
the Company to stockholders and warrant holders accepting the rescission offer,
the Company has arranged for stand-by investors. As of March 31, 1999, the
Company had commitments from stand-by investors of $2,000,000, a portion which
has been placed in an escrow account. See Note 15 for discussion regarding the
status and proposed commitment by stand-by investors subsequent to March 31,
1999.

Additionally, the Company intends to raise additional working capital
through either private placements or public offerings. As of March 31, 1999, the
Company has a remaining commitment of $7,379,000 from CyNet Holdings, LLC, the
majority stockholder of CyNet, Inc. for additional working capital needs. See
Notes 6 and 15 for discussion of the terms of the Cynet Holdings, LLC's stock
subscription agreement and status of the funding commitment.

F-14
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

There are no assurances that (1) the existing stockholders and warrant
holders subject to rescission will elect to retain their stock ownership and
stock warrants and (2) the Company will be able to raise additional working
capital through either private placements or public offerings. To the extent
that funds generated from operations, stand-by investors and any private
placements or public offerings are insufficient, the Company will have to raise
additional working capital. No assurance can be given that additional financing
will be available, or if available, will be on terms acceptable to the Company.
If adequate working capital is not available the Company may be required to
curtail its operations.

This condition raises substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - DEFERRED OFFERING COSTS

As of December 31, 1998 and March 31, 1999, the Company has incurred
expenses totaling $2,078,825 in connection with the private placement
transactions (See Note 8) which have been recorded as prepaid expenses. The
amount consists of cash payments totaling $1,296,305, of which $665,000 was paid
to a company owned by a stockholder, Class A common stock and Class B common
stock warrants, with a value of $509,765 and $178,500, respectively, issued to a
stockholder and $94,255 of various expenses incurred prior to the year ended
December 31, 1997.

These deferred offering costs are subject to adjustment pending the
outcome of the Company's rescission offer. Accordingly, for any portion of the
proposed rescission offer that is accepted by the stockholders, a pro-rata share
of these costs will be charged to operations upon the stockholders' election.
For any portion of the rescission offer that is rejected by the stockholders, a
pro-rata share of these costs will be reclassed as a reduction of capital.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Estimated
Useful December 31, March 31,
Lives (Years) 1998 1999
------------- ------------ -----------
(unaudited)

Computer equipment ................. 3-5 $ 1,606,955 $ 1,538,081
Computer software .................. 5 892,652 925,339
Furniture and fixtures ............. 7 537,457 552,610
Telephone equipment ................ 3-5 294,881 296,641
Automobiles ........................ 5 152,613 152,613
Leasehold improvements ............. 5 205,533 205,533
----------- -----------
3,690,091 3,670,817
Less - accumulated depreciation
and amortization ................ (1,061,634) (1,341,972)
----------- -----------
$ 2,628,457 $ 2,328,845
=========== ===========

F-15
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 5 - NOTE PAYABLE

In August 1998, the Company entered into a five-year agreement with an
early cancellation provision to sell certain of its eligible accounts
receivable, on a revolving basis to a non-affiliated entity. The Company
continues to service the receivables and maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts receivables,
including the receivables sold. The Company agreed to pay a finance charge on
the accounts receivable sold at rates ranging from 5% to 34.01% based on days
the receivables are outstanding. However, the Company has not been remitting the
collection of the sold accounts receivable to the factoring agent and has been
using the agreement as a line of credit and is paying finance charges of
approximately 5% per month (60% annually) on the advances. For the year ended
December 31, 1998 and three months ended March 31, 1999, the Company incurred
finance charges of $66,877 and $38,064, respectively. As of December 31, 1998
and March 31, 1999 the note payable was $339,087 and $315,273, respectively,
including accrued interest of $66,877 and $63,063.

NOTE 6 - RELATED PARTY TRANSACTIONS

Related party transactions for the year ended December 31, 1998 are as
follows:

(a) In July 1998, the Company entered into a stock subscription
agreement with Cynet Holdings, LLC, an entity that beneficially owns
approximately 56.4% of the Company's Class A common stock to finance
the Company's capital requirements. The agreement allows the related
entity to purchase up to 10,000,000 shares of the Company's Class A
common stock at a $1.00 per share and a five year warrant to
purchase up to 4,800,000 shares of Class A common stock at $1.00 per
share for $10. The agreement was subsequently amended to extend the
duration of the agreement to December 31, 1999 and permit the
issuance of Class B common stock to the extent that no authorized
Class A common stock is available. The Company determined the
warrants had no value on issuance under the minimum value method. As
of December 31, 1998, the related entity had purchased 1,511,000
shares of Class A common stock of which 409,233 shares were sold
from treasury and 1,101,767 were newly issued shares, and purchased
an additional 1,110,000 shares as of March 31, 1999. See Note 15 for
status of the funding commitment.

(b) In April 1998, stockholders received 100,000 Class A common stock
warrants and 255,954 Class B common stock warrants for services
rendered. The warrants vest immediately, are exercisable at $1.00
per share and expire five years from the date of issue. The Company
determined the warrants had no value on issuance under the minimum
value method.

(c) In April 1998, the Company transferred certain property with a net
book value of $67,283 to the former president of the Company and
recorded such transfer as compensation. This amount is in addition
to compensation paid in accordance with this individual's employment
agreements.

(d) On August 31, 1998, in accordance with a settlement agreement and
mutual release between the Company and its former president, the
Company forgave a receivable totaling $121,043 due from this
individual (see Note 10).

F-16
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Related party transactions for the year ended December 31, 1997 are as
follows:

(a) A stockholder received 500,000 shares of Class A common stock valued
at $500,000 and a warrant to purchase 1,050,000 shares of Class B
common stock valued at $178,500 for assistance with the private
placements of preferred stock. The warrant vests immediately, is
exercisable at $1.00 per share and expires three years from the date
of issuance.

(b) The Company issued a warrant to a stockholder for 1,150,000 shares
of Class B common stock for assistance in raising capital for the
formation of the limited liability companies. At December 31, 1996,
the Company had recorded a liability of $184,000, the estimated fair
market value of the warrant. The warrant vests immediately and is
exercisable at $1.00 per share and expires four years from issuance.
The stockholder subsequently assigned his right to receive such
warrants to certain individuals and entities.

(c) In December 1997, a company owned by a stockholder, received 200,000
shares of Class A common stock valued at $78,000 in consideration
for the termination of a distribution agreement.

(d) The Company paid consulting fees totaling $313,000 to a company
owned by a stockholder.

(e) A stockholder of the Company transferred certain intellectual
property rights to the Company for a one-time payment of $250,000.

(f) The Company paid $893,527 to a company owned by a stockholder and to
the individual for services rendered in connection with the private
placements and for other services provided.

(g) The Company purchased 450,000 shares of Class A common stock for
$1.00 per share and recorded such amount as treasury stock.

NOTE 7 - PURCHASE OF MINORITY INTEREST OF THE LIMITED LIABILITY COMPANIES

Effective December 1, 1997, pursuant to a private placement memorandum,
the Company acquired the remaining 50% ownership in the LLCs by issuance of
2,328,940 shares of the Company's Class A common stock. At the time of formation
of the LLCs, the holders of the minority interest paid approximately $1,941,000
for such interest which included a conversion feature of 1.2 shares of the
Company's Class A common stock for every dollar invested by the LLC member upon
certain events, as defined. Based on an independent third party appraisal of the
Company's Class A common stock, there was no additional consideration given
above the original conversion feature for the purchase of the minority interest.
Accordingly, the purchase of the minority interest of the LLCs was accounted for
at book value. In January 1998, the Company issued an additional 92,640 shares
of Class A common stock in connection with the purchase of the minority interest
of the LLCs.

F-17
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 8 - CAPITAL

Common Stock

The Company is authorized to issue up to 60,000,000 shares of its no par
value common stock of which 40,000,000 shares have been designated as Class A
voting common stock and 20,000,000 shares have been designated as Class B
non-voting common stock. The holders of shares of Class A common stock are
entitled to one vote for each share on all matters submitted to a vote of
stockholders. Holders of Class B common Stock are entitled under the Texas
Business Corporation Act to vote in connection with the voluntary dissolution of
the Company but have no voting privileges with respect to other matters. The
holders of both Class A and Class B common stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors from time to
time out of legally available funds. Upon liquidation or dissolution of the
Company, the holders of both Class A and Class B common stock are entitled to
share ratably in all assets of the Company that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the priority rights of any holders of preferred stock then outstanding. Holders
of Class A and Class B common stock have no preemptive rights to acquire new
securities issued by the Company and have no rights to convert their common
stock into any other securities of the Company.

Class A Common Stock

During the year ended December 31, 1998 and the three months ended March
31, 1999, the Company sold 1,511,000 and 1,110,000 shares of common stock,
respectively, at $1.00 per share to Cynet Holdings, LLC, a related entity of
which 409,233 were issued from treasury stock for the year ended December 31,
1998. In addition, the Company sold 10,000 shares of Class A common stock from
treasury stock for $2.00 a share, which are subject to the proposed rescission
offer. During the year ended December 31, 1997, the Company purchased 450,000
shares of Class A common stock of which 115,767 shares were resold for net cash
proceeds of $144,000, which are subject to the proposed rescission offer.

During the years ended December 31, 1998 and 1997, the Company issued
Class A common stock for certain services, rights and for the purchase of the
minority interest in the LLCs as follows:

(a) In January 1998, the Company issued 92,640 shares of Class A common
stock in connection with the purchase of the minority interest of
the LLCs, see Note 7.

(b) In December 1997, the Company issued 2,328,940 shares of Class A
common stock at the market value of $0.39 per share based on an
independent appraisal for the purchase of the minority interest of
the LLCs. This transaction was recorded at book value, see Note 7.

(c) In December 1997, the Company issued 110,000 shares of Class A
common stock valued at $42,900 to a sales consultant for services,
which are subject to the proposed rescission offer.

(d) In December 1997, the Company issued 200,000 shares of Class A
common stock valued at $78,000 as consideration for termination of a
distribution agreement.

(e) During 1997, the Company issued 500,000 shares of Class A common
stock valued at $500,000 to a stockholder for services in connection
with certain private placements of preferred stock.

F-18
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Class B Common Stock

During the year ended December 31, 1998, the Company purchased 18,041
shares of Class B common stock for $45,102 which are subject to the proposed
rescission offer.

During the year ended December 31, 1998, the Company issued 154,000 shares
of Class B common stock valued at $60,000. The stock rights were accrued at
December 31, 1997 for consulting services and are subject to the proposed
rescission offer.

During the year ended December 31, 1997, the Company sold 25,000 shares of
Class B common stock for $2.00 per share for net cash proceeds of $50,000, which
are subject to the proposed rescission offer.

During the year ended December 31, 1997, the Company issued Class B common
stock for services, conversion of notes payable and commitment fees as follows:

(a) The Company issued 400,000 shares of Class B common stock valued at
$400,000 for the conversion of a $100,000 note payable, of which the
original principal of $100,000 is subject to the proposed rescission
offer.

(b) The Company issued 400,000 shares of Class B common stock valued at
$400,000 for a loan commitment fee.

(c) The Company issued 100,000 shares of Class B common stock valued at
$100,000 for services rendered, which is subject to the proposed
rescission offer.

At December 31, 1998 and March 31, 1999, the Company had common stock
reserved for future issuance as follows:

December 31, March 31,
1998 1998
------------ ---------
(shares) (shares)

Conversion of Series A preferred
stock to Class A............................. 103,500 103,500
Conversion of Series B preferred
stock to Class B............................. 87,349 87,349
Stock rights - Class A......................... 50,000 50,000
Incentive stock option plan - Class A.......... 1,465,000 1,555,000
Stock warrants outstanding - Class A........... 8,049,000 8,049,000
Stock warrants outstanding - Class B........... 2,548,954 2,548,954
---------- ----------
12,303,803 12,393,803
========== ==========

Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of no par value
preferred stock. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting rights
(including the right to vote as a series on a particular matter), preferences as
to dividends and liquidation, conversion, redemption rights and sinking fund
provisions.

F-19
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Series A Preferred Stock

The Company is authorized to issue a total of 3,600,000 shares of Series A
preferred stock. The preferred stock is non-voting, has a $2.00 per share stated
value and has an annualized dividend rate of $0.24 per share. Attributes of the
Series A preferred stock are discussed below:

Ranking. The Series A preferred stock is senior to the Company's common
and Series B preferred stock with respect to dividends and rights upon
liquidation or dissolution of the Company. As long as any Series A preferred
stock is outstanding, the Company will not be entitled to authorize or issue any
class of securities that is senior to or on parity with the Series A preferred
stock without the approval of holders of at least 66-2/3% of the Series A
preferred stock.

Voting Rights. Holders of Series A preferred stock are not entitled to
vote.

Dividend Rights. The holders of Series A preferred stock are entitled to
receive out of funds of the Company legally available, dividends at an annual
rate of $0.24 per share, payable semi-annually in arrears in two equal
installments of $0.12 in June and December of each year. Dividends accrue and
accumulate from the date of first issuance and are paid to holders of record as
they appear on the books of the Company as of the record date of the last day of
May and November in each year which immediately precedes each respective
dividend payment date. Accumulation of dividends does not bear interest. So long
as the Series A preferred stock is outstanding, the Company may not declare or
pay any dividends on the common stock or other stock unless the full cumulative
dividends on the Series A preferred stock have been paid in full.

Conversion and Mandatory Conversion. Shares of Series A preferred stock
are convertible by the holder at any time (a) on or after the date of issuance
and before November 1, 1997 into shares of Class A common stock at a conversion
rate of 1.2 shares of Class A common stock for each share of Series A preferred
stock tendered; and (b) after November 1, 1997 and before September 1, 1998 at a
conversion rate of 1.1 shares of Class A common stock for each share of Series A
preferred stock (c) after September 1, 1998 the conversion rate is 1.0. Any
accrued and unpaid dividends will be paid to holders of the Series A preferred
stock at the time of conversion. The Company at its sole discretion and option
has the right to require that holders of Series A preferred stock to convert
their shares to Class A common stock at any time on or after January 1, 1999. In
the event of this mandatory conversion election by the Company, holders of
Series A preferred stock will receive one share of Class A common stock for each
share of Series A preferred stock.

Liquidation Rights. In the event of liquidation or dissolution of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts and other liabilities of the Company, the holders of the Series A
preferred stock are entitled to receive, out of the remaining net assets of the
Company available for distribution to stockholders before any distribution or
payment made to holders of common stock or Series B preferred stock other junior
capital stock, the Series A preferred stock stated value of $2.00 per share plus
any accrued and unpaid dividends. Upon payment of the full amount of the Series
A preferred stock stated value plus any unpaid dividends, the holders of Series
A preferred stock shall not be entitled to any further participation in any
distribution of assets of the Company.

During the year ended December 31, 1997, the Company sold 3,251,154 shares
of Series A preferred stock for prices between $1.43 and $2.00 per share for net
cash proceeds of $6,462,308 and issued 3,500 shares valued at $7,000 for
compensation. From inception to December 31, 1997, a total of 3,467,854 shares
were issued of which 5,000 and 3,359,354 shares were converted into 5,500 and
4,031,225 shares of Class A common stock during the years ended December 31,
1998 and 1997, respectively, at a conversion rate of 1.1 and 1.2 shares of Class
A common stock for each share of Series A preferred stock, respectively.

F-20
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Series B Preferred Stock

The Company is authorized to issue a total of 2,000,000 shares of Series B
cumulative convertible preferred stock. The preferred stock is non-voting, has a
$3.00 per share stated value and has an annualized dividend rate of $0.30 per
share. Attributes of the Series B preferred stock are discussed below:

Ranking. The Series B preferred stock is junior to the Series A preferred
stock and senior to the Company's common stock with respect to dividends and
rights upon liquidation or dissolution of the Company. As long as any Series B
preferred stock is outstanding, the Company will not be entitled to authorize or
issue any class of securities that is senior to or on parity with the Series B
preferred stock without the approval of holders of at least 66-2/3% of the
Series B preferred stock.

Voting Rights. Holders of Series B preferred stock are not entitled to
vote.

Dividend Rights. The holders of Series B preferred stock are entitled to
receive out of funds of the Company legally available, dividends at an annual
rate of $0.30 per share, payable semi-annually in arrears in two equal
installments of $0.15 in June and December of each year. Dividends accrue and
accumulate from the date of first issuance and are paid to holders of record as
they appear on the books of the Company as of the record date of the last day of
May and November in each year which immediately precedes each respective
dividend payment date. Accumulation of dividends will not bear interest. So long
as the Series A or B preferred stock is outstanding, the Company may not declare
or pay any dividend on the common stock or other capital stock unless the full
cumulative dividends on the Series A and Series B preferred stock have been paid
in full.

Conversion and Mandatory Conversion. Shares of Series B preferred stock
are convertible by the holder at any time (a) on or after the date of issuance
and before November 1, 1997 into shares of Class B non-voting common stock at a
conversion rate of 1.2 shares of such common stock for each share of Series B
preferred stock; and (b) after November 1, 1997 and before September 1, 1998 at
a conversion rate of 1.1 shares of Class B non-voting common stock for each
share of Series B preferred stock after September 1, 1998 the conversion rate is
1.0. Any accrued and unpaid dividends will be paid to holders of the Series B
preferred stock at the time of conversion. The Company at its sole discretion
and option has the right to require that holders of Series B preferred stock to
convert their shares to Class B non-voting common stock at any time on or after
January 1, 1999. In the event of this mandatory conversion election by the
Company, holders of Series B preferred stock will receive one share of Class B
non-voting common stock for each share of Series B preferred stock.

Liquidation Rights. In the event of liquidation or dissolution of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts, other liabilities of the Company, and Series A preferred
shareholders, the holders of the Series B preferred stock are entitled to
receive, out of the remaining net assets of the Company available for
distribution to stockholders before any distribution or payment made to holders
of common stock or other junior capital stock, the Series B preferred stock
stated value of $3.00 per share plus any accrued and unpaid dividends. Upon
payment of the full amount of the Series B preferred stock stated value plus any
unpaid dividends, the holders of Series B preferred stock shall not be entitled
to any further participation in any distribution of assets of the Company.

During the year ended December 31, 1998, the Company sold 36,666 shares of
Series B preferred stock for $3 per share for net cash proceeds of $110,000. Of
these shares, 26,666 shares were converted into 29,333 shares of Class B common
stock during the year ended December 31, 1998 at a conversion rate of 1.1 shares
of Class B common stock for each share of Series B preferred stock.

During the year ended December 31, 1997, the Company sold 1,755,541 shares
of Series B preferred stock for $3.00 per share for net cash proceeds of
$5,266,623 and granted 13,033 shares valued at $39,099 as compensation. Of these
shares, 1,691,225 shares were converted into 2,029,470 shares of Class B common
stock during the year ended December 31, 1997 at a conversion rate of 1.2 shares
of Class B common stock for each share of Series B preferred stock.

F-21
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Proposed Rescission Offer

The Class A and Class B common stock and Series A and Series B preferred
stock issuances were sold in a series of private placement offerings in reliance
upon the exemptions from registration afforded by (i) Sections 3(b) and 4(2) of
the Securities Act of 1933, as amended, and Regulation D promulgated thereunder
and (ii) various state limited offering provisions, respectively. The stock
issuances were not registered pursuant to the federal and state securities laws.
In addition, the Company issued certain common and preferred stock and stock
warrants for services provided to the Company.

However, the Company has been advised that under the integration
provisions of Regulation D, the private placement offerings may be viewed by the
Securities and Exchange Commission as one continuous offering and, as such, may
not have been conducted in compliance with all applicable Regulation D limited
offering conditions. If the private placement offerings were not conducted in
compliance with the securities laws, the purchasers of the common and preferred
stock would have the right to have such securities repurchased by the Company
for an amount equal to the purchase price paid less any dividends received plus
interest, or if the common and preferred stock have been disposed of by the
holder at a loss, the difference between the purchase price and the price
received upon disposal less dividends received plus interest. In addition, the
Company has determined that certain issuances of common and preferred stock and
stock warrants issued for services are also subject to rescission for an amount
equal to the estimated value of services rendered to the Company. As a result,
the Company has elected to make a rescission offer to the holders of certain
issuances of common and preferred stock and stock warrants. The Company expects
the rescission offer to be effective by the fall of 1999, at which time the
offer will be outstanding for thirty days. Of the common stock and preferred
stock sold during 1998, 1997 and 1996, taking into consideration the conversion
of Series A and B preferred stocks, 5,300,304 and 2,050,093 shares of Class A
and B common stock for net proceeds of $7,988,989 and $5,119,475, respectively;
103,500 shares of Series A preferred stock for net proceeds of $207,000; and
87,349 shares of Series B preferred stock for net proceeds of $262,047 are
subject to the proposed rescission offer as of December 31, 1998 and March 31,
1999, less dividends paid on Series A and B preferred stock of $192,478 and
$55,650, respectively, prior to the conversion to common stock.

Regarding the common and preferred stock and stock warrants issued for
services in prior periods, as previously discussed; 214,187 shares of Class A
common stock valued at $149,887, taking into consideration the conversion of
Series A preferred stocks; 669,640 shares of Class B common stock valued at
$299,099 taking into consideration conversion of Series B preferred stock; and
799,000 Class A common stock warrants valued at $201,640, are subject to the
proposed rescission offer.

Accordingly, the Company is precluded from classifying these securities
and proceeds as capital until such time as the proposed rescission offer has
been completed. At which time the Company may classify as capital such
securities and proceeds to the extent the security holders elect to retain their
ownership in the Company. For security holders electing to rescind their
ownership, the rescission price will be paid in cash.

Common Stock Options and Warrants

In July 1998, the Company issued warrants to purchase 4,800,000 shares of
Class A common stock at $1.00 per share for a term of five years, see Note 6.
The warrants vest immediately and had no value on issuance under the minimum
value method.

In April 1998, the Company issued warrants to purchase 2,000,000 shares of
Class A common stock at $1.00 per share for a term of five years in connection
with an employment agreement with the Company's former president. The warrants
vest immediately and had no value on issuance under the minimum value method.
Subsequent to receiving these warrants, the Company's former president assigned
the warrants to various stockholders, including 1,710,000 warrants to the new
Chairman of the Board and Chief Executive Officer of the Company.

F-22
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

In May 1998, the Company issued warrants to purchase 348,954 shares of
Class B common stock at $1.00 per share for a term of five years for services
rendered. The warrants vest immediately and had no value on issuance under the
minimum value method.

During the year ended December 31, 1997, the Company issued warrants to
purchase 2,200,000 of Class B common stock for services rendered in connection
with raising of capital for the formation of the LLCs and certain private
placements. See Note 6 for discussions regarding these related party
transactions.

In May 1997, the Company issued 450,000 Class A common stock warrants to a
stockholder for consulting services rendered. The warrants vest immediately and
are exercisable at $2.00 per share and expire May 2002. The Company determined
that these warrants had no fair value at the date of issuance.

In April 1997, the Company issued 61,000 Class A common stock warrants to
an individual for consulting services rendered. The warrants vest immediately
and are exercisable at $1.00 per share and expire April 2000. The Company
determined that these warrants had a value of $9,760 at the date of issuance and
are subject to the proposed rescission offer.

During the year ended December 31, 1997, the Company's Board of Directors
approved and the Company adopted the 1997 Incentive Stock Option Plan (the Plan)
which was amended and restated effective July 1999. The Plan provides for the
granting of Class A common stock options to key employees of the Company. Within
certain limitations provided by the Plan, such options may include provisions
regarding vesting, exercise price, the amount of each grant and other terms as
shall be approved by the Board of Directors or by a committee designated by the
Board of Directors. Options granted under the Plan may be either options that
qualify as "incentive stock options", within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or those that do not qualify as such
"incentive stock options" ("non-qualified options"). The Plan, which permits up
to 2,000,000 shares of the Company's Class A Common Stock to be issued,
terminates on October 19, 2007. No options were granted in 1997.

A summary of the Company's stock option plan for the year ended December
31, 1998 and three months ended March 31, 1999 is presented below:

December 31, 1998 March 31, 1999
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---- ---------- -----
Options outstanding at
beginning of period .......... -- $ -- 1,465,000 $.39
Options granted ................ 1,475,000 .39 110,000 .39
Options exercised .............. -- -- -- --
Options cancelled .............. (10,000) .39 (20,000) .39
---------- ---- ---------- ----

Options outstanding at
end of period ................ 1,465,000 $.39 1,555,000 $.39
========== ==== ========== ====

Maximum shares exercisable ..... 784,375 $.39 857,188 $.39
========== ==== ========== ====

SFAS 123 requires the Company to provide pro forma information regarding
net loss applicable to common stockholders and loss per share as if compensation
cost for the Company's stock options granted had been determined in accordance
with the fair value based method prescribed in that Statement. The Company
estimates the fair value of each stock option at the grant date by using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998: dividend yield of 0%; expected volatility
of 60% and a risk-free interest rate of 5% and expected lives of 5 years.

F-23
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

Under the accounting provisions of SFAS No. 123, the Company's net loss
applicable to common stockholders and loss per share would have been revised to
the pro forma amounts indicated below:

For the
For the Year Ended Three Months Ended
December 31, March 31,
----------------------- --------------------
1998 1997 1999 1998
---------- ---------- -------- ---------

Net loss applicable to
common stockholders:
As reported ............. $4,396,883 $8,502,067 $748,418 $830,288
========== ========== ======== ========
Pro forma ............... $4,557,531 $8,502,067 $761,839 $830,288
========== ========== ======== ========
Net loss per common share:
Basic and assuming dilution
As reported ............. $ .19 $ .60 $ .03 $ .04
========== ========== ======== ========
Pro forma ............... $ .20 $ .60 $ .03 $ .04
========== ========== ======== ========

NOTE 9 - INCOME TAXES

Deferred taxes are determined based on the temporary differences between
the financial statement and income tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse.

The components of deferred income tax assets (liabilities) at December 31,
1998, were as follows:

Amount
------------

Net operating loss carryforward.................. $ 4,438,000
Loss on write-off of investments................. 409,000
Property and equipment........................... (53,000)
Other............................................ 99,000
------------
Gross deferred tax assets........................ 4,893,000
Valuation allowance.............................. (4,893,000)
------------

Net deferred tax assets.......................... $ --
============

At December 31, 1998, the Company provided a 100% valuation allowance for
the deferred tax asset because it could not determine whether it was more likely
than not that the deferred tax asset would be realized.

For the years ended December 31, 1998 and 1997, the income tax benefit
determined by applying the statutory income tax rate to pre-tax loss from
operations differs from the actual benefit as follows:

1998 1997
----------- -----------

Provision for income tax benefit at statutory rate $(1,481,000) $(2,639,000)
Deferred tax asset valuation allowance ........... 1,476,000 2,642,000
Other ............................................ 5,000 (3,000)
----------- -----------
$ -- $ --
=========== ===========

F-24
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

At December 31, 1998, the Company had a net operating loss carryforwards
for federal income tax purposes totaling approximately $13,053,000 which, if not
utilized, will expire as follows:

Year Ended December 31, Amount
----------------------- ------

2010............................................ $ 61,000
2011............................................ 888,000
2012............................................ 7,400,000
2018............................................ 4,704,000
------------
$ 13,053,000
============

In April 1998, the Company had a change in ownership which has resulted in
the Company's net operating loss carryforwards being subject to certain
utilization limitations in the future.

NOTE 10 - COMMITMENTS

The Company is obligated under a long-term non-cancelable operating lease
for office space expiring through the year 2000, at a minimum annual rent as
follows:

Year ended December 31 Amount
---------------------- ------

1999............................................ $ 185,578
2000............................................ 46,394
------------

$ 231,972
============

Rent expense for the years ended December 31, 1998 and 1997 totaled
$188,264 and $255,156, respectively.

On February 1, 1998, the Company entered into an employment agreement with
the Chairman of the Board and Chief Executive Officer of the Company. The five
year agreement provides for an annual salary of $180,000, plus incentives and
certain employee benefits, as defined by the agreement. The agreement also
provides for a $30,000 signing bonus and an option under the Company's 1997
Incentive Stock Option Plan to purchase 100,000 shares of Class A common stock
at a price of $.39 per share which vests immediately and are exercisable over a
five year period.

On March 1, 1998, the Company entered into an employment agreement with
the Vice President of Operations of the Company. The four year agreement
provides for an annual salary of $150,000, plus incentives and certain employee
benefits, as defined by the agreement. The agreement also provides for a $30,000
signing bonus, which was accrued for as of December 31, 1998 and subsequently
paid, and an option under the Company's 1997 Incentive Stock Option Plan to
purchase 75,000 shares of Class A common stock at a price of $.39 per share
which vests 25% annually and are exercisable over a five year period.

On July 22, 1998, the Company entered into an employment agreement with
the Executive Vice President of the Company. The four year agreement provides
for an annual salary of $150,000, plus incentives and certain employee benefits,
as defined by the agreement. The agreement also provides for a $30,000 signing
bonus, which was accrued for as of December 31, 1998 and subsequently paid, and
an option under the Company's 1997 Incentive Stock Option Plan to purchase
150,000 shares of Class A common stock at a price of $.39 per share which vests
immediately and are exercisable over a five year period.

F-25
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

On July 22, 1998, the Company entered into an employment agreement with
the Vice President, General Counsel and Secretary of the Company. The three year
agreement provides for an annual salary of $108,000, plus incentives and certain
employee benefits, as defined by the agreement. The agreement also provides for
a $30,000 signing bonus, which was accrued for as of December 31, 1998 and
remains unpaid, and an option under the Company's 1997 Incentive Stock Option
Plan to purchase 100,000 shares of Class A common stock at a price of $.39 per
share which vests immediately and are exercisable over a five year period.

In March 1997, the former President of the Company, who was also a
stockholder, entered into an employment agreement. The agreement provided for a
three year employment term that automatically renewed annually with the first
year compensation set at $220,000, plus incentives and certain employee
benefits, as defined by the agreement. If the former President terminated his
employment for good reason or the Company terminated the President other than
for cause or disability, the former President was entitled to receive three
times his annual salary and bonus, as defined by the agreement, vesting of any
options and any such amounts credited to a qualified plan, continuation of
certain benefits for a year and any other amount due the former President. The
agreement also provided for a $50,000 signing bonus.

On April 13, 1998, the former President of the Company terminated his
original employment agreement discussed above, resigned as president and sold
his stock ownership interest in the Company to an entity which is partially
owned by certain existing stockholders of the Company. In accordance with the
agreement the former president entered into a new five-year employment agreement
which provides for an annual salary of $150,000, a 2,000,000 Class A common
stock warrant that vests immediately and is exercisable over a five year period
at $1 per share and participation in certain of the Company's employee benefit
plans. Subsequent to receiving this warrant the Company's former president
assigned the warrant to various stockholders, including 1,710,000 warrants to
the new Chairman of the board and Chief Executive Officer of the Company. The
agreement provides that the individual will devote approximately one-half of his
business time and attention to the business of the Company.

On August 31, 1998, the former president of the Company terminated his
employment agreement dated April 13, 1998, discussed above, and entered into a
settlement agreement and mutual release with the Company. In accordance with the
agreement the individual terminated his employment and waived his right to
receive any compensation in accordance with this current employment agreement.
In return, the Company agreed to forgive a receivable from the individual of
$121,043.

On August 26, 1998, the Company entered into an employment agreement with
the Chief Financial Officer. The three year agreement provides for an annual
salary of $125,000, plus incentives and certain employee benefits, as defined by
the agreement. The agreement also provides for a $30,000 signing bonus, which
was accrued for as of December 31, 1998 and subsequently paid, and an option
under the Company's 1997 Incentive Stock Option Plan to purchase 100,000 shares
of Class A common stock at a price of $.39 per share which vests 33% annually
and are exercisable over a five year period.

NOTE 11 - EMPLOYEE BENEFIT PLAN

The Company has a savings and profit sharing plan which allows
participants to make contributions by salary reduction pursuant to Section
401(k) of the Internal Revenue Code. Participants may elect to defer up to 15%
of their compensation annually based on certain limits established by the
Internal Revenue Code. The Company may elect a discretionary matching
contribution annually. Participants' salary deferral contributions are fully
vested when made and Company discretionary match contributions vest over a five
year period. The Company made no discretionary matching contributions for the
years ended December 31, 1998 and 1997.

F-26
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION

During the year ended December 31, 1998, the Company had the following
non-cash transactions:

(a) The Company accrued dividends payable totaling $40,243.

(b) The Company issued 154,000 shares of Class B common stock valued at
$60,000 for services.

During the year ended December 31, 1997, the Company had the following
non-cash transactions:

(a) The Company accrued dividends payable totaling $491,075.

(b) The Company issued 100,000 shares of Class B common stock valued at
$100,000 to a consultant for services rendered.

(d) The Company issued 800,000 shares of Class B common stock valued at
$800,000 on conversion of a $100,000 note payable and for commitment
fees.

(e) The Company issued a warrant to 1,050,000 Class B common stock and
500,000 shares of Class A common stock with a combined estimated
fair market value of $678,500, to a stockholder for services
rendered in association with certain private placements of the
Company's Series A and B convertible preferred stock. A company
owned by the stockholder was given 200,000 shares of Class A common
stock valued at $78,000 as consideration for the termination of a
distribution agreement.

(f) A stockholder received 110,000 shares of Class A common stock valued
at $42,900 for services in connection with the sale of the Company's
services.

(g) The Company issued 13,033 shares of Series B preferred stock valued
at $39,099 for services.

(h) The Company granted rights to 154,000 shares of Class B common stock
valued at $60,000 for services.

(i) The Company issued 1,267 shares of Class A common stock (treasury
stock) with an estimated fair market value of $1,267 for art work.

(j) The Company issued 1,150,000 Class B common stock warrants with an
estimated fair market value of $184,000 for stock rights that had
been accrued for at December 31, 1996.

(k) The Company issued 2,328,940 shares of Class A common stock valued
at $885,936 for the purchase of the minority interest in the LLCs.

(l) The Company reclassified 98,720 shares of Class A common stock and
738,000 of Class A common stock warrants with a combined estimated
value of $290,600 as subject to the proposed rescission offer.

During the three months ended March 31, 1999, the Company had the
following non-cash transaction:

(a) The Company accrued dividends payable totaling $12,876.

During the three months ended March 31, 1998, the Company had the
following non-cash transactions:

(a) The Company accrued dividends payable totaling $13,145.

(b) The Company issued an additional 92,640 shares of Class A common
stock for the purchase of the minority interests in the LLCs.

F-27
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 13 - PRIOR PERIOD ADJUSTMENT

The Company's financial statements for the year ended December 31, 1997,
have been restated to reflect the write-down of assets no longer used in the
operations of the business and to reflect the reclassification of research and
development costs that was recorded as computer equipment. In the third quarter
of 1998, the Company under its new management, reviewed its operations and
equipment and determined certain computer equipment was not being used in the
operations of the business prior to December 31, 1997 and had no salvage value.
Accordingly, the Company restated its financial statements to reflect the write
off of $496,133 of computer and telephone equipment during the year ended
December 31, 1997. The Company also determined certain costs were incorrectly
capitalized in 1997 that were for research and development. Accordingly, the
Company restated its financial statements to reflect the correction of the
$241,300 as research and development costs in 1997.

The effect of the restatement is as follows:

As Previously As
For the year ended December 31, 1997 Reported Restated
------------- ------------

Consolidated Balance Sheet:
Property and equipment, less accumulated
depreciation and amortization .............. $ 3,564,947 $ 2,901,257
Deficit ...................................... (12,018,936) (12,682,625)

Consolidated Statement of Loss:
Selling, general and administrative expenses . $ 7,276,635 $ 7,517,935
Depreciation and amortization ................ 488,396 414,652
Impairment loss on long-lived assets ......... -- 496,133
Loss from operations ......................... (7,295,181) (7,958,870)
Net loss applicable to common stockholders ... (7,838,378) (8,502,067)

Net loss per common share -
basic and assuming dilution .................. $ (.56) $ (.60)

NOTE 14 - WRITE-DOWN OF LONG-LIVED ASSETS

During 1998, the Company acquired certain telecommunications equipment
that is more efficient and has a higher fax transmission capacity than certain
of its existing equipment. The Company determined that its nodes, which is
primarily computer equipment that is located in various cities throughout the
United States, were cost prohibitive. The computer equipment from the nodes was
implemented in the Company's operations to the extent possible. Accordingly, the
Company recorded a write-down of $163,079 for the year ended December 31, 1998
for property and equipment that is currently not being utilized.

In addition, during 1998 the Company wrote-down certain art work and
artifacts to their estimated market value based on an independent appraisal and
recorded an impairment loss of $108,878.

F-28
<PAGE>

CYNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999
and for the three months ended
March 31, 1999 and 1998 is unaudited)

NOTE 15 - SUBSEQUENT EVENTS

Subsequent to March 31, 1999 through July 31, 1999, CyNet Holdings, LLC
provided additional funding of $1,250,000 through the purchase of 1,250,000
shares of the Company's Class A common stock at $1.00 per share in accordance
with its stock subscription agreement with the Company. As of July 31, 1999, the
Company has a remaining commitment for funding of up to $6,129,000 from CyNet
Holdings, LLC for additional working capital needs through December 31, 1999.

In July 1999, the Company entered into a purchase agreement with CyNet
Holding, LLC. Pursuant to the agreement CyNet Holdings, LLC transferred all of
the outstanding membership interest of CyNet Interactive, LLC to the Company,
resulting in CyNet Interactive, LLC becoming a wholly-owned subsidiary of the
Company. In consideration for this transfer, the Company forgave a $118,936
account receivable due from CyNet Interactive, LLC. Prior to the transfer both
the Company and CyNet Interactive, LLC were considered under common control of
CyNet Holdings, LLC. Accordingly, the transfer will be accounted for at
historical cost in a manner similar to a pooling of interest.

As of July 31, 1999, the Company has entered into agreements with stand-by
investors to provide $5,000,000 funding for the proposed rescission offer. The
agreements provide that the stand-by investors will purchase up to $5,000,000 of
Class A common stock at $1.37 per share if existing stockholders elected to
accept the proposed rescission offer. In addition with the consent of the
stand-by investors, any unused proceeds from the stand-by investors
remaining after the funding of the rescission offer will be used by the Company
for general working capital purposes. At July 31, 1999, of the $5,000,000
commitments, $500,000 has been placed in an escrow account with the balance to
be funded prior to the effective date of the rescission offer.

One of the agreements entered by the Company discussed above contains a
put option. In accordance with the agreement this stand-by investor, which has
committed to fund $2,200,000 of the rescission financing, can put their shares
back to the Company by the anniversary date of the expiration of the rescission
offer at a $1.51 per share. Accordingly, the $2,200,000 will be immediately
accreted up to $2,425,000 to reflect the put option and classified outside of
the equity section as mezzanine capital until such time the put option has
expired. In addition, in August 1999 the Company entered into an agreement with
a related entity of the stand-by investor to provide financial advisory services
to the Company. In accordance with the agreement the related entity will receive
a warrant to purchase 376,000 shares of the Company's Class A common stock. The
warrant has an exercise price of $2.00 per share, vests immediately and expires
three years from issuance.

F-29
<PAGE>

EXHIBIT A

RESCISSION ELECTION FORM
CYNET, INC.
Election for Rescission
or
Affirmation of Subscription and Release

================================================================================
THE RESCISSION OFFER WILL EXPIRE AT THE LATER OF (A) 12:00 MIDNIGHT,
HOUSTON TIME, ON ______________, 1999, OR (B) THIRTY DAYS AFTER THE DATE
ON WHICH THE UNDERSIGNED ACTUALLY RECEIVED THIS ELECTION FORM.
================================================================================

Please complete and sign this document and return it to CyNet, Inc. at the
address set forth below, on or before midnight, Houston time, on
_______________, 1999, the Expiration Date of the Rescission Offer. Please
indicate your election by initialing either (i) the space immediately preceding
paragraph A below to accept the Rescission Offer or (ii) the space immediately
preceding paragraph B to reject the Rescission Offer and affirm your
subscription.

CyNet, Inc.
12777 Jones Road, Suite 400
Houston, Texas 77070

Gentlemen:

The undersigned hereby acknowledges having received and carefully read the
rescission offer (the "Rescission Offer") described in the prospectus dated
_______________, 1999 (the "Prospectus"), by CyNet, Inc. (the "Company") to
repurchase the Subject Securities hereinafter identified which were previously
acquired by the undersigned from the Company (the "Securities"). Capitalized
terms not otherwise defined herein shall have the meanings given to them in the
Prospectus.

As indicated below, the undersigned hereby (i) elects to accept the
Rescission Offer and requests that the Company repurchase the Securities in
accordance with the terms of the Rescission Offer, or (ii) affirms the
undersigned's subscription for all of such Securities.

PLEASE SELECT "A" OR "B" BELOW BY CHECKING THE APPROPRIATE BOX BELOW

|_| A. Acceptance of Rescission Offer; Request for Rescission

1. The undersigned hereby irrevocably elects to accept the Company's offer
to repurchase all of the Securities and to pay the undersigned an amount equal
to the consideration which the undersigned paid to the Company for the
Securities together with interest from the date of purchase to the date of
repayment at the rate specified by the undersigned's place of residence and/or
domicile, as the case may be, less, with respect to shares of Preferred Stock,
dividends paid.

2. The undersigned hereby encloses the certificates identified below,
representing all of the Securities that the undersigned acquired from the
Company, duly endorsed for transfer or accompanied by an assignment separate
from the applicable stock certificate in either case with the signature(s)
guaranteed by an eligible guarantor institution. The enclosed represents all,
and not less than all, of the Securities that the undersigned acquired from the
Company.

A-1

<PAGE>

The undersigned hereby represents that the undersigned is conveying all
interests in the Securities free and clear of all liens and encumbrances of any
kind, and that no such interest has been previously or concurrently transferred
in any manner to any other person or entity.

<TABLE>
<CAPTION>
Class of Certificate Number of Consideration Dividends Rescission
Security Number Shares Paid Interest Due Received Offer Amount
- -------- ------ ------ ---- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>

</TABLE>

|_| B. Rejection of Rescission Offer; Affirmation of Subscription

The undersigned hereby affirms the undersigned's subscription or
subscriptions to purchase all Securities of the Company, and elects not to
accept the Company's offer to repurchase such Securities.

Release

In consideration of the offer to repurchase the undersigned's Securities,
the receipt and sufficiency of which is hereby acknowledged, the undersigned
hereby irrevocably releases, remises and discharges the Company and its past,
current and future officers, directors, employees, affiliates, representatives
and agents, of and from all claims which the undersigned and the undersigned's
successors and assigns have, ever had or might have in connection with the sales
and issuances by the Company of its Securities including, but not limited to,
any violation of federal and/or state security laws or regulations, to the
maximum extent permitted by applicable law.

SPACE INTENTIONALLY LEFT BLANK

A-2

<PAGE>

THE UNDERSIGNED:

____________________________________________
Print name of the undersigned and, (a) if
Securities are held by a partnership,
corporation, trust or entity, the name and
capacity of the individual signing on its
behalf, and (b) if Securities are held as
joint tenants or as community property,
name(s) of co-purchaser(s).

Dated: ________________, 1999 ____________________________________________
Signature

____________________________________________
Tax I.D./Soc. Sec. No.

Dated: ________________, 1999 ____________________________________________
Signature

____________________________________________
Tax I.D./Soc. Sec. No.

Residence Address:
Street Address: ____________________________________________

City, State and Zip Code ____________________________________________

____________________________________________

Mailing Address
(if different from residence):
Street Address: ____________________________________________

City State and Zip Code: ____________________________________________

A-3

<PAGE>

EXHIBIT B

INDEX TO EXCERPTS FROM STATE SECURITIES LAWS

ARIZONA......................................................................B-2
ARKANSAS.....................................................................B-2
CALIFORNIA...................................................................B-4
COLORADO.....................................................................B-6
CONNECTICUT..................................................................B-8
DISTRICT OF COLUMBIA.........................................................B-9
FLORIDA......................................................................B-9
GEORGIA.....................................................................B-11
HAWAII......................................................................B-13
IDAHO.......................................................................B-13
ILLINOIS....................................................................B-14
INDIANA.....................................................................B-16
IOWA........................................................................B-17
KANSAS......................................................................B-19
KENTUCKY....................................................................B-20
LOUISIANA...................................................................B-21
MAINE.......................................................................B-22
MARYLAND....................................................................B-24
MASSACHUSETTS...............................................................B-26
MICHIGAN....................................................................B-27
MINNESOTA...................................................................B-28
MISSISSIPPI.................................................................B-29
MISSOURI....................................................................B-30
NEVADA......................................................................B-31
NEW HAMPSHIRE...............................................................B-32
NEW JERSEY..................................................................B-33
NEW YORK....................................................................B-35
NORTH CAROLINA..............................................................B-35
OHIO........................................................................B-36
OKLAHOMA....................................................................B-37
OREGON......................................................................B-38
PENNSYLVANIA................................................................B-40
SOUTH CAROLINA..............................................................B-41
TENNESSEE...................................................................B-42
TEXAS.......................................................................B-43
UTAH........................................................................B-48
VERMONT.....................................................................B-49
VIRGINIA....................................................................B-50
WASHINGTON..................................................................B-51
WISCONSIN...................................................................B-52

B-1
<PAGE>

ARIZONA SECURITIES ACT

SECTION 44-1841. SALE OF UNREGISTERED SECURITIES PROHIBITED;
CLASSIFICATION.

A. It is unlawful to sell or offer for sale within or from this state any
securities unless such securities have been registered by description under
sections 44-1871 through 44-1875 or registered by qualification under sections
44-1891 through 44-1902 or are securities for which a notice filing has been
made under section 44-3321, except securities exempt under section 44-1843 or
44-1843.01 or securities sold in exempt transactions under section 44-1844.

B. A person violating this section is guilty of a class 4 felony.

SECTION 44-2001. VOIDABLE SALE OR CONTRACT FOR SALE OF SECURITIES; REMEDY.

A. A sale or contract for sale of any securities to any purchaser in
violation of any provision of section 44-1841 or 44-1842 or article 13 of this
chapter is voidable at the election of the purchaser, who may bring an action in
a court of competent jurisdiction to recover the consideration paid for the
securities, with interest thereon, taxable court costs and reasonable attorneys'
fees, less the amount of any income received by dividend or otherwise from
ownership of the securities, upon tender of the securities purchased or the
contract made, or for damages if he no longer owns the securities.

B. A person against whom an action for a violation of section 44-1991 is
brought is not liable under subsection A of this section if the person sustains
the burden of proof that the person did not know and in the exercise of
reasonable care could not have known of the untrue statement or misleading
omission.

SECTION 44-2004. LIMITATION OF CIVIL ACTIONS.

A. No civil action shall be maintained under this article to enforce any
liability based on a violation of section 44-1841 or 44-1842 unless brought
within one year after the violation occurs.

B. Except as provided in subsection C of this section, no civil action
shall be brought under this article to enforce any liability based on a
violation of article 13 unless brought within two years after discovery of the
fraudulent practice on which the liability is based, or after the discovery
should have been made by the exercise of reasonable diligence.

C. No civil action shall be brought under this article to enforce any
liability based on a violation of section 44-1997 or 44-1998 unless brought
within one year after the discovery of the untrue statement or the omission or
after the discovery should have been made by the exercise of reasonable
diligence. No action shall be brought to enforce a liability created under
section 44-1997 more than three years after the security was bona fidely offered
to the public or under section 44-1998 more than three years after the sale.

SECTION 44-2005. REMEDY NOT EXCLUSIVE.

Nothing in this article shall limit any statutory or common law right of
any person in any court for any act involved in the sale of securities.

ARKANSAS SECURITIES ACT

SECTION 23-42-106. CIVIL LIABILITY.

(a)(1) Any person who commits the following acts is liable to the person
buying the security from him, who may sue either at law or in equity to recover
the consideration paid for the security, together with interest at six percent
(6%) per year from the date of payment, costs, and reasonable attorney's fees,
less the amount of any income received on the security, upon the tender of the
security, or for damages if he no longer owns the security:

(A) Offers or sells a security in violation of " 23-42-301, 23-42-212(b),
23-42-501(1) or (2), or of any rule or order under ' 23-42-502 which requires
the affirmative approval of sales literature before it is used, or in violation
of any condition imposed under " 23-42-403(d), 23-42-404(g), or 23-42-404(i); or

B-2
<PAGE>

(B) Offers or sells a security by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in the light of circumstances under which they are
made, not misleading, the buyer not knowing of the untruth or omission, and who
does not sustain the burden of proof that he did not know, and in the exercise
of reasonable care could not have known, of the untruth or omission;

(2) Damages are the amount that would be recoverable upon a tender less
the value of the security when the buyer disposed of it and interest at six
percent (6%) per year from the date of disposition.

(b)(1) Any person who purchases a security in violation of " 23-42-301,
23-42-307, 23-42-507, and 23-42-508, or otherwise by means of any untrue
statement of a material fact or any omission to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they are made, not misleading, the seller not knowing of the untruth or
omission, and who shall not sustain the burden of proof that he did not know,
and in the exercise of reasonable care could not have known, of the untruth or
omission, shall be liable to the person selling the security to him, who may sue
either at law or in equity to recover either the security or the security plus
any income or other distributions in cash or other property received directly or
indirectly by the purchaser, upon tender of the consideration the seller
received or for damages together with interest at six percent (6%) from the date
of purchase plus costs and reasonable attorneys' fees.

(2) Damages may be for out-of-pocket losses or for the benefit of the
bargain.

(3) Notice of willingness to pay the amount specified in exchange for the
security shall constitute valid tender pending acceptance thereof by the
purchaser.

(c) Every person who controls a seller liable under subsection (a) of this
section or a purchaser liable under subsection (b) of this section; every
partner, officer, or director of such a seller or purchaser; every person
occupying a similar status or performing a similar function; every employee of
such a seller or purchaser who materially aids in the sale; and every
broker-dealer or agent who materially aids in the sale or also liable jointly
and severally with, and to the same extent as, the seller or purchaser, unless
the nonseller or nonpurchaser who is so liable sustains the burden of proof that
he did not know, and in the exercise of reasonable care could not have known, of
the existence of the facts by reason of which the liability is alleged to exist.
There is contribution as in cases of contract among the several persons so
liable.

(d) Any tender specified in this section may be made at any time before
entry of judgment.

(e) Every cause of action under this section survives the death of any
person who might have been a plaintiff or defendant.

(f) No person may sue under this section after five (5) years from the
effective date of the contract of sale. No person may sue under this section:

(1) If the buyer received a written offer, before suit and at a time when
he owned the security, to refund the consideration paid together with interest
at six percent (6%) per year from the date of payment less the amount of any
income received on the security, and he failed to accept the offer within thirty
(30) days of its receipt; or

(2) If the buyer received such an offer before suit and at a time when he
did not own the security unless he rejected the offer in writing within thirty
(30) days of its receipt.

(g) No person who has made or engaged in the performance of any contract
in violation of any provision of this chapter or any rule or order hereunder, or
who has acquired any purported right under any such contract with knowledge of
the facts by reason of which its making or performance was in violation, may
base any suit on the contract.

SECTION 23-42-501. SALE OF UNREGISTERED NONEXEMPT SECURITIES.

It is unlawful for any person to offer or sell any security in this state
unless:

(1) It is registered under this chapter;

(2) The security or transaction is exempted under ' ' 23-42-503 or
23-42-504; or

(3) It is a covered security.

B-3
<PAGE>

CALIFORNIA CORPORATE SECURITIES LAW OF 1968

SECTION 25110. It is unlawful for any person to offer or sell in this
state any security in an issuer transaction (other than in a transaction subject
to Section 25120), whether or not by or through underwriters, unless such sale
has been qualified under Section 25111, 25112 or 25113 (and no order under
Section 25140 or subdivision (a) of Section 25143 is in effect with respect to
such qualification) or unless such security or transaction is exempted under
Chapter 1 (commencing with Section 25100 of this part. The offer or sale of such
a security in a manner that varies or differs from, exceeds the scope of, or
fails to conform with either a material term or material condition of
qualification of the offering as set forth in the permit or qualification order,
or a material representation as to the manner of offering which is set forth in
the application for qualification, shall be an unqualified offer or sale.

SECTION 25500. Any person who willfully participates in any act or
transaction in violation of Section 25400 shall be liable to any other person
who purchases or sells any security at a price which was affected by such act or
transaction for the damages sustained by the latter as a result of such act or
transaction. Such damages shall be the difference between the price at which
such other person purchased or sold securities and the market value which such
securities would have had at the time of his purchase or sale in the absence of
such act or transaction, plus interest at the legal rate.

SECTION 25501. Any person who violates Section 25401 shall be liable to
the person who purchases a security from him or sells a security to him, who may
sue either for rescission or for damages (if the plaintiff or the defendant, as
the case may be, no longer owns the security), unless the defendant proves that
the plaintiff knew the facts concerning the untruth or omission or that the
defendant exercised reasonable care and did not know (or if he had exercised
reasonable care would not have known) of the untruth or omission. Upon
rescission, a purchaser may recover the consideration paid for the security,
plus interest at the legal rate, less the amount of any income received on the
security, upon tender of the security. Upon rescission, a seller may recover the
security, upon tender of the consideration paid for the security plus interest
at the legal rate, less the amount of any income received by the defendant on
the security. Damages recoverable under this section by a purchaser shall be an
amount equal to the difference between (a) the price at which the security was
bought plus interest at the legal rate from the date of purchase and (b) the
value of the security at the time it was disposed of by the plaintiff plus the
amount of any income received on the security by the plaintiff. Damages
recoverable under this section by a seller shall be an amount equal to the
difference between (1) the value of the security at the time of the filing of
the complaint plus the amount of any income received by the defendant on the
security and (2) the price at which the security was sold plus interest at the
legal rate from the date of sale. Any tender specified in this section may be
made at any time before entry of judgment.

SECTION 25502. Any person who violates Section 25402 shall be liable to
the person who purchases a security from him or sells a security to him, for
damages equal to the difference between the price at which such security was
purchased or sold and the market value which such security would have had at the
time of the purchase or sale if the information known to the defendant had been
publicly disseminated prior to that time and a reasonable time had elapsed for
the market to absorb the information, plus interest at the legal rate, unless
the defendant proves that the plaintiff knew the information or that the
plaintiff would have purchased or sold at the same price even if the information
had been revealed to him.

SECTION 25503. Any person who violates Section 25110, 25130 or 25133, or a
condition of qualification under Chapter 2 (commencing with Section 25110) of
this part, imposed pursuant to Section 25141, or an order suspending trading
issued pursuant to Section 25219, shall be liable to any person acquiring from
him the security sold in violation of such section, who may sue to recover the
consideration he paid for such security with interest thereon at the legal rate,
less the amount of any income received therefrom, upon the tender of such
security, or for damages, if he no longer owns the security, or if the
consideration given for the security is not capable of being returned. Damages,
if the plaintiff no longer owns the security, shall be equal to the difference
between (a) his purchase price plus interest at the legal rate from the date of
purchase and (b) the value of the security at the time it was disposed of by the
plaintiff plus the amount of any income received therefrom by the plaintiff.

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Damages, if the consideration given for the security is not capable of
being returned, shall be equal to the value of that consideration plus interest
at the legal rate from the date of purchase, provided the security is tendered;
and if the plaintiff no longer owns the security, damages in such case shall be
equal to the difference between (a) the value of the consideration given for the
security plus interest at the legal rate from the date of purchase and (b) the
value of the security at the time it was disposed of by the plaintiff plus the
amount of any income received therefrom by the plaintiff. Any person who
violates Section 25120 or a condition of qualification under Chapter 3
(commencing with Section 25120) of this part imposed pursuant to Section 25141,
shall be liable to any person acquiring from him the security sold in violation
of such section who may sue to recover the difference between (a) the value of
the consideration received by the seller and (b) the value of the security at
the time it was received by the buyer, with interest thereon at the legal rate
from the date of purchase. Any person on whose behalf an offering is made and
any underwriter of the offering, whether on a best efforts or a firm commitment
basis, shall be jointly and severally liable under this section, but in no event
shall any underwriter (unless such underwriter shall have knowingly received
from the issuer for acting as an underwriter some benefit, directly or
indirectly, in which all other underwriters similarly situated did not share in
proportion to their respective interest in the underwriting) be liable in any
suit or suits authorized under this section for damages in excess of the total
price at which the securities underwritten by him and distributed to the public
were offered to the public. Any tender specified in this section may be made at
any time before entry of judgment. No person shall be liable under this section
for violation of Section 25110, 25120 or 25130 if the sale of the security is
qualified prior to the payment or receipt of any part of the consideration for
the security sold, even though an offer to sell or a contract of sale may have
been made or entered into without qualification.

SECTION 25504. Every person who directly or indirectly controls a person
liable under Section 25501, or 25503, every partner in a firm so liable, every
principal executive officer or director of a corporation so liable, every person
occupying a similar status or performing similar functions, every employee of a
person so liable who materially aids in the act or transaction constituting the
violation, and every broker-dealer or agent who materially aids in the act or
transaction constituting the violation, are also liable jointly and severally
with and to the same extent as such person, unless the other person who is so
liable had no knowledge of or reasonable grounds to believe in the existence of
the facts by reason of which the liability is alleged to exist.

SECTION 25507. (a) No action shall be maintained to enforce any liability
created under Section 25503 (or Section 25504 or Section 25504.1 insofar as they
relate to that section) unless brought before the expiration of two years after
the violation upon which it is based or the expiration of one year after the
discovery by the plaintiff of the facts constituting such violation, whichever
shall first expire.

(b) No buyer may commence an action under Section 25503 if, before suit is
commenced, such buyer shall have received a written offer approved as to form by
the commissioner (1) stating the respect in which liability under such section
may have arisen, (2) offering to repurchase the security for a cash price
payable upon delivery of the security or offering to pay the buyer an amount in
cash equal in either case to the amount recoverable by the buyer in accordance
with Section 25503, or, offering to rescind the transaction by putting the
parties back in the same position as before the transaction, (3) providing that
such offer may be accepted by the buyer at any time within a specified period of
not less than 30 days after the date of receipt thereof unless rejected earlier
during such period by the buyer, (4) setting forth the provisions of this
subdivision (b), and (5) containing such other information as the commissioner
may require by rule or order, and such buyer shall have failed to accept such
offer in writing within the specified period after receipt thereof.

(c) The commissioner may by rule or order impose as a condition to
approval of an offer under subdivision (b) of this section, if the commissioner
finds such action is necessary and appropriate for the protection of investors,
conditions requiring:

(1) That equivalent and concurrent offers be made to all investors as to
whom liability may have arisen and still exists under Section 25503 (or Section
25504 or Section 25504.1 insofar as they relate to that section) in connection
with the distribution or transaction;

(2) That the offer be made subject to a condition voiding such offer if
the issuer, by reason of acceptances, is disabled from commencing or continuing
business;

(3) That the offer be made within a specific period after approval thereof
by the commissioner;

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(4) If the consideration paid by the offeree was other than monetary or if
the offer is of rescission, and if the offer is rejected by the offeree on the
ground that it does not accord him the damages payable under Section 25503 or
that the rescission offered does not place the parties back in the same position
as before the transaction, that an offer so rejected shall not bar the
commencement of an action by the offeree under Section 25503 ((or Section 25504
or Section 25504.1 insofar as they relate to that section); or

(5) That the offeror file a report or reports with the commissioner
containing such information as he may require concerning the making of the
offer, its acceptance or rejection, and compliance with its terms and conditions
or with conditions imposed under this subdivision.

(d) Each person who files a repurchase offer with the commissioner
pursuant to subdivision (b) shall file with the commissioner, in such form as
the commissioner by rule prescribes, an irrevocable consent appointing the
commissioner or the commissioner's successor in office to be such person's
attorney to receive service of any lawful process in any noncriminal suit,
action or proceeding against such person or such person's successor, executor or
administrator, which arises under this law or any rule or order hereunder after
the consent has been filed, with the same force and validity as if served
personally on the person filing the consent. A person who has filed such a
consent in connection with a qualification under this law (or application for a
permit under any prior law if the application under this law states that such
consent is still effective) need not file another. Service may be made by
leaving a copy of the process in the office of the commissioner but it is not
effective unless (1) the plaintiff, who may be the commissioner in a suit,
action or proceeding instituted by him, forthwith sends notice of the service
and a copy of the process by registered or certified mail to the defendant or
respondent at such person's last address on file with the commissioner, and (2)
the plaintiff's affidavit of compliance with this section is filed in the case
on or before the return day of the process, if any, or within such further time
as the court allows.

SECTION 25534. Whenever any securities are issued which the commissioner
determines were offered or sold in violation of Section 25110, 25120, or 25130,
the commissioner may, by written order to the issuer and notice to the holders
of such securities, require certificates evidencing such securities to have
stamped or printed prominently on their face a legend, in the form prescribed by
rule of the commissioner, restricting the transfer of such securities. Upon
receipt of the order, the issuer shall stamp or print such legend prominently on
the face of all outstanding certificates subject to the order. If, after such
order or notice has been given, a request for a hearing is filed in writing by
the person or persons to whom such order or notice was addressed, a hearing
shall be held in accordance with the provisions of the Administrative Procedure
Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title
2 of the Government Code, and the commissioner shall have all the powers granted
thereunder; unless such hearing is commenced within 15 business days after the
request for hearing is received by the commissioner (or the person or persons
affected and the issuer consent to a later date), such order and notice are
rescinded.

COLORADO SECURITIES ACT

SECTION 11-51-301. REQUIREMENT FOR REGISTRATION OF SECURITIES.

It is unlawful for any person to offer to sell or sell any security in
this state unless it is registered under this article or unless the security or
transaction is exempted under sections 11-51-307, 11-51-308, or 11-51-309.

SECTION 11-51-604. CIVIL LIABILITIES.

(1) Any person who sells a security in violation of section 11-51-301 is
liable to the person buying the security from such seller for the consideration
paid for the security, together with interest at the statutory rate from the
date of payment, costs, and reasonable attorney fees, less the amount of any
income received on the security, upon the tender of the security, or is liable
for damages if the buyer no longer owns the security. Damages are deemed to be
the amount that would be recoverable upon a tender, less the value of the
security when the buyer disposed of it, and interest at the statutory rate from
the date of disposition. No person is liable under this subsection (1) for a
violation of section 11-51-301 due solely to a failure to file the prescribed
notification of exemption or to pay the required exemption fee for an exemption
under section 11-51-308(1)(p).

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(2)(a) Except as provided in paragraph (b) of this subsection (2), any
broker-dealer or sales representative who sells a security in violation of
section 11-51-401 is liable to the person buying the security from such seller
for the consideration paid for the security, together with interest at the
statutory rate from the date of payment, costs, and reasonable attorney fees,
less the amount of any income received on the security, upon the tender of the
security, or is liable for damages if the buyer no longer owns the security.
Damages are deemed to be the amount that would be recoverable upon a tender,
less the value of the security when the buyer disposed of it, and interest at
the statutory rate from the date of disposition.

(b) No broker-dealer or sales representative is liable under this
subsection (2) for a sale of a security exempt from registration under section
11-51-307(1)(g) to (1)(j) or for a sale of a security in a transaction exempt
from registration under section 11-51-308 (1)(a), (1)(e) to (1)(l), (1)(o), or
(1)(p); but this paragraph (b) does not apply if at the time of such sale:

(I) In the case of a violation of section 11-51-401 arising from the
failure of a broker-dealer to be licensed under this article, such broker-dealer
was registered as a broker-dealer under the federal "Securities Exchange Act of
1934", licensed as a broker-dealer or its equivalent under the laws of another
state, or held a limited license under this article; or

(II) In the case of a violation of section 11-51-401 arising from the
failure of a sales representative to be licensed under this article, such sales
representative was licensed as a sales representative or its equivalent under
the laws of another state, held a limited license under this article, or in
connection with such sale was acting for a broker-dealer which was registered as
a broker-dealer under the federal "Securities Exchange Act of 1934", licensed as
a broker-dealer or its equivalent under the laws of another state, or licensed
under this article.

(3) Any person who recklessly, knowingly, or with an intent to defraud
sells or buys a security in violation of section 11-51-501 is liable to the
person buying or selling a security in connection with the violation for such
legal or equitable relief which the court deems appropriate, including
rescission, actual damages, interest at the statutory rate, costs, and
reasonable attorney fees.

(4) Any person who sells a security in violation of section
11-51-501(1)(b) (the buyer not knowing of the untruth or omission) and who does
not sustain the burden of proof that such person did not know, and in the
exercise of reasonable care could not have known, of the untruth or omission is
liable to the person buying the security from such person, who may sue to
recover the consideration paid for the security, together with interest at the
statutory rate from the date of payment, costs, and reasonable attorney fees,
less the amount of any income received on the security, upon the tender of the
security, or is liable for damages if the buyer no longer owns the security.
Damages are deemed to be the amount that would be recoverable upon a tender,
less the value of the security when the buyer disposed of it, and interest at
the statutory rate from the date of disposition.

(5)(a) Every person who, directly or indirectly, controls a person liable
under subsection (1) or (2) of this section is liable jointly and severally with
and to the same extent as such controlled person, unless the controlling person
sustains the burden of proof that such person did not know, and in the exercise
of reasonable care could not have known, of the existence of the facts by reason
of which the liability is alleged to exist.

(b) Every person who, directly or indirectly, controls a person liable
under subsection (3) or (4) of this section is liable jointly and severally with
and to the same extent as such controlled person, unless such controlling person
sustains the burden of proof that such person acted in good faith and did not,
directly or indirectly, induce the act or acts constituting the violation or
cause of action.

(c) Any person who knows that another person liable under subsection (3)
or (4) of this section is engaged in conduct which constitutes a violation of
section 11-51-501 and who gives substantial assistance to such conduct is
jointly and severally liable to the same extent as such other person.

(6) Any tender specified in this section may be made at any time before
entry of judgment.

(7) Every cause of action under this article survives the death of any
individual who might have been a plaintiff or defendant.

(8) No person may sue under subsection (1) or (2) or paragraph (a) of
subsection (5) of this section more than two years after the contract of sale.
No person may sue under subsection (3) or (4) or paragraph (b) or (c) of
subsection (5) of this section more than three years after the discovery of the
facts giving rise to a cause of action under subsection (3) or (4) of this
section or after such discovery should have been made by the exercise of
reasonable diligence and in no event more than five years after the purchase or
sale.

(9)(a) No buyer may sue under this section:

(I) If the buyer received a written rescission offer, before suit and at a
time when the buyer owned the security, to refund the consideration paid
together with interest at the statutory rate from the date of payment, less the

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amount of any income received on the security, and the buyer failed to accept
the offer within thirty days of its receipt; or

(II) If the buyer received such an offer before suit and at a time when
the buyer did not own the security, unless the buyer rejects the offer in
writing within thirty days of its receipt.

(b) If, after acceptance, a rescission offer is not performed in
accordance with its terms, the buyer may obtain relief under this section
without regard to the rescission offer.

(10) No person who has made or engaged in the performance of any contract
in violation of any provision of this article or any rule or order under this
article or who has acquired any purported right under any such contract with
knowledge of the facts by reason of which the making or performance of any such
contract was in violation may base any suit on the contract.

(11) Any condition, stipulation, or provision binding any person acquiring
or disposing of any security to waive compliance with any provision of this
article or any rule or order under this article is void.

(12) The rights and remedies provided by this article may be pleaded and
proved in the alternative and are in addition to any other rights or remedies
that may exist at law or in equity, but this article does not create any cause
of action not specified in this section or section 11-51-602.

(13) Any person liable under this section may seek and obtain contribution
from other persons liable under this section, directly or indirectly, for the
same violation. Contribution shall be awarded by the court in accordance with
the actual relative culpabilities of the various persons so liable.

(14) In the case of a willful violation of or a willful refusal to comply
with or obey an order issued by the securities commissioner to any person
pursuant to section 11-51-410 or 11-51-606, the district court of the city and
county of Denver, upon application by the securities commissioner, may issue to
the person an order requiring that person to appear before the court regarding
such violation or refusal. If the securities commissioner establishes by a
preponderance of the evidence that the person willfully violated or willfully
refused to comply with or obey the order, the court may impose legal and
equitable sanctions as are available to the court in the case of contempt of
court and as the court deems appropriate upon such person.

CONNECTICUT UNIFORM SECURITIES ACT

SECTION 36b-16. REGISTRATION OF SECURITY PRIOR TO OFFER OR SALE REQUIRED;
EXEMPTION.

No person shall offer or sell any security in this state unless (1) it is
registered under sections 36b-2 to 36b-33, inclusive, as amended by this Act,
(2) the security or transaction is exempted under section 36b-21, as amended by
section 11 of this Act, or (3) the security is a covered security provided such
person complies with any applicable requirements in subsections (c), (d) and (e)
of section 36b-21, as amended by section 11 of this Act.

SECTION 36b-29. BUYER'S REMEDIES.

(a) Any person who: (1) Offers or sells a security in violation of
subsection (a) of section 36b-6, 36b-16 or subsection (b) of section 36b-24 or
of any regulation or order under section 36b-22 which requires the affirmative
approval of sales literature before it is used, or of any condition imposed
under subsection (d) of section 36b-18 or subsection (g) or (h) of section
36b-19; or (2) offers or sells or materially assists any person who offers or
sells a security by means of any untrue statement of a material fact or any
omission to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they are made, not
misleading, who knew or in the exercise of reasonable care should have known of
the untruth or omission, the buyer not knowing of the untruth or omission, and
who does not sustain the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of the untruth or omission, is
liable to the person buying the security, who may sue either at law or in equity
to recover the consideration paid for the security, together with interest at
eight per cent per year from the date of payment, costs and reasonable
attorneys' fees, less the amount of any income received on the security, upon
the tender of the security, or for damages if he no longer owns the security.

(b)(1) Any person who violates subsection (a) of section 36b-5 and (2) any
investment adviser who violates subsection (b) or (c) of section 36b-5, the
registration requirement in subsection (c) of section 36b-6, or subsection (b)
of section 36b-24, shall be liable to the recipient of investment advisory
services for any consideration paid by the recipient for those services and any
loss resulting from the investment advisory services provided, less

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any profits earned by the recipient through transactions effected as a result of
the advice rendered, plus interest at the rate of eight per cent per year from
the date of payment of the consideration, costs and reasonable attorney's fees.

(c) Every person who directly or indirectly controls a person liable under
subsections (a) and (b) of this section, every partner, officer or director of
such a person, every person occupying a similar status or performing similar
functions, every employee of such a person who materially aids in the act or
transaction constituting the violation and every broker-dealer or agent who
materially aids in the act or transaction constituting the violation are also
liable jointly and severally with and to the same extent as such person, unless
the person who is so liable sustains the burden of proof that he did not know,
and in exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There shall be
contribution as in cases of contract among the several persons so liable.

(d) Any tender specified in this section may be made at any time before
entry of judgment.

(e) Every cause of action under sections 36b-2 to 36b-33, inclusive,
survives the death of any person who might have been a plaintiff or defendant.

(f) No person may bring an action under this section more than two years
after the date of the contract of sale or of the contract for investment
advisory services, except that (1) with respect to actions arising out of
intentional misrepresentation or fraud in the purchase or sale of any interest
in any limited partnership not required to be registered under the Securities
Act of 1933, no person may bring an action more than one year from the date when
the misrepresentation or fraud is discovered, except that no such action may be
brought more than five years from the date of such misrepresentation or fraud
provided, with respect to an action pending on July 1, 1993, that asserts facts
upon which a claim could be asserted under this section on and after July 1,
1993, and which claim is asserted prior to January 1, 1994, no such action may
be brought for intentional misrepresentation or fraud that occurred more than
five years prior to the date of the filing of the complaint in such action, and
(2) with respect to actions arising out of intentional misrepresentation or
fraud in the purchase or sale of securities other than securities described in
subdivision (1) of this subsection, no person may bring an action more than one
year from the date when the misrepresentation or fraud is discovered or in the
exercise of reasonable care should have been discovered, except that no such
action may be brought more than three years from the date of such
misrepresentation or fraud.

(g) No person may bring an action under subsection (a) of this section:
(1) If the buyer received a written offer, before suit and at a time when he
owned the security, to refund the consideration paid together with interest at
six percent per year from the date of payment, less the amount of any income
received on the security, and he failed to accept the offer within thirty days
of its receipt, or (2) if the buyer received such an offer before bringing a
cause of action and at a time when he did not own the security, unless he
rejected the offer in writing within thirty days of its receipt.

(h) No person who has made or engaged in the performance of any contract
in violation of any provision of sections 36b-2 to 36b-33, inclusive, or any
regulation or order thereunder, or who has acquired any purported right under
any such contract with knowledge of the facts by reason of which its making or
performance was in violation, may base any cause of action on the contract.

(i) Any condition, stipulation or provision binding any person acquiring
any security or receiving investment advice to waive compliance with any
provision of sections 36b-2 to 36b-33, inclusive, or any regulation or order
thereunder is void. (j) The rights and remedies provided by sections 36b-2 to
36b-33, inclusive, are in addition to any other rights or remedies that may
exist at law or in equity.

DISTRICT OF COLUMBIA SECURITIES ACT

[NO PROVISION REQUIRING REGISTRATION OF SECURITIES.]

FLORIDA SECURITIES AND INVESTOR PROTECTION ACT

SECTION 517.07. REGISTRATION OF SECURITIES.

(1) It is unlawful and a violation of this chapter for any person to sell
or offer to sell a security within this state unless the security is exempt
under section 517.051, is sold in a transaction exempt under section. 517.061,
is a federal covered security, or is registered pursuant to this chapter.

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(2) No securities that are required to be registered under this chapter
shall be sold or offered for sale within this state unless such securities have
been registered pursuant to this chapter and unless prior to each sale the
purchaser is furnished with a prospectus meeting the requirements of rules
adopted by the department.

(3) The department shall issue a permit when registration has been granted
by the department. A permit to sell securities is effective for 1 year from the
date it was granted. Registration of securities shall be deemed to include the
registration of rights to subscribe to such securities if the application under
section 517.081 or section 517.082 for registration of such securities includes
a statement that such rights are to be issued.

(4) A record of the registration of securities shall be kept in the office
of the department, in which register of securities shall also be recorded any
orders entered by the department with respect to such securities. Such register,
and all information with respect to the securities registered therein, shall be
open to public inspection.

(5) Notwithstanding any other provision of this section, offers of
securities required to be registered by this section may be made in this state
before the registration of such securities if the offers are made in conformity
with rules adopted by the department.

SECTION 517.211. REMEDIES AVAILABLE IN CASES OF UNLAWFUL SALE.

(1) Every sale made in violation of either section 517.07 or section
517.12 may be rescinded at the election of the purchaser; and the person making
the sale and every director, officer, partner, or agent of or for the seller, if
the director, officer, partner, or agent has personally participated or aided in
making the sale, is jointly and severally liable to the purchaser in an action
for rescission, if the purchaser still owns the security, or for damages, if the
purchaser has sold the security. No purchaser otherwise entitled will have the
benefit of this subsection who has refused or failed, within 30 days of receipt,
to accept an offer made in writing by the seller, if the purchaser has not sold
the security, to take back the security in question and to refund the full
amount paid by the purchaser or, if the purchaser has sold the security, to pay
the purchaser an amount equal to the difference between the amount paid for the
security and the amount received by the purchaser on the sale of the security,
together, in either case, with interest on the full amount paid for the security
by the purchaser at the legal rate, pursuant to section 55.03, for the period
from the date of payment by the purchaser to the date of repayment, less the
amount of any income received by the purchaser on the security.

(2) Any person purchasing or selling a security in violation of section
517.301, and every director, officer, partner, or agent of or for the purchaser
or seller, if the director, officer, partner, or agent has personally
participated or aided in making the sale or purchase, is jointly and severally
liable to the person selling the security to or purchasing the security from
such person in an action for rescission, if the plaintiff still owns the
security, or for damages, if the plaintiff has sold the security.

(3) In an action for rescission:

(a) A purchaser may recover the consideration paid for the security or
investment, plus interest thereon at the legal rate, less the amount of any
income received by the purchaser on the security or investment upon tender of
the security or investment.

(b) A seller may recover the security upon tender of the consideration
paid for the security, plus interest at the legal rate, less the amount of any
income received by the defendant on the security.

(4) In an action for damages brought by a purchaser of a security or
investment, the plaintiff shall recover an amount equal to the difference
between:

(a) The consideration paid for the security or investment, plus interest
thereon at the legal rate from the date of purchase; and

(b) The value of the security or investment at the time it was disposed of
by the plaintiff, plus the amount of any income received on the security or
investment by the plaintiff.

(5) In an action for damages brought by a seller of a security, the
plaintiff shall recover an amount equal to the difference between:

(a) The value of the security at the time of the complaint, plus the
amount of any income received by the defendant on the security; and

(b) The consideration received for the security, plus interest at the
legal rate from the date of sale.

(6) In any action brought under this section, including an appeal, the
court shall award reasonable attorneys' fees to the prevailing party unless the
court finds that the award of such fees would be unjust.

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GEORGIA SECURITIES ACT OF 1973

SECTION 10-5-5. REGISTRATION OF SECURITIES; WHEN AND HOW REQUIRED;
DELIVERY OF PROSPECTUS; PURCHASER'S RIGHT OF RESCISSION.

(a) Generally. It shall be unlawful for any person to offer for sale or to
sell any securities to any person in this state unless:

(1) They are subject to an effective registration statement under this
chapter;

(2) The security or transaction is exempt under Code Section 10-5-8 or
Code Section 10-5-9, respectively; or

(3) The security is a federal covered security.

SECTION 10-5-12. UNLAWFUL PRACTICES.

(a) It shall be unlawful for any person:

(1) To offer to sell or to sell any security in violation of Code Section
10-5-3, 10-5-5, or 10-5-19 or any rule, regulation, or order promulgated or
issued by the commissioner under this chapter;

SECTION 10-5-14. CIVIL LIABILITIES FROM SALES OF SECURITIES.

(a) Any person who violates subsection (a) of Code Section 10-5-12 shall
be liable to the person buying such security; and such buyer may sue in any
court of competent jurisdiction to recover the consideration paid in cash (or
the fair value thereof at the time the consideration was paid if such
consideration was not paid in cash) for the security with interest thereon from
the date of payment down to the date of repayment as computed in paragraph (1)
of subsection (d) of this Code section (less the amount of any income received
thereon), together with all taxable court costs and reasonable attorney's fees,
upon the tender, where practicable, of the security at any time before the entry
of judgment, or for damages if he no longer owns the security. Damages are the
amount which equals the difference between the fair value of the consideration
the buyer gave for the security and the fair value of the security at the time
the buyer disposed of it, plus interest thereon from the date of payment down to
the date of repayment as computed in paragraph (2) of subsection (d) of this
Code section. A person who offers or sells a security in violation of paragraph
(2) of subsection (a) of Code Section 10-5-12 is not liable under this
subsection if:

(1) The purchaser knew of the untrue statement of a material fact or
omission of a statement of a material fact; or

(2) The seller did not know and in the exercise of reasonable care could
not have known of the untrue statement or misleading omission.

(b) Every contract between a certified public accountant who holds himself
out as a "financial planner" or an "investment adviser" and an advisory client
or between an investment adviser and an advisory client made in violation of any
provision of this chapter and every such contract heretofore or hereafter made,
the performance of which involves the violation of or continuance of any
relationship or practice in violation of any provision of this chapter or any
rule, regulation, or order thereunder, shall be void:

(1) As regards the rights of any person who, in violation of any such
provision, rule, regulation, or order shall have made or engaged in the
performance of any such contract; and

(2) As regards the rights of any person who, not being a party to such
contract, shall have acquired any right thereunder with actual knowledge of the
facts by reason of which the making or performance of such contract was in
violation of any such provision.

The advisory client who is a party to such a contract may sue to recover
the consideration paid under such contract to such investment adviser or
investment adviser representative, together with interest thereon at the annual
rate of 6 percent from the date of payment of the consideration, plus costs and
reasonable attorney's fees.

(c) Every person who directly or indirectly controls a person liable under
subsection (a), (b), or (h) of this Code section, every general partner,
executive officer, or director of such person liable under subsection (a), (b),
or (h) of this Code section, every person occupying a similar status or
performing similar functions, and every dealer, limited dealer, salesman, or
limited salesman who participates in any material way in the sale is liable
jointly and severally with and to the same extent as the person whose liability
arises under subsection (a), (b), or (h) of this Code section unless the person
whose liability arises under this subsection sustains the burden of proof that
he did not know and in the exercise of reasonable care could not have known of
the existence of the facts by reason of which liability is alleged to exist.
There is contribution as in the case of contract among several persons so
liable.

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(d) With respect to the purchase, sale, or offer to purchase or sell a
security, no person may sue under this Code section more than two years from the
date of the contract for sale or sale, if there is no contract for sale. With
respect to the purchase, sale, or offer to purchase or sell a security, no
person may sue under this Code section:

(1) If the buyer received a written offer, before suit and at a time when
he owned the security, to repay in cash or by certified or official bank check,
within 30 days from the date of acceptance of such offer in exchange for the
securities, the fair value of the consideration paid (determined as of the date
such payment was originally paid by the buyer), together with interest on such
amount for the period from the date of payment down to the date of repayment,
such interest to be computed in case the security consists of an
interest-bearing obligation at the same rate as provided in the security or, in
case the security consists of other than an interest-bearing obligation, at the
rate of 6 percent per annum, less, in every case, the amount of any income
received on the security, and:

(A) Such offeree does not accept the offer within 30 days of its receipt;
or

(B) If such offer was accepted, the terms thereof were complied with by
the offeror; or

(2) If the buyer received a written offer before suit and at a time when
he did not own the security to repay in cash or by certified or official bank
check, within 30 days from the date of acceptance of such offer, an amount equal
to the difference between the fair value of the consideration the buyer gave for
the security and the fair value of the security at the time the buyer disposed
of it, together with interest on such amount for the period from the date of
payment down to the date of repayment, such interest to be computed in case the
security consists of an interest-bearing obligation at the same rate as provided
in the security or, in case the security consists of other than an
interest-bearing obligation, at the rate of 6 percent per annum, less, in every
case, the amount of any income received on the security, and:

(A) Such offeree does not accept the offer within 30 days of its receipt;
or

(B) If such offer was accepted, the terms thereof were complied with by
the offeror, provided no written offer shall be effective within the meaning of
this subsection unless it would be exempt under Code Section 10-5-9 or, if
registration would have been required, then unless such rescission offer has
been registered and effected under a subsection of Code Section 10-5-5. Any
person who is paid for his security in the amount provided by this subsection
shall be foreclosed from asserting any remedies under this chapter regardless of
whether the other requirements of this subsection have been complied with.

(e) With respect to the activities of a certified public accountant who
holds himself out as a "financial planner" or an "investment adviser" or an
investment adviser or investment adviser representative, no person may sue under
this Code section more than two years from the date of the transaction upon
which the suit is based.

(f) Every cause of action under this chapter survives the death of any
person who might have been a plaintiff or defendant.

(g) Nothing in this chapter shall limit any statutory or common-law right
of any person in any court for any act involving the sale of a security.

(h) Any designated dealer or designated salesman who materially violates
Code Section 10-5-4 or 10-5-5 or subsection (a) or (d) of Code Section 10-5-12
with respect to a transaction involving a designated security shall be liable to
the person buying such security for:

(1) The consideration paid in cash (or the fair value of the consideration
paid at the time it was paid if such consideration was not paid in cash) for
such security with interest thereon from the date of payment to the date of
repayment as computed under paragraph (1) of subsection (d) of this Code
section, less the amount of any income paid thereon, upon the tender of the
security at any time before the entry of judgment;

(2) An additional amount equal to three times the amount calculated
pursuant to paragraph (1) of this subsection; and

(3) Court costs and reasonable attorney's fees.

(i) The form of action provided by Code Section 9-11-23 may be used in any
action brought pursuant to subsection (h) of this Code section, and, in such
case, it shall be conclusively presumed that a class of persons numbering ten or
more who purchased the same designated security from or through the same
designated dealer or designated salesman shall constitute a class so numerous as
to make it impracticable to bring them all before the courts.

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<PAGE>

HAWAII UNIFORM SECURITIES ACT

SECTION 485-8. REGISTRATION OF SECURITIES.

It shall be unlawful for any person to sell or offer to sell in the state,
any securities except of a class exempt under section 485-4 or unless sold or
offered in any transaction exempt under section 485-6 or unless it is federal
covered security, unless the security has been registered by notification or by
qualification as hereinafter provided. Registration of stock shall be deemed to
include the registration of rights to subscribe to the stock if the notice under
section 485-9 or the application under section 485-10 includes a statement that
the rights are to be issued. A record of the registration of securities shall be
kept in a register of securities to be kept in the office of the commissioner of
securities in which register also shall be recorded any notice filings made
pursuant to section 485-A and any orders entered by the commissioner with
respect to the securities. The register and all information with respect to the
securities registered therein shall be open to public inspection.

SECTION 485-20. REMEDIES.

(a) Sales voidable when and by whom. Every sale made in violation of this
chapter shall be voidable at the election of the purchaser; and the person
making the sale and every director, officer, or agent of or for the seller, if
the director, officer, or agent has personally participated or aided in any way
in making the sale, shall be jointly and severally liable to the purchaser in an
action at law in any court of competent jurisdiction upon tender of the
securities sold or of the contract made for the full amount paid by the
purchaser, with interest, together with all taxable court costs (and reasonable
attorney's fees); provided that notwithstanding any law to the contrary, no
action shall be brought for the recovery of the purchase price after five years
from the date of sale or after two years from the discovery of facts
constituting the violations, but in any event after seven years from the date of
the sale; and provided further that no purchaser otherwise entitled shall claim
or have the benefit of this section who has refused or failed within thirty days
from the date thereof to accept an offer in writing of the seller to take back
the security in question and to refund the full amount paid by the purchaser,
together with interest on the amount for the period from the date of payment by
the purchaser down to the date of repayment, such interest to be computed:

(1) In case the securities consist of interest-bearing obligations, at the
same rate as provided in the obligations; and

(2) In case the securities consist of other than interest-bearing
obligations, at the rate of ten percent a year; less, in every case, the amount
of any income from the securities that may have been received by the purchaser.

(b) Action on bond. Any person having a right of action against a dealer
or salesperson under this section shall have a right of action under the bond
provided in section 485-14.

(c) Registration in good faith. A registration by notification made in
good faith and after the commissioner of securities, on application, has given
tentative consent to such registration, shall not, as to sales made prior to
revocation of the registration, result in the liabilities prescribed in this
section, although the securities may not be entitled to such registration.

IDAHO SECURITIES ACT

Section 30-1446. CIVIL LIABILITIES -- SURVIVAL AND LIMITATION OF ACTIONS
WAIVER OF ACT VOID.

(1) Any person who offers or sells a security in violation of any
provisions of sections 30-1416 through 30-1431, Idaho Code, transacts business
in violation of the provisions of section 30-1406, Idaho Code, except section
30-1406(4), Idaho Code, or offers to sell or sells a security by means of any
untrue statement of a material fact or any omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading (the buyer not knowing
of the untruth or omission) and who does not sustain the burden of proof that he
did not know, and in the exercise of reasonable care could not have known, the
untruth or omission is liable to the person buying the security from him, who
shall be entitled to sue either at law or in equity to recover the consideration
paid for the security, together with interest at six per cent (6%) per annum
from the date of payment, costs, and reasonable attorneys' fees, less the amount
of any income received on the security, upon the tender of the security, or for
damages if he no longer owns the security. Damages shall be the amount that
would be recoverable upon a tender less (a) the value of the security when the
buyer disposed of it, and (b) interest at six per cent (6%) per annum from the
date of disposition.

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<PAGE>

(2) Every person who directly or indirectly controls a seller liable under
subsection (1) of this section, every partner, officer or director or person
occupying a similar status or performing similar functions or employee of such a
seller and every broker-dealer or salesman who participates or materially aids
in the sale is liable jointly and severally with and to the same extent as the
seller if such person knew, or in the exercise of reasonable care could have
known, of the existence of the facts by reason of which the liability is alleged
to exist. There shall be contribution among the several persons so liable.

(3) Any tender specified in this section may be made at any time before
entry of judgment. A cause of action under this statute survives the death of
any person who might have been a plaintiff or a defendant. No person may sue
under this section more than three (3) years after the contract of sale. No
person may sue under this section (a) if the buyer has received a bona fide
offer in writing at a time when he owned the security, to refund the
consideration paid together with interest at six per cent (6%) per annum from
the date of payment, less the amount of any income received on the security, and
failed to accept such offer within thirty (30) days of its receipt, or (b) if
the buyer has received a bona fide offer in writing at a time when he did not
own the security in the amount that would be recoverable under this section upon
a tender less; (i) the value of the security when the buyer disposed of it and,
(ii) interest at six per cent (6%) per annum from the date of disposition, and
failed to accept such offer within thirty (30) days of its receipt.

(4) No person who has made or engaged in the performance of any contract
in violation of any provision of this chapter or any rule or order hereunder or
who has acquired any purported right under any such contract with knowledge of
the facts by reason of which its making or performance was in violation, may
base any suit on such contract. Any condition, stipulation or provision binding
any person acquiring any security to waive compliance with any provision of this
chapter or any rule or order hereunder is void as against public policy and in
the public interest.

ILLINOIS SECURITIES LAW OF 1953

SECTION 5. REGISTRATION OF SECURITIES.

All securities except those set forth under Section 2a of this Act, or
those exempt under Section 3 of this Act, or those offered or sold in
transactions exempt under Section 4 of this Act, or face amount certificate
contracts required to be registered under Section 6 of this Act, or investment
fund shares required to be registered under Section 7 of this Act, shall be
registered either by coordination or by qualification, as hereinafter in this
Section provided, prior to their offer or sale in this State.

SECTION 13. PRIVATE AND OTHER CIVIL REMEDIES; SECURITIES.

A. Every sale of a security made in violation of the provisions of this
Act shall be voidable at the election of the purchaser exercised as provided in
subsection B of this Section; and the issuer, controlling person, underwriter,
dealer or other person by or on behalf of whom said sale was made, and each
underwriter, dealer or salesperson who shall have participated or aided in any
way in making the sale, and in case the issuer, controlling person, underwriter
or dealer is a corporation or unincorporated association or organization, each
of its officers and directors (or persons performing similar functions) who
shall have participated or aided in making the sale, shall be jointly and
severally liable to the purchaser as follows:

(1) for the full amount paid, together with interest from the date of
payment for the securities sold at the rate of the interest or dividend
stipulated in the securities sold (or if no rate is stipulated, then at the rate
of 10% per annum) less any income or other amounts received by the purchaser on
the securities, upon offer to tender to the seller or tender into court of the
securities sold or, where the securities were not received, of any contract made
in respect of the sale, or

(2) if the purchaser no longer owns the securities, for the amounts set
forth in clause (1) of this subsection A less any amounts received by the
purchaser for or on account of the disposition of the securities.

If the purchaser shall prevail in any action brought to enforce any of the
remedies provided in this subsection, the court shall assess costs together with
the reasonable fees and expenses of the purchaser's attorney against the
defendant. Any provision of this subsection A to the contrary notwithstanding,
the civil remedies provided in this subsection A shall not be available against
any person by reason of the failure to file with the Secretary of State, or on
account of the content of, any report of sale provided for in subsection G or P
of Section 4, paragraph (2) of subsection D of Sections 5 and 6 or paragraph (2)
of subsection F of Section 7 of this Act.

B. Notice of any election provided for in subsection A of this Section
shall be given by the purchaser within 6 months after the purchaser shall have
knowledge that the sale of the securities to him or her is voidable, to

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<PAGE>

each person from whom recovery will be sought, by registered mail or certified
mail, return receipt requested, addressed to the person to be notified at his or
her last known address with proper postage affixed, or by personal service.

C. No purchaser shall have any right or remedy under this Section who
shall fail, within 15 days from the date of receipt thereof, to accept an offer
to repurchase the securities purchased by him or her for a price equal to the
full amount paid therefor plus interest thereon and less any income thereon as
set forth in subsection A of this Section. Every offer of repurchase provided
for in this subsection shall be in writing, shall be delivered to the purchaser
or sent by registered mail or certified mail, return receipt requested,
addressed to the purchaser at his or her last known address, and shall offer to
repurchase the securities sold for a price equal to the full amount paid
therefor plus interest thereon and less any income thereon as set for in
subsection A of this Section. Such offer shall continue in force for 15 days
from the date on which it was received by the purchaser, shall advise the
purchaser of his or her rights and the period of time limited for acceptance
thereof, and shall contain such further information, if any, as the Secretary of
State may prescribe. Any agreement not to accept or refusing or waiving any
offer made during or prior to said 15 days shall be void.

D. No action shall be brought for relief under this Section or upon or
because of any of the matters for which relief is granted by this Section after
3 years from the date of sale; provided, that if the party bringing the action
neither know nor in the exercise of reasonable diligence should have known of
any alleged violation of subsection E, F, G, H, I or J of Section 12 of this Act
which is the basis for the action, the 3 year period provided herein shall begin
to run upon the earlier of:

(1) the date upon which the party bringing the action has actual knowledge
of the alleged violation of this Act; or

(2) the date upon which the party bringing the action has notice of facts
which in the exercise of reasonable diligence would lead to actual knowledge of
the alleged violation of this Act; but in no event shall the period of
limitation so extended be more than 2 years beyond the expiration of the 3 year
period otherwise applicable.

E. The term purchaser as used in this Section shall include the personal
representative or representatives of the purchaser.

F. Anything in this Act to the contrary notwithstanding and in addition to
all other remedies, the Secretary of State through the Office of the Attorney
General may bring an action in any circuit court of the State of Illinois in the
name and on behalf of the State of Illinois against any person or persons
participating in or about to participate in a violation of this Act to enjoin
those persons who are continuing or doing any act in violation of this Act or to
enforce compliance with this Act. Upon a proper showing the court may grant a
permanent or preliminary injunction or temporary restraining order without bond,
and may order the defendant to make an offer of rescission of any sales or
purchases of securities determined by the court to be unlawful under this Act.
The court shall further have jurisdiction and authority, in addition to the
other penalties and remedies in this Act provided, to act or appoint another
person as a receiver, conservator, ancillary receiver or ancillary conservator
for the defendant or the defendant's assets located in this State and may assess
costs against the defendant for the use of the State.

G.(1) Whenever any person has engaged or is about to engage in any act or
practice constituting a violation of this Act, any party in interest may bring
an action in the circuit court of the county in which the party in interest may
bring an action in the circuit court of the county in which the party in
interest resides, or where the person has his, her or its principal office or
registered office or where any part of the transaction has or will take place,
to enjoin that person from continuing or doing any act in violation of or to
enforce compliance with this Act. Upon a proper showing, the court shall grant a
permanent or preliminary injunction or temporary restraining order or rescission
of any sales or purchases of securities determined to be unlawful under this
Act, and may assess costs of the proceedings against the defendant.

(2) A copy of the complaint shall be served upon the Secretary of State
within one business day of filing in the form and manner prescribed by the
Secretary of Sate by rule or regulation; provided, that the failure to comply
with this provision shall not invalidate the action which is the subject of the
complaint.

H. Any provision of this Section 13 to the contrary notwithstanding,
neither the civil remedies provided in subsection A of this Section 13 nor the
remedies of rescission and appointment of a receiver, conservator, ancillary
receiver or ancillary conservator provided in subsection I of Section 11 of this
Act and in subsections F and G of this Section 13 of this Act nor the remedies
of restitution, damages or disgorgement of profits provided in subsection I of
Section 11 of this Act shall be available against any person by reason of the
failure to file with the Secretary of State, or on account of the contents of,
any notice filing under Section 2a of the Act or subsection C-5 of Section 8 of
this Act or any report of sale provided for in subsection G or P of Section 4,
paragraph (2) of subsection D of Sections 5 and 6, or paragraph (2) of
subsection F of Section 7 of this Act.

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INDIANA CODE

SECTION 23-2-1-3. It is unlawful for any person to offer or sell any
security in Indiana unless:

(1) it is registered under this chapter;

(2) the security or transaction is exempted under section 2 of this
chapter; or

(3) it is a federal covered security.

SECTION 23-2-1-19. (a) A person who offers or sells a security in
violation of this chapter, and who does not sustain the burden of proof that the
person did not know and in the exercise of reasonable care could not have known
of the violation, is liable to any other party to the transaction who did not
knowingly participate in the violation or who did not have, at the time of the
transaction, knowledge of the violation, who may sue either at law or in equity
to rescind the transaction or to recover the consideration paid, together, in
either case, with interest as computed in subsection (g)(1), plus costs, and
reasonable attorney's fees, less the amount of any cash or other property
received on the security upon the tender of the security by the person bringing
the action or for damages if the person no longer owns the security. Damages are
the amount that would be recoverable upon a tender less:

(1) the value of the security when the buyer disposed of the security; and

(2) the interest as computed in subsection (g)(1) on the value of the
security from the date of disposition.

(b) A person who purchases a security in violation of this chapter, and
who does not sustain the burden of proof that the person did not know and in the
exercise of reasonable care could not have known of the violation, is liable to
any other party to the transaction who did not knowingly participate in the
violation or who did not have, at the time of the transaction, knowledge of the
violation. The other party to the transaction may bring an action to rescind the
transaction or for damages, together, in either case, with reasonable attorney's
fees, upon the tender of the consideration received by the person bringing the
action.

(c) A person who, for compensation, engages in the business of advising
others, either directly or through publications or writings, as to the value of
securities or as to the advisability of investing in, purchasing, or selling
securities, or who, for compensation and as a part of a regular business, issues
analyses or reports concerning securities and:

(1) violates section 8, 12.1(b), or 14 of this chapter;

(2) employs a device, scheme, or artifice to defraud a person; or

(3) engages in an act that operates or would operate as fraud or deceit
upon a person;

is liable to the other person, who may bring an action to recover any
consideration paid for advice, any loss due to advice, interest at eight percent
(8%) each year from the date consideration was paid, costs, and reasonable
attorney's fees less the value of cash or property received due to the advice.
It is a defense to an action brought for a violation of section 12.1(b) of this
chapter that the person accused of the violation did not know of the violation
and, exercising reasonable care, could not have known of the violation.

(d) A person who directly or indirectly controls a person liable under
subsection (a), (b), or (c), a partner, officer, or director of the person, a
person occupying a similar status or performing similar functions, an employee
of a person who materially aids in the conduct creating the liability, and a
broker-dealer or agent who materially aids in the conduct are also liable
jointly and severally with and to the same extent as the person, unless the
person who is liable sustains the burden of proof that the person did not know,
and in the exercise of reasonable care could not have known, of the existence of
the facts by reason of which the liability is alleged to exist. There is
contribution as in cases of contract among the several persons liable.

(e) A tender specified in this section may be made at any time before
entry of judgment.

(f) A cause of action under this statute survives the death of a person
who might have been a plaintiff or defendant.

(g) Action under this section shall be commenced within three (3) years
after discovery by the person bringing the action of a violation of this
chapter, and not afterwards. No person may sue under this section:

(1) if that person received a written offer, before suit and at a time
when the person owned the security, to refund the consideration paid together
with interest on that amount from the date of payment to the date of repayment,
with interest on:

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(A) interest-bearing obligations to be computed at the same rate as
provided on the security; and

(B) all other securities at the rate of eight percent (8%) per year;

less the amount of any income received on the security, and the person failed to
accept the offer within thirty (30) days of its receipt; or

(2) if the person received an offer before suit and at a time when the
person did not own the security, unless the person rejected the offer in writing
within thirty (30) days of its receipt.

(h) No person who has made or engaged in the performance of a contract in
violation of this chapter or a rule or order under this chapter, or who has
acquired a purported right under a contract with knowledge of the facts by
reason of which its making or performance was in violation, may base a suit on
the contract.

(i) A condition, stipulation, or provision binding a person acquiring a
security to waive compliance with this chapter or a rule or order under this
chapter is void.

(j) The rights and remedies specifically prescribed by this chapter are
the only rights and remedies created by this chapter, but are in addition to any
other rights or remedies that exist at law or in equity.

IOWA UNIFORM SECURITIES ACT

SECTION 502.201. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this state
unless

1. It is registered under this chapter; or

2. The security or transaction is exempted under section 502.202 or
502.203.

3. It is a federal covered security.

SECTION 502.501. VIOLATION OF REGISTRATION AND RELATED REQUIREMENTS.

1. Any person who:

a. Violates section 502.201, subsection 1 or 2, or section 502.208,
subsection 12, or section 502.406, subsection 2, paragraph "b", or

b. Violates any material condition imposed under section 502.208, or

c. Offers or sells a security at any time when such person has committed a
material violation of section 502.301, or

d. Commits a material violation of any order issued by the administrator
under this chapter, shall be liable to the person purchasing the security
offered or sold in connection with such violation, who may sue either at law or
in equity to recover the consideration paid for the security, together with
interest at the legal rate from the date of payment, costs and reasonable
attorneys' fees, less the amount of any income or distributions, in cash or in
kind, received on the security, upon the tender of the security, or for damages
if the purchaser no longer owns the security. Damages shall be the amount that
would be recoverable upon a tender less

(1) The value of the security when the purchaser disposed of it and

(2) Interest on said value at the legal rate from the date of disposition.
Any person on whose behalf an offering is made and any underwriter of the
offering, whether on a best efforts or a firm commitment basis, shall be jointly
and severally liable under this section, but in no event shall any underwriter
be liable in any suit or suits authorized under this section for damages in
excess of the total price at which the securities underwritten by it and
distributed to the public were offered to the public. Tender requires only
notice of willingness to exchange the security for the amount specified. Any
notice may be given by service as in civil actions or by certified mail
addressed to the last known address of the person liable.

2. Any person who violates section 502.211 shall be liable to the person
selling the security to such violator, which seller may sue either at law or in
equity to recover the security, costs and reasonable attorney's fees, plus any
income or distributions, in cash or in kind, received by the purchaser thereon,
upon tender of the consideration received, or for damages if the purchaser no
longer owns the security. Damages shall be the excess of the value of the
security when the purchaser disposed of it, plus interest at the legal rate from
the date of disposition, over the consideration paid for the security. Tender
requires only notice of willingness to pay the amount specified in exchange for
the security. Any notice may be given by service as in civil actions or by
certified mail to the last known address of the person liable.

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3. In addition to other remedies provided in this chapter, in a proceeding
alleging a violation of sections 502.211 through 502.218 the court may provide
that all shares acquired from a resident of this state in violation of any
provision of this chapter or rule or order issued pursuant to this chapter be
denied voting rights for one year after acquisition, that the shares be
nontransferable on the books of the target company, or that during this one-year
period the target company have the option to call the shares for redemption
either at the price at which the shares were acquired or at book value per share
as of the last day of the fiscal quarter ended prior to the date of the call for
redemption, which redemption shall occur on the date set in the call notice but
not later than sixty days after the call notice is given.

SECTION 502.504. TIME LIMITATIONS ON RIGHTS OF ACTION.

1. No action shall be maintained to enforce any liability created under
either section 502.501 or section 502.503, subsection 1 insofar as it relates to
section 502.501 unless brought within two years after the violation upon which
it is based.

2. No action shall be maintained to enforce any liability created under
either section 502.502 or section 502.503, subsection 1, insofar as it relates
to section 502.502, unless brought within the shorter of the following two
periods:

a. Five years after the act or transaction constituting the violation; or

b. Two years after the plaintiff receives actual notice of, or upon the
exercise of reasonable diligence should have known of, the facts constituting
the violation.

3. No Action shall be maintained to enforce any right of indemnification
or contribution created by section 502.503, subsection 2 unless brought within
one year after final judgment based upon the liability for which the right of
indemnification or contribution exists.

4. No purchaser may commence an action under sections 502.501, 502.502 or
502.503 if:

a. Before suit is commenced, the purchaser has received a written offer:

(1) Stating in reasonable detail why liability under such section may have
arisen and fairly advising the purchaser of the purchaser's rights;

(2) Offering to repurchase the security for cash, payable on delivery of
the security, equal to the consideration paid, together with interest at the
legal rate from the date of payment, less the amount of any income or
distributions, in cash or in kind, received thereon or, if the purchaser no
longer owns the security, offering to pay the purchaser upon acceptance of the
offer an amount in cash equal to the damages computed in accordance with section
502.502, subsection 1; and

(3) Stating that the offer may be accepted by the purchaser at any time
within a specified period of not less than thirty days after the date of receipt
thereof, or such shorter period as the administrator may by rule prescribe; and

b. The purchaser has failed to accept such offer in writing within the
specified period.

5. No seller may commence an action under sections 502.501, 502.502 or
502.503 if:

a. Before suit is commenced, the seller has received a written offer:

(1) Stating in reasonable detail why liability under such section may have
arisen and fairly advising the seller of the seller's rights;

(2) Offering to return the security plus the amount of any income or
distributions, in cash or in kind, received thereon upon payment of the
consideration received, or, if the purchaser no longer owns the security,
offering to pay the seller upon acceptance of the offer an amount in cash equal
to the damages computed in accordance with section 502.502, subsection 2; and

(3) Stating that the offer may be accepted by the seller at any time
within a specified period of not less than thirty days after the date of receipt
thereof, or such shorter period as the administrator may by rule prescribe; and

b. The seller has failed to accept the offer in writing within the
specified period.

6. Offers under subsections 4 or 5 shall be in the form and contain the
information the administrator by rule prescribes. Every offer under either
subsection shall be delivered to the offeree personally or sent by certified
mail addressed to the offeree at the offeree's last known address. If an offer
is not performed in accordance with its terms, suit by the offeree under
sections 502.501, 502.502 or 502.503 shall be permitted without regard to
subsections 4 and 5 of this section.

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KANSAS SECURITIES ACT

SECTION 17-1255. UNLAWFUL TO SELL OR OFFER FOR SALE CERTAIN UNREGISTERED
SECURITIES; PENALTY.

(a) It is unlawful for any person to offer or sell any security in this
state, unless:

(1) It is registered under this act;

(2) the security or transaction is exempt under K.S.A. 17-1261 or 17-1262,
and amendments thereto; or

(3) it is a federal covered security for which the fee has been paid and
documents have been filed as required by K.S.A. 1997 Supp. 17-1270a.

(b) A conviction for an intentional violation of this section is a
severity level 7, nonperson felony. Any violation of this section committed on
or after July 1, 1993, resulting in a loss of $25,000 or more, regardless of its
location on the sentencing grid block, shall have a presumptive sentence of
imprisonment.

SECTION 17-1268. CIVIL LIABILITIES.

(a) Any person, who offers or sells a security in violation of K.S.A.
17-1254 or 17-1255, and amendments thereto, or offers or sells a security by
means of any untrue statement of a material fact or any omission to state a
material fact necessary in order to make the statements made in the light of the
circumstances under which they are made not misleading (the buyer not knowing of
the untruth or omission) and who does not sustain the burden of proof that such
person did not know and in the exercise of reasonable care could not have known
of the untruth or omission, is liable to the person buying the security from
such person, who may sue either at law or in equity to recover the consideration
paid for the security, together with interest at 15% per annum from the date of
payment, costs, and reasonable attorney fees, less the amount of any income
received on the security, upon the tender of the security, or for damages if the
buyer no longer owns the security. Damages are the amount that would be
recoverable upon a tender less:

(1) The value of the security when the buyer disposed of it; and (2)
interest at 15% per annum from the date of disposition.

(b) Every person who directly or indirectly controls a seller liable under
subsection (a), every partner, officer, or director (or person occupying a
similar status or performing similar functions) or employee of such a seller who
materially aids in the sale, and every broker-dealer or agent who materially
aids in the sale is also liable jointly and severally with and to the same
extent as the seller, unless the nonseller who is so liable sustains the burden
of proof that such nonseller did not know, and in the exercise of reasonable
care could not have known, of the existence of the facts by reason of which the
liability is alleged to exist. There is contribution as in cases of contract
among the several persons so liable.

(c) Any tender specified in this section may be made at any time before
entry of judgment. Every cause of action under this statute survives the death
of any person who might have been a plaintiff or defendant. No person may sue
under this section if:

(1) The buyer received a written offer, before suit and at a time when the
buyer owned the security, to refund the consideration paid, together with
interest at 15% per annum from the date of payment, less the amount of any
income received on the security, and the buyer failed to accept the offer within
30 days of its receipt; or (2) the buyer received such an offer before suit and
at a time when the buyer did not own the security, unless the buyer rejected the
offer in writing within 30 days of its receipt.

(d) No person who has made or engaged in the performance of any contract
in violation of any provision of this act or any rule and regulation or order
hereunder, or who has acquired any purported right under any such contract with
knowledge of the facts by reason of which its making or performance was in
violation, may base any suit on the contract. Any condition, stipulation, or
provision binding any person acquiring any security or receiving any investment
advice to waive compliance with any provision of this act or any rule and
regulation or order hereunder is void.

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SECURITIES ACT OF KENTUCKY

SECTION 292.340. REGISTRATION OF SECURITIES.

It is unlawful for any person to offer or sell any security in this state,
unless the security is registered under this chapter, or the security or
transaction is exempt under this chapter, or the security is a covered security.

SECTION 292.480. CIVIL LIABILITIES.

(1) Any person, who offers or sells a security in violation of this
chapter or of any rules or orders promulgated hereunder or offers or sells a
security by means of any untrue statement of a material fact or any omission to
state a material fact necessary in order to make the statements made in the
light of the circumstances under which they are made not misleading (the buyer
nor knowing of the untruth or omission) and who does not sustain the burden of
proof that he did not know and in the exercise of reasonable care could not have
known of the untruth or omission is liable to the person buying the security
from him, who may sue either at law or in equity to recover the consideration
paid for the security, together with interest at the legal rate from the date of
payment costs and reasonable attorneys' fees, less the amount of any income
received on the security, upon the tender of the security, or for damages if he
no longer owns the security. Damages are the amount that would be recoverable
upon a tender less (a) the value of the security when the buyer has disposed of
it and (b) interest at the legal rate from the date of disposition.

(2) Any person who purchases a security in violation of the chapter or of
any administrative regulations or orders promulgated under this chapter or who
purchases a security by means of any untrue statement of a material fact or any
omission to state a material fact necessary in order to make the statements made
in light of the circumstances under which they are made not misleading, the
seller not knowing of the untruth or omission, and who does not sustain the
burden of proof that he did not know and in the exercise of reasonable care
could not have known of the untruth or omission is liable to the person selling
the security to him, who may sue either at law or in equity for:

(a) A return of the security, together with any income received by the
purchaser on the security, costs, and reasonable attorney's fees, upon a tender
of the full amount of the consideration received for the security; or

(b) If the purchaser no longer owns the security, the difference between
the fair value of the security at the date of the transaction and the
consideration received for the security, together with interest on the
difference at the legal rate compounded annually from the date of the
transaction, and costs and reasonable attorney's fees.

(3) For purposes of paragraph (b) of subsection (2) of this section, when
the purchaser no longer owns the security, if a seller seeking relief under
paragraph (b) of subsection (2) of this section offers and presents admissible
evidence of the highest intermediate value of the subject security as of some
specific date occurring within a reasonable period of time after the date of the
sale of the security but no later than the date an action under paragraph (b) of
subsection (2) of this section is filed, or of the total consideration received
by the purchaser in a subsequent sale of that security, it shall be presumed
until rebutted by a preponderance of evidence to the contrary that the value or
sale price, as applicable, is the fair value of the security at the date of the
transaction as those terms are used in paragraph (b) of subsection (2) of this
section to measure damages. For purposes of subsections (1) and (2) of this
section and all other provisions of this chapter, statements and omissions may
be either oral or written.

(4) Every person who directly or indirectly controls a seller or purchaser
liable under subsection (1) or (2) of this section, every partner, officer or
director (or person occupying a similar status or performing similar functions)
or employee of a seller or purchaser who materially aids in the sale or
purchase, and every broker-dealer or agent who materially aids in the sale or
purchase is also liable jointly and severally with and to the same extent as the
seller or purchaser, unless the nonseller or nonpurchaser who is so liable
sustains the burden of proof that he did not know, and in the exercise of
reasonable care could not have known, of the existence of the facts by reason of
which the liability is alleged to exist. There is contribution as in cases of
contract among the several persons so liable.

(5) Any tender specified in this section may be made at any time before
entry of judgement. Every cause of action under this statute survives the death
of any person who might have been a plaintiff or defendant. No person may sue
under this section more than three (3) years after the occurrence of the act,
omission, or transaction constituting a violation of this chapter. No person may
sue under this section:

(a) If the buyer received a written offer, before suit and at a time when
he owned the security, to refund the consideration paid together with interest
at the legal rate from the date of payment, less the amount of any income
received on the security, and he failed to accept the offer within thirty (30)
days of its receipt;

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(b) If the buyer received an offer before suit and at a time when he did
not own the security, unless he rejected the offer in writing within thirty (30)
days of its receipt; or

(c) If paragraph (b) of subsection (2) or this section applies, and if the
seller received a written offer before suit equal to the difference between the
greater of the highest intermediate value of the security of the consideration
received by the purchaser upon disposal of the security and the consideration
received by the seller for the security, together with interest on the
difference at the legal rate from the date of the transaction; or if paragraph
(a) of subsection (2) of this section applies, and if the seller received a
written offer to return the security together with any income received by the
purchaser on the security; and in either case he failed to accept the offer
within thirty (30) days of its receipt.

(6) No person who has made or engaged in the performance of any contract
in violation of any provision of this chapter or any rule or order hereunder, or
who has acquired any purported right under any contract with knowledge of the
facts by reason of which its making or performance was in violation, may base
any suit on the contract. Any condition, stipulation or provision binding any
person acquiring any security to waive compliance with any provision of this
chapter or any rule or order hereunder is void.

(7) The rights and remedies provided by this section are in addition to
any other rights or remedies that may exist at law or in equity.

LOUISIANA SECURITIES LAW

SECTION 51:705. REGISTRATION OF SECURITIES; WHEN AND HOW REQUIRED;
DELIVERY OF PROSPECTUS.

A. Generally. It shall be unlawful for any person to offer for sale or to
sell any securities to any person in this state unless:

(1) They are subject to an effective registration statement under this
Part; or

(2) The security or transaction is exempt under R.S. 51:708 or R.S.
51:709.

SECTION 51:712. UNLAWFUL PRACTICES.

A. It shall be unlawful for any person:

(1) To offer to sell or to sell any security in violation of R.S. 51:703,
705, or any rule, regulation or order promulgated or issued by the commissioner
under this Part.

(2) To offer to sell or to sell a security by means of any oral or written
untrue statement of a material fact or any omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading, the buyer not knowing
of the untruth or omission, if such person shall not sustain the burden of proof
that he did not know, and in the exercise of reasonable care could not have
known, of the untruth or omission.

(3) To offer or sell any security:

(a) Registered under R.S. 51:705(B) by means of any prospectus except a
prospectus which complies with R.S. 51:705(B)(3).

(b) Registered under R.S. 51:705(E) by means of any prospectus except a
prospectus which complies with R.S. 51:705(E)(3).

(c) Registered under R.S. 51:705(F) by means of any prospectus except a
prospectus which complies with R.S. 51:705(F)(4).

SECTION 51:714. CIVIL LIABILITY FROM SALES OF SECURITIES.

A. Any person who violates R.S. 51:712(A) shall be liable to the person
buying such security, and such buyer may sue in any court to recover the
consideration paid in cash or, if such consideration was not paid in cash, the
fair value thereof at the time such consideration was paid for the security with
interest thereon from the date of payment down to the date of repayment as
computed in R.S. 51:714(C)(1), less the amount of any income received thereon,
together with all taxable court costs and reasonable attorney's fees, upon the
tender, where practicable, of the security at any time before the entry of
judgment, or for damages if he no longer owns the security. Damages are the
amount which equals the difference between the fair value of the consideration
the buyer

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gave for the security and the fair value of the security at the time the buyer
disposed of it, plus interest thereon from the date of payment to the date of
repayment as computed in R.S. 51:714(C)(2).

B. Every person who directly or indirectly controls a person liable under
Subsection A of this Section, every general partner, executive officer, or
director of such person liable under Subsection A of this Section, every person
occupying a similar status or performing similar functions, and every dealer or
salesman who participates in any material way in the sale is liable jointly and
severally with and to the same extent as the person liable under Subsection A of
this Section unless the person whose liability arises under this Subsection
sustains the burden of proof that he did not know and in the exercise of
reasonable care could not have known of the existence of the facts by reason of
which liability is alleged to exist. There is contribution as in the case of
contract among several persons so liable.

C. (1) No person may sue under this Section more than two years from the
date of the contract for sale or sale, if there is no contract for sale. No
person may sue under this Section:

(a) If the buyer received a written offer, before suit and at a time when
he owned the security, to repay in cash or by certified or official bank check,
within thirty days from the date of acceptance of such offer in exchange for the
securities, the fair value of the consideration paid, determined as of the date
such payment was originally paid by the buyer, together with interest on such
amount for the period from the date of payment to the date of repayment, such
interest to be computed in case the security consists of an interest-bearing
obligation, at the same rate as provided in the security or, in case the
security consists of other than an interest-bearing obligation, at the
applicable rate of legal interest, less, in every case, the amount of any income
received on the security, and:

(i) Such offeree does not accept the offer within thirty days of its
receipt or

(ii) If such offer was accepted, the terms thereof were complied with by
the offeror;

(b) If the buyer received a written offer before suit and at a time when
he did not own the security to repay in cash or by certified or official bank
check, within thirty days from the date of acceptance of such offer, an amount
equal to the difference between the fair value of the consideration the buyer
gave for the security and the fair value of the security at the time the buyer
disposed of it, together with interest on such amount for the period from the
date of payment down to the date of repayment, such interest to be computed in
case the security consists of an interest-bearing obligation at the same rate as
provided in the security or, in case the security consists of other than an
interest-bearing obligation, at the applicable rate of legal interest, less, in
every case, the amount of any income received on the security, and:

(i) Such offeree does not accept the offer within thirty days of its
receipt or

(ii) If such offer was accepted, the terms thereof were complied with by
the offeror;

(2) Provided, that no written offer shall be effective within the meaning
of this Subsection unless, if it were an offer to sell securities, it would be
exempt under R.S. 51:709 or, if registration would have been required, then
unless such rescission offer has been registered and effected under R.S. 51:705.
Any person who is paid for his security in the amount provided by this
Subsection shall be foreclosed from asserting any remedies under this Part,
regardless of whether the other requirements of this Subsection have been
complied with.

D. Every cause of action under this Part survives the death of any person
who might have been a plaintiff or defendant.

E. Nothing in this Part shall limit any statutory or civil right of any
person to bring action in any court for any act involved in the sale of
securities or the right of this state to punish any person for any violation of
any law. The attorney general and each of the district attorneys throughout this
state, with regard to violation of this Part in their respective districts,
shall lend full assistance to the commissioner in any investigations or
prosecutions that the commissioner may deem necessary under the provisions of
this Part.

REVISED MAINE SECURITIES ACT

Section 10605. CIVIL LIABILITY.

1. Offer or sale of security. Any person who offers or sells a security in
violation of section 10201, 10205, 10301, 10401 or 10405, subsection 8, or any
rule of the administrator relating to those sections or any condition imposed
under section 10405, subsection 7, is liable to the person purchasing the
security from that person. The person purchasing the security may sue to recover
the consideration paid for the security, together with interest at the legal
rate from the date of payment, costs and reasonable attorneys' fees less the
amount of any income received on the security, upon the tender of the security,
or for damages plus costs and reasonable attorneys' fees if the person no longer
owns the security. Damages are the amount that would be recoverable upon a
tender less the value of the security when the purchaser disposed of it and
interest at the legal rate from the date of disposition. Tender shall

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require only notice of willingness to exchange the security for the amount
specified. A person who offers or sells a security in violation of section
10201, subsection 2, is not liable under this subsection if the purchaser knew
of the untrue statement of a material fact or omission of a statement of a
material fact; or the person sustains the burden of proof to establish that the
person did not know and in the exercise of reasonable care could not have known
of the untrue statement or omission.

2. Purchase of a security. Any person who purchases a security in
violation of section 10201, subsection 2, is liable to the person selling the
security to that person. The person selling the security may sue to recover the
security, plus any income received by the purchaser on the security upon tender
of the consideration received, costs and reasonable attorneys' fees, or for
damages plus costs and reasonable attorneys' fees if the purchaser no longer
owns the security. Damages are the excess of the value of the security when the
purchaser acquired it, plus interest at the legal rate on that amount from the
date of disposition, over the consideration paid for the security plus any
income received on the security. Tender requires only notice of willingness to
pay the amount specified in exchange for the security. A person who purchases a
security in violation of section 10201, subsection 2, is not liable under this
subsection if the seller knew of the untrue statement of a material fact or
omission of a statement of a material fact; or the person sustains the burden of
proof to establish that the person did not know and in the exercise of
reasonable care could not have known of the untrue statement or omission.

3. Control persons. Every person who directly or indirectly controls
another person liable under subsection 1 or 2, every partner, officer or
director of that other person, every person occupying a similar status or
performing similar functions, every employee of that other person who materially
aids in the act or transaction constituting the violation and every
broker-dealer or sales representative who materially aids in the act or
transaction constituting the violation is also liable jointly and severally with
and to the same extent as that other person, unless the person otherwise
secondarily liable under this Act proves that the person did not know, and in
the exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There is
contribution as in cases of contract among the several persons so liable.

Section 10606. CIVIL STATUTE OF LIMITATIONS.

No person may sue under section 10605, unless suit is brought within 2
years after the violation, except that, if liability arises under subchapter II,
suit must be brought within 2 years after the discovery of the violation or
after discovery should have been made by the exercise of reasonable diligence.

Section 10607. RESCISSION AND SETTLEMENT OFFERS.

1. Purchaser. No purchaser may commence an action under section 10605 if,
before suit is commenced, the purchaser has received a written offer:

A. Stating the respect in which liability under section 10605 may have
arisen and fairly advising the purchaser of the purchaser's rights;

B. Offering to repurchase the security for cash, payable on delivery of
the security, equal to the consideration paid, together with interest at the
legal rate from the date of payment, less the amount of any income received
thereon, or, if the purchaser no longer owns the security, offering to pay the
purchaser upon acceptance of the offer an amount in cash equal to the damages
computed in accordance with section10605, subsection 1; and

C. Stating that the offer may be accepted by the purchaser at any time
within a specified period of not less than 30 days after the date of its receipt
by the purchaser.

2. Seller. No seller may commence an action under section 10605 if, before
suit is commenced, the seller has received a written offer:

A. Stating the respect in which liability under section 10605 may have
arisen and fairly advising the seller of the seller's rights;

B. Offering to return the security, plus the amount of any income received
on the security, upon payment of the consideration received, or, if the
purchaser no longer owns the security, offering to pay the seller upon
acceptance of the offer an amount in cash equal to the damages computed in
accordance with section 10605, subsection 2; and

C. Providing that the offer may be accepted by the seller at any time
within a specified period of not less than 30 days after the date of its receipt
by the seller.

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3. Form of offer. The administrator, by rule, may prescribe the form in
which the information specified in subsections 1 and 2 shall be contained in any
offer made under subsection 1 or 2.

4. Delivery of offer. Every offer under subsection 1 or 2 shall be
delivered to the offeree or sent by certified mail to the offeree at the
offeree's last known address.

5. Statute of limitation tolled. If an offer is not performed in
accordance with its terms, suit by the offeree under section 10605 shall be
permitted without regard to this section and the statute of limitations shall
toll from the time of receipt of the offer until 60 days after the rescission or
settlement offer was to have been performed.

MARYLAND SECURITIES ACT

SECTION 11-501. REGISTRATION REQUIREMENT.

A person may not offer or sell any security in this State unless:

(1) The security is registered under this title;

(2) The security or transaction is exempted under Subtitle 6 of this
title; or

(3) The security is a federal covered security.

SECTION 11-703. CIVIL LIABILITIES.

(a) When seller, purchaser or advisor liable. (1) A person is civilly
liable to the person buying a security from him if he:

(i) Offers or sells the security in violation of ' 11-304(b), ' 11-401(a),
' 11-402(a), or ' 11-501 of this title, or of any rule or order under ' 11-205
of this title which requires the affirmative approval of sales literature before
it is used; or

(ii) Offers or sells the security by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they are
made, not misleading, the buyer not knowing of the untruth or omission, and if
he does not sustain the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of the untruth or omission.

(2) A person is civilly liable to the person selling a security to him if
he offers to purchase or purchases the security by means of any untrue statement
of a material fact or any omission to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they are
made, not misleading, the seller not knowing of the untruth or omission, and if
he does not sustain the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of the untruth or omission.

(3) A person is civilly liable to another person if the person:

(i) Acts as an investment adviser or representative in violation of '
11-302(c), ' 11-401(b), ' 11-402(b), or ' 11-304(b) of this title or any rule or
order promulgated under it, except that an action based on a violation of '
11-402(b) of this title may not be maintained except by those persons who
directly received advice from the unregistered investment adviser
representative; or

(ii) Receives, directly or indirectly, any consideration from another
person for advice as to the value of securities or their purchase or sale or for
acting as an investment adviser or representative under ' 11-101(h) and (i) of
this title, whether through the issuance of analyses, reports, or otherwise, and
employs any device, scheme, or artifice to defraud such other person or engages
in any act, practice or course of business which operates or would operate as a
fraud or deceit on such other person.

(b) Extent of liability. (1) A buyer may sue either at law or in equity:

(i) On tender of the security, to recover the consideration paid for the
security, together with interest at the rate provided for in ' 11-107(a) of the
Courts and Judicial Proceedings Article, as amended, from the date of payment,
costs, and reasonable attorneys' fees, less the amount of any income received on
the security; or

(ii) If he no longer owns the security, for damages.

(2) A seller may sue either at law or in equity:

(i) On tender of the consideration paid for the security, to recover the
security, together with the amount of any income received on the security,
costs, and reasonable attorneys' fees; or

(ii) If the buyer no longer owns the security, for damages.

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(3) For the purposes of subsection (b)(1)(ii) of this section, damages are
the amount that would be recoverable on a tender less the value of the security
when the buyer disposed of it and interest at the rate provided for in '
11-107(a) of the Courts and Judicial Proceedings Article, as amended, from the
date of disposition.

(4)(i) In any action brought under subsection (a)(3) of this section a
person may sue either at law or in equity for the rescission of the advisory
contract and any damages resulting from the violation, together with interest at
the rate provided for in ' 11-107(a) of the Courts and Judicial Proceedings
Article, as amended, from the date of payment of the consideration, costs, and
reasonable attorneys' fees, less the amount of any income received from such
advice.

(ii) An action based on a violation of ' 11-302(c) of this title may not
prevail where the person accused of the violation sustains the burden of proof
that he did not know, and in the exercise of reasonable care could not have
known, of the existence of the facts by reason of which the liability is alleged
to exist.

(c) Others jointly and severally liable with seller or purchaser. (1)
Every person who directly or indirectly controls a person liable under
subsection (a) of this section, every partner, officer, or director of the
person liable, every person occupying a similar status or performing similar
functions, every employee of the person liable who materially aids in the
conduct giving rise to the liability, and every broker-dealer or agent who
materially aids in such conduct are also liable jointly and severally with and
to the same extent as the person liable, unless able to sustain the burden of
proof that he did not know, and in exercise of reasonable care could not have
known, of the existence of the facts by reason of which the liability is alleged
to exist.

(2) There is contribution as in cases of contract among the several
persons so liable.

(d) Time of making tender. Any tender specified in this section may be
made at any time before entry of judgment.

(e) Survival of cause of action. Every cause of action under this statute
survives the death of any person who might have been a plaintiff or defendant.

(f) Limitation of actions; effect of offer of refund. (1) A person may not
sue under subsections (a)(1) and (2) of this section after the earlier to occur
of 3 years after the contract of sale or purchase or the time specified in
paragraph (2) of this subsection.

(2) An action may not be maintained:

(i) To enforce any liability created under subsection (a)(1)(i) of this
section, unless brought within one year after the violation on which it is
based; or

(ii) To enforce any liability created under subsection (a)(1)(ii) or (2)
of this section, unless brought within one year after the discovery of the
untrue statement or omission, or after the discovery should have been made by
the exercise of reasonable diligence.

(3) A person may not sue under subsection (a)(3) of this section more than
3 years after the date of the advisory contract or the rendering of investment
advice, or the expiration of 2 years after the discovery of the facts
constituting the violation, whichever first occurs.

(4) A person may not sue under this section:

(i) If the buyer received a written offer, before suit and at a time when
he owned the security or asset, to refund the consideration paid together with
interest at the rate provided for in ' 11-107(a) of the Courts and Judicial
Proceedings Article, as amended, from the date of payment, less the amount of
any income received on the security or asset, and he failed to accept the offer
within 30 days of its receipt;

(ii) If the buyer received the offer before suit and at a time when he did
not own the security or asset, unless he rejected the offer in writing within 30
days of its receipt; or

(iii) If the seller received a written offer from the buyer, before suit,
to return the security or asset, together with the amount of any income received
on the security, less interest at the rate provided for in ' 11-107(a) of the
Courts and Judicial Proceedings Article, as amended, from the date of payment,
and he failed to accept the offer within 30 days of its receipt.

(g) Effect of making or performing contract with knowledge of facts. A
person may not base any suit on any contract if he:

(1) Has made or engaged in the performance of the contract in violation of
any provision of this title or any rule or order under this title; or

(2) Has acquired any purported right under the contract with knowledge of
the facts by reason of which its making or performance was in violation.

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(h) Provision for waiver of compliance with section void. Any condition,
stipulation, or provision binding any person acquiring any security or asset or
receiving any investment advice to waive compliance with any provision of this
title or any rule or order under this title is void.

(i) Rights and remedies additional to others. The rights and remedies
provided by this title are in addition to any other rights or remedies that may
exist at law or in equity, but this title does not create any cause of action
not specified in this section or ' 11-410 of this title.

MASSACHUSETTS UNIFORM SECURITIES ACT

SECTION 301. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in the
commonwealth unless (1) it is registered under this chapter or (2) the security
or transaction is exempted under section 402.

SECTION 410. CIVIL LIABILITIES.

(a) Any person who

(1) offers or sells a security in violation of section 201(a), 301, or
405(b), or of any rule or order under section 403 which requires the affirmative
approval of sales literature before it is used, or of any condition imposed
under section 303(d), or

(2) offers or sells a security by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they are
made, not misleading, the buyer not knowing of the untruth or omission, and who
does not sustain the burden of proof that he did not know, and in the exercise
of reasonable care could not have known, of the untruth or omission, is liable
to the person buying the security from him, who may sue either at law or in
equity to recover the consideration paid for the security, together with
interest at six per cent per year from the date of payment, costs, and
reasonable attorneys' fees, less the amount of any income received on the
security, upon the tender of the security, or for damages if he no longer owns
the security. Damages are the amount that would be recoverable upon a tender
less the value of the security when the buyer disposed of it and interest at six
per cent per year from the date of disposition.

(b) Every person who directly or indirectly controls a seller liable under
subsection (a), every partner, officer, or director of such a seller, every
person occupying a similar status or performing similar functions, every
employee of such a seller who materially aids in the sale, and every
broker-dealer or agent who materially aids in the sale are also liable jointly
and severally with and to the same extent as the seller, unless the non-seller
who is so liable sustains the burden of proof that he did not know, and in
exercise of reasonable care could not have known, of the existence of the facts
by reason of which the liability is alleged to exist. There is contribution as
in cases of contract among the several persons so liable.

(d) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.

(e) No person may sue under this section more than four years after the
discovery by the person bringing the action of a violation of this chapter or
any rule promulgated or order issued thereunder. No person may sue under this
section (1) if the buyer received a written offer, before suit and at a time
when he owned the security, to refund the consideration paid together with
interest at six percent per year from the date of payment, less the amount of
any income received on the security, and he failed to accept the offer within
thirty days of its receipt, or (2) if the buyer received such an offer before
suit and at a time when he did not own the security, unless he rejected the
offer in writing within thirty days of its receipt.

(f) No person who has made or engaged in the performance of any contract
in violation of any provision of this chapter or any rule or order hereunder, or
who has acquired any purported right under any such contract with knowledge of
the facts by reason of which its making or performance was in violation, may
base any suit on the contract.

(g) Any condition, stipulation, or provision binding any person acquiring
any security to waive compliance with any provision of this chapter or any rule
or order hereunder is void.

(h) The rights and remedies provided by this chapter are in addition to
any other rights or remedies that may exist at law or in equity, but this
chapter does not create any cause of action not specified in this section.

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MICHIGAN UNIFORM SECURITIES ACT

SECTION 301. SALE OF SECURITIES; REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this state
unless (1) it is registered under this act or (2) the security or transaction is
exempted under section 402.

SECTION 410. OFFER OR SALE OF SECURITY OR COMMODITY CONTRACT; LIABILITY;
DAMAGES; CONTRIBUTION; TENDER; SURVIVAL OF ACTION; LIMITATIONS; RESCISSION
OFFER; DISCLOSURE; SUIT BASED ON CONTRACT; RIGHTS AND REMEDIES CUMULATIVE.

(a) Any person who does either of the following shall be liable to the
person buying the security or commodity contract from him or her and the buyer
may sue either at law or in equity to recover the consideration paid for the
security or commodity contract, together with interest at 6% per year from the
date of payment, costs, and reasonable attorneys' fees, less the amount of
income received on the security or commodity contract, upon the tender of the
security or commodity contract, or, if he or she no longer owns the security or
commodity contract, for damages which shall be the amount that would be
recoverable upon a tender less the value of the security or commodity contract
when the buyer disposed of it and interest at 6% per year from the date of
disposition:

(1) Offers or sells a security or commodity contract in violation of
section 201(a), 301, or 405(b) or of any rule or order under section 403, which
requires the affirmative approval of sales literature before it is used, or of
any condition imposed under section 304(d), 305(f), 305(g), or 412(g), or

(2) Offers or sells a security or commodity contract by means of any
untrue statement of a material fact or any omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading, the buyer not knowing
of the untruth or omission, and who does not sustain the burden of proof that he
or she did not know, and in the exercise of reasonable care could not have
known, of the untruth or omission.

(b) Every person who directly or indirectly controls a seller liable under
subsection (a), every partner, officer, or director of such a seller, every
person occupying a similar status or performing similar functions, every
employee of such a seller who materially aids in the sale, and every
broker-dealer or agent who materially aids in the sale are also liable jointly
and severally with and to the same extent as the seller, unless the non-seller
who is so liable sustains the burden of proof that he or she did not know, and
in exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There is
contribution as in cases of contract among the several persons so liable.

(d) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.

(e) A person may not bring an action under subsection (a)(1) more than 2
years after the contract of sale. A person may not bring an action under
subsection (a)(2) more than 2 years after such person, in the exercise of
reasonable care, knew or should have known of the untruth or omission, but in no
event more than 4 years after the contract of sale. A person may not bring an
action under this section if the buyer received a written offer, before the
action and at a time when he or she owned the security or commodity contract, to
refund the consideration paid together with interest at 6% per year from the
date of payment, less the amount of any income received on the security, and he
or she failed to accept the offer within 30 days of its receipt, or if the buyer
received such an offer before the action and at a time when he or she did not
own the security or commodity contract, unless he or she rejected the offer in
writing within 30 days of its receipt. The documents making full written
disclosure about the financial and business condition of the issuer and the
financial and business risks associated with the retention of the securities or
commodities shall be provided to the offeree concurrently with the written
rescission offer. Such an offer shall not be made until 45 days after the date
of sale of the securities and acceptance or rejection of the offer shall not be
binding until 48 hours after receipt by the offeree. The rescission offer shall
recite the provisions of this section. A rescission offer under this section
shall not be valid unless the offeror substantiates that it has the ability to
fund the offering and this information is set forth in the disclosure documents.

(f) No person who has made or engaged in the performance of any contract
in violation of any provision of this act or any rule or order hereunder, or who
has acquired any purported right under any such contract with knowledge of the
facts by reason of which its making or performance was in violation, may base
any suit on the contract.

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(g) Any condition, stipulation, or provision binding any person acquiring
any security or commodity contract to waive compliance with any provision of
this act or any rule or order hereunder is void.

(h) The rights and remedies provided by this act are in addition to any
other rights or remedies that may exist at law or in equity, but this act does
not create any cause of action not specified in this section or section 202(e).

MINNESOTA SECURITIES ACT

SECTION 80A.08. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this state
unless (a) it is registered under sections 80A.01 to 80A.31 or (b) the security
or transaction is exempted under section 80A.15 or (c) it is a federal covered
security.

SECTION 80A.23. CIVIL LIABILITIES.

Subdivision 1. Any person who sells a security in violation of sections
80A.08 or 80A.18, or of any condition imposed under section 80A.11, subdivision
4, or 80A.12, subdivisions 5 and 6, is liable to the person purchasing the
security, who may sue either in equity for rescission upon tender of the
security or at law for damages if that person no longer owns the security. In
any action for rescission, the purchaser shall be entitled to recover the
consideration paid for the security together with interest at the legal rate,
costs, and reasonable attorney's fees, less the amount of any income received on
the securities. In an action at law, damages shall be the consideration paid for
the security together with interest at the legal rate to the date of
disposition, costs, and reasonable attorney's fees, less the value of the
security at the date of disposition.

Subd. 2. Any person who violates section 80A.01 in connection with the
purchase or sale of any security shall be liable to any person damaged thereby
who sold such security to that person or to whom that person sold such security,
and any person who violates section 80A.03 in connection with the purchase or
sale of any security shall be liable to any person damaged by the conduct
prescribed by section 80A.03. Any person who violates section 80A.02 in
connection with the purchase or sale of any security shall be liable to any
investment advisory client who is damaged thereby. Damages in an action pursuant
to this subdivision shall include the actual damages sustained plus interest
from the date of payment or sale, costs and reasonable attorney's fees.

Subd. 3. Every person who directly or indirectly controls a person liable
under subdivision 1 or 2, every partner, principal executive officer or director
of such person, every person occupying a similar status or performing a similar
function, every employee of such person who materially aids in the act or
transaction constituting the violation, and every broker-dealer or agent who
materially aids in the act or transaction constituting the violation, are also
liable jointly and severally with and to the same extent as such person. There
is contribution as in cases of contract among the several persons so liable.

Subd. 4. No person shall be liable under subdivisions 1 to 3 who shall
sustain the burden of proof that the person did not know, and in the exercise of
reasonable care could not have known, of the existence of facts by reason of
which the liability is alleged to exist.

Subd. 5. Any tender specified in this section may be made at any time
before entry of judgment. Tender by a purchaser shall require only notice of
willingness to exchange the security for the amount computed pursuant to
subdivision 1. Tender by a seller shall require only notice of willingness to
pay the amount specified in exchange for the security. Any notice may be given
by service as in civil actions or by certified mail to the last known address of
the person liable.

Subd. 6. Every cause of action under this statute survives the death of
any person who might have been a plaintiff or defendant.

Subd. 7. No person may commence an action under subdivision 1 more than
three years after the sale upon which such action is based. No person may
commence an action under subdivision 2 more than three years after the
occurrence of the act or transaction constituting the violation.

Subd. 8. No purchaser may commence an action under subdivision 1 if,
before suit is commenced, the purchaser has received a written offer to
repurchase the security for cash payable on delivery of the security equal to
the consideration paid, together with interest at the legal rate from the date
of payment, less the amount of any income received thereon or, if the purchaser
no longer owns the security, an offer to pay an amount in cash equal to the
damages computed in accordance with subdivision 1 and the purchaser has failed
to accept such offer in writing

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within 30 days of its receipt. No offer shall be effective to prevent suit under
this section unless a duplicate copy thereof shall have been filed with the
commissioner at least 20 days prior to its delivery to the offeree and the
commissioner shall not have objected to the offer within that time. The offer
shall be in the form and contain the information the commissioner by rule or
order prescribes. If the offer is not performed in accordance with its terms,
suit by the offeree under this section shall be permitted without regard to this
subdivision.

Subd. 9. No person who has made or engaged in the performance of any
contract in violation of any provision of this section or any rule or order
hereunder or has acquired any purported rights under any such contract with
knowledge of the facts by reason of which its making or performance was in
violation may base any suit on such violation under the contract.

Subd. 10. Any condition, stipulation or provision binding any person to
waive compliance with any provision of sections 80A.01 to 80A.31 or any rule or
order hereunder in the purchase or sale of any security is void.

Subd. 11. The rights and remedies promulgated by sections 80A.01 to 80A.31
are in addition to any other right or remedy that may exist at law or in equity,
but sections 80A.01 to 80A.31 do not create any cause of action not specified in
this section or section 80A.05, subdivision 5. No civil cause of action may be
based solely upon the failure of a broker-dealer or agent to comply with the
requirements of section 80A.04, subdivision 1 or 3, except a cause of action
arising under section 45.027.

MISSISSIPPI SECURITIES ACT

SECTION 75-71-401. REGISTRATION OR EXEMPTION REQUIRED.

Except as provided for in Section 75-71-109(a), it is unlawful for any
person to offer or sell any security in the State of Mississippi unless (1) it
is registered under this chapter or (2) the security or transaction is exempted
under Article 3 of this chapter.

SECTION 75-71-717. LIABILITY TO BUYERS FOR ILLEGAL OR FRAUDULENT SALES OR
OFFERS.

(a) Any person who (1) offers or sells a security in violation of Section
75-71-117(a), 75-71-301 or 75-71-401, or of any rule or order under Section
75-71-113 which requires the affirmative approval of sales literature before it
is used, or of any condition imposed under Section 75-71-405(d) or 75-71-417, or
(2) offers or sells a security by the use of any written or oral communication
which contains any untrue statement of a material fact or any omission to state
a material fact necessary in order to make the statements made, in the light of
the circumstances under which they are made, not misleading (the buyer not
knowing of the untruth or omission), and who does not sustain the burden of
proof that he did not know, and in the exercise of reasonable care could not
have known, of the untruth or omission, is liable to the person buying the
security from him, who may sue either at law or in equity to recover the
consideration paid for the security, together with interest at eight percent
(8%) per year from the date of payment, costs and reasonable attorneys' fees,
less the amount of any income received on the security, upon the tender of the
security, or for damages if he no longer owns the security. Damages are the
amount that would be recoverable upon a tender less the value of the security
when the buyer disposed of it and interest at eight percent (8%) per year from
the date of disposition.

(b) No buyer may sue under this section if, before suit is commenced, the
buyer has received a written offer stating the respect in which liability under
this section may have arisen and fairly advising the buyer of his rights;
offering to repurchase the security for cash payable on delivery of the security
equal to the consideration paid, together with interest at six percent (6%) from
the date of payment, less the amount of any income received on the security or,
if the buyer no longer owns the security, offering to pay the buyer upon
acceptance of the offer an amount in cash equal to the damages computed in
accordance with subsection (a); and stating that the offer may be accepted by
the buyer at any time within thirty (30) days of its receipt; and the buyer has
failed to accept such offer in writing within the specified period.

SECTION 75-71-725. LIMITATION OF ACTIONS.

No action shall be maintained to enforce any liability created under
section 75-71-717(2) unless brought within two (2) years after the discovery of
the untrue statement or omission, or after such discovery should have been made
by the exercise of reasonable diligence, or, if the action is to enforce a
liability created under section 75-71-717(1) unless brought within two (2) years
after the violation upon which it is based.

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MISSOURI UNIFORM SECURITIES ACT

SECTION 409.301. REGISTRATION REQUIREMENT (SECURITIES).

It is unlawful for any person to offer or sell any security in this state
unless:

(1) It is registered under this act;

(2) The security or transaction is exempted under section 409.402; or

(3) It is a federal covered security.

SECTION 409.411. CIVIL LIABILITIES.

(a) Any person who:

(1) Offers or sells a security in violation of section 409.201(a),
409.301, or 409.405(b), or of any rule or order under section 409.403 which
requires the affirmative approval of sales literature before it is used, or of
any condition imposed under section 409.304(d), 409.305(f), or 409.305(g); or

(b) Any person who:

(1) Engages in the business of advising others, for compensation, either
directly or through publications or writings, as to the value of securities or
as to the advisability of investing in, purchasing, or selling securities, or
who, for compensation and as a part of a regular business, issues or promulgates
analyses or reports concerning securities in violation of section 409.102,
409.201(c) or (d), 409.405(b); or

(2) Receives directly or indirectly any consideration from another person
for advice as to the value of securities or their purchase or sale, whether
through the issuance of analyses, reports or otherwise and employs any device,
scheme, or artifice to defraud such other person or engages in any act, practice
or course of business which operates or would operate as a fraud or deceit on
such other person, is liable to that person who may sue either at law or in
equity to recover the consideration paid for such advice and any loss due to
such advice, together with interest at eight percent per year from the date of
payment of the consideration plus costs and reasonable attorney's fees, less the
amount of any income received from such advice in the amount specified in
subsection (j) of this section.

(c) Every person who directly or indirectly controls a person liable under
subsections (a) and (b) of this section, including every partner, officer, or
director of such a person, every person occupying a similar status or performing
similar functions, every employee of such a person who materially aids in the
conduct giving rise to the liability, and every broker-dealer or agent who
materially aids in such conduct is also liable jointly and severally with and to
the same extent as such person, unless able to sustain the burden of proof that
he did not know, and in exercise of reasonable care could not have known, of the
existence of the facts by reason of which the liability is alleged to exist.
There is contribution as in cases of contract among the several persons so
liable.

(d) Any tender specified in this section may be made at any time before
entry of judgment.

(e) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.

(f) No person may sue under this section more than three years after the
contract of sale, or the rendering of investment advice.

(g) No person may sue under this section (1) if the buyer received a
written offer, before suit and at a time when he owned the security, to refund
the consideration paid together with interest at eight percent per year from the
date of payment, less the amount of any income received on the security, and he
failed to accept the offer within thirty days of its receipt, or (2) if the
buyer received such an offer before suit and at a time when he did not own the
security, unless he rejected the offer in writing within thirty days of its
receipt.

(h) No person who has made or engaged in the performance of any contract
in violation of any provision of sections 409.101 to 409.419 or any rule or
order hereunder, or who has acquired any purported right under any such contract
with knowledge of the facts by reason of which its making or performance was in
violation, may base any suit on the contract.

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(i) Any condition, stipulation, or provision binding any person acquiring
any security or receiving any investment advice to waive compliance with any
provision of sections 409.101 to 409.419 or any rule or order hereunder is void.

(j) The amounts recoverable by a person damaged as a result of a violation
of subsection (a) or (b) of this section shall be the consideration paid for the
purchase of the security together with interest at eight percent per year from
the date of payment, cost, and reasonable attorney's fees, less the amount of
any income received on the security, upon the tender of the security, or for
damages if he no longer owns the security. "Damages" is the amount that would be
recoverable upon the tender less the value of the security when the buyer
disposed of it and interest at eight percent per year from the date of disposal.
An action pursuant to a violation of subsection (b) of this section may not be
maintained except by those persons who directly receive advice from the person
charged with the violation. Any recovery under subsection (b) of this section
must be offset by any recovery received from any source under subsection (a) of
this section.

(k) The rights and remedies provided by sections 409.101 to 409.419 are in
addition to any other rights or remedies that may exist at law or in equity, but
sections 409.101 to 409.419 do not create any cause of action not specified in
this section or section 409.202(e).

NEVADA UNIFORM SECURITIES ACT

SECTION 90.460. REGISTRATION REQUIREMENT.

It is unlawful for a person to offer to sell or sell any security in this
state unless the security is registered or the security or transaction is exempt
under this chapter.

SECTION 90.660. CIVIL LIABILITY.

1. A person who offers or sells a security in violation of any of the
following provisions:

(a) Subsection 1 of NRS 90.310;

(b) NRS 90.460;

(d) Subsection 2 of NRS 90.570;

(e) Subsection 2 of NRS 90.610; or

(f) A condition imposed in subsection 8 or 9 of NRS 90.500, is liable to
the person purchasing the security. Upon tender of the security, the purchaser
may recover the consideration paid for the security and interest at the legal
rate of this state from the date of payment, costs and reasonable attorney's
fees, less the amount of income received on the security. A purchaser who no
longer owns the security may recover damages. Damages are the amount that would
be recoverable upon a tender less the value of the security when the purchaser
disposed of it, plus interest at the legal rate of this state from the date of
disposition of the security, costs and reasonable attorney's fees determined by
the court. Tender requires only notice of willingness to exchange the security
for the amount specified.

2. A person who offers or sells a security in violation of subsection 2 of
NRS 90.570 is not liable under subsection 1 of this section if:

(a) The purchaser knew that a statement of a material fact was untrue or
that there was an omission of a statement of a material fact; or

(b) The seller did not know and in the exercise of reasonable care could
not have known of the untrue statement or misleading omission.

3. A person who willfully participates in any act or transaction in
violation of NRS 90.580 is liable to a person who purchases or sells a security,
other than a security traded on a national securities exchange or quoted on a
national automated quotation system administered by a self-regulatory
organization, at a price that was affected by the act or transaction for the
damages sustained as a result of the act or transaction. Damages are the
difference between the price at which the securities were purchased or sold and
the market value the securities would have had at the time of the person's
purchases or sale in the absence of the act or transaction, plus interest at the
legal rate of this state from the date of the act or transaction and reasonable
attorney's fees.

4. A person who directly or indirectly controls another person who is
liable under subsection 1 or 3, a partner, officer or director of the person
liable, a person occupying a similar status or performing similar functions,

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any agent of the person liable, an employee of the person liable if the employee
materially aids in the act, omission or transaction constituting the violation,
and a broker-dealer or sales representative who materially aids in the act,
omission or transaction constituting the violation, are also liable jointly and
severally with and to the same extent as the other person, but it is a defense
that the person did not know, and in the exercise of reasonable care could not
have known, of the existence of the facts by which the liability is alleged to
exist. With respect to a person who directly or indirectly, controls another
person who is liable under subsection 3, it is also a defense that the
controlling person acted in good faith and did not, directly or indirectly,
induce the act, omission or transaction constituting the violation. Contribution
among the several persons liable is the same as in cases arising out of breach
of contract.

SECTION 90.670. STATUTE OF LIMITATIONS.

A person may not sue under NRS 90.660 unless suit is brought within the
earliest of 1 year after the discovery of the violation, 1 year after discovery
should have been made by the exercise of reasonable care, or 5 years after the
act, omission or transaction constituting the violation.

SECTION 90.680. OFFER OF RESCISSION AND SETTLEMENT.

1. Relief may not be obtained under subsection 1 of NRS 90.660 if, before
suit is commenced, the purchaser:

(a) Receives a written offer:

(1) Stating the respect in which liability under NRS 90.660 may have
arisen and fairly advising the purchaser of his rights of rescission;

(2) If the basis for relief under subsection 1 of NRS 90.660 is a
violation of subsection 2 of NRS 90.570, including financial and other
information necessary to correct all material misstatements or omissions in the
information which was required by this chapter to be furnished to the purchaser
as of the time of the sale of the security to the purchaser;

(3) Offering to repurchase the security for cash, payable on delivery of
the security, equal to the consideration paid, plus interest at the legal rate
of this state from the date of payment, less income received thereon, or, if the
purchaser no longer owns the security, offering to pay the purchaser upon
acceptance of the offer an amount in cash equal to the damages computed under
subsection 1 of NRS 90.660 plus attorney's fees; and

(4) Stating that the offer may be accepted by the purchaser at any time
within a specified period of not less than 30 days after the date of its receipt
by the purchaser or such shorter or longer time as the administrator by order
prescribes; and

(b) Fails to accept the offer in writing within the period specified under
subparagraph (4) of paragraph (a).

2. The administrator by regulation may prescribe the form in which the
information specified in subsection 1 must be contained in an offer made under
subsection 1.

3. An offer under subsection 1 must be delivered to the offeree or sent in
a manner which assures actual receipt by the offeree.

4. If, after acceptance, a rescission offer is not performed in accordance
with either its terms or this section, the offeree may obtain relief under NRS
90.660 without regard to this section.

NEW HAMPSHIRE UNIFORM SECURITIES ACT

SECTION 421-B:11. REGISTRATION REQUIREMENT AND NOTICE FILING OF
SECURITIES.

I. It is unlawful for any person to offer or sell any security in this
state unless it is registered under this chapter, the security or transaction is
exempted under RSA 421-B:17, or it is a federal covered security for which the
fee has been paid and documents have been filed as required by paragraph I-a of
this section.

SECTION 421-B:25. CIVIL LIABILITIES.

I. Any person who sells a security in violation of RSA 421-B:11 or
421-B:20, I or of any condition imposed under RSA 421-B:14, IV or RSA 421-B:15,
V, VI and VII, is liable to the person purchasing the security from him, who may
sue either in equity for rescission upon tender of the security or at law for
damages if he no longer owns the security. In any action for rescission, the
purchaser shall be entitled to recover the consideration paid

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for the security together with interest at the legal rate, costs, and reasonable
attorney's fees, less the amount of any income received on the securities. In an
action at law, damages shall be the consideration paid for the security together
with interest at the legal rate to the date of disposition, costs, and
reasonable attorney's fees, less the value of the security at the date of
disposition.

II. Any person who violates RSA 421-B:3 in connection with the purchase or
sale of any security shall be liable to any person damaged by the violation of
that section who sold such security to him or to whom he sold such security, and
any person who violates RSA 421-B:5 in connection with the purchase or sale of
any security shall be liable to any person damaged by the conduct proscribed by
RSA 421-B:5. Any person who violates RSA 421-B:4 in connection with the purchase
or sale of any security shall be liable to any investment advisory client of his
who is damaged by the violation of that section. Damages in an action pursuant
to this paragraph shall include the actual damages sustained plus interest from
the date of payment or sale, costs, and reasonable attorney's fees.

III. Every person who directly or indirectly controls a person liable
under paragraph I or II, every partner, principal executive officer, or director
of such person, every person occupying a similar status or performing a similar
function, every employee of such person who materially aids in the act or
transaction constituting the violation, and every broker-dealer or agent who
materially aids in the acts or transactions constituting the violation, are also
liable jointly and severally with and to the same extent as such person. There
is contribution as in cases of contract among the several persons so liable.

IV. No person shall be liable under paragraphs I and III who shall sustain
the burden of proof that he did not know, and in the exercise of reasonable care
could not have known, of the existence of facts by reason of which the liability
is alleged to exist.

V. Any tender specified in this section may be made at any time before
entry of judgment. Tender by a purchaser shall require only notice of
willingness to exchange the security for the amount computed pursuant to
paragraph I. Tender by a seller shall require only notice of willingness to pay
the amount specified in exchange for the security. Any notice may be given by
service as in civil actions or by certified mail to the last known address of
the person liable.

VI. Every cause of action under this chapter survives the death of any
person who might have been a plaintiff or defendant.

VII. A person may not recover under this section in actions commenced more
than 6 years after his first payment of money to the broker-dealer or issuer in
the contested transaction.

VIII. No purchaser may commence an action under paragraph I if, before
suit is commenced, the purchaser has received a written offer to repurchase the
security for cash payable on delivery of the security equal to the consideration
paid, together with interest at the legal rate from the date of payment, less
the amount of any income received on the security or, if the purchaser no longer
owns the security, an offer to pay an amount in cash equal to the damages
computed in accordance with paragraph I and the purchaser has failed to accept
such offer in writing within 30 days of its receipt. No offer shall be effective
to prevent suit under this section unless a duplicate copy thereof shall have
been filed with the secretary of state at least 20 days prior to its delivery to
the offeree and the secretary of state shall not have objected to the offer
within that time. The offer shall be in the form and contain the information the
secretary of state by rule or order prescribes. If the offer is not performed in
accordance with its terms, suit by the offeree under this section shall be
permitted without regard to this subdivision.

IX. No person who has made or engaged in the performance of any contract
in violation of any provision of this section or any rule or order under this
section or has acquired any purported rights under any such contract with
knowledge of the facts by reason of which its making or performance was in
violation may base any suit on such violation under the contract.

X. Any condition, stipulation or provision binding any person to waive
compliance with any provision of this chapter or any rule or order under this
chapter in the purchase or sale of any security is void.

XI. The rights and remedies promulgated by this chapter are in addition to
any other right or remedy that may exist at law or in equity, but this chapter
does not create any cause of action not specified in this section or RSA
421-B:8, V. No civil cause of action may be based solely upon the failure of a
broker-dealer or agent to comply with the requirements of RSA 421-B:6, I or III,
except a cause of action arising under RSA 421-B:23.

NEW JERSEY UNIFORM SECURITIES LAW

SECTION 49:3-60. It is unlawful for any security to be offered or sold in
this State unless:

(a) The security or transaction is exempt under section 3 of P.L.1967,
c.93 (C.49:3-50);

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(b) (Deleted by amendment, P.L.1997, c.276.)

(d) (Deleted by amendment, P.L.1985, c.405.)

(e) The security is registered under this act; or

(f) It is a federal covered security for which a notice filing and fees
have been submitted as required by section 14 of this act (C.49:3-60.1).

SECTION 49:3-71. (a) Any person who

(1) Offers, sells or purchases a security in violation of subsection (b)
of section 8, subsection (a) of section 9 or section 13 of P.L.1967, c.93
(C.49:3-55, 49:3-56, or 49:3-60), or

(2) Offers, sells or purchases a security by means of any untrue statement
of material fact or any omission to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they are
made, not misleading (the buyer not knowing of the untruth or omission), or

(3) offers, sells or purchases a security by employing any device, scheme,
or artifice to defraud, or

(4) offers, sells or purchases a security by engaging in any act, practice
or course of business which operates or would operate as a fraud or deceit upon
any person, or

(5) engages in the business of advising others, for compensation, either
directly or through publications or writings, as to the value of securities, or
as to the advisability of investing in, purchasing or selling securities, or
who, for compensation and as a part of a regular business, issues or promulgates
analyses or reports concerning securities (i) in willful violation of this act
or of any rule or order promulgated pursuant to this act, or (ii) employs any
device, scheme or artifice to defraud the other person or engages in any act,
practice or course of business or conduct which operates or would operate as a
fraud or deceit on the other person, is liable as set forth in subsection (c) of
this section;

(b)(1) If any claim is brought for violation of paragraph (2), (3), (4) or
(5) of subsection (a) of this section, the person who bought the security or
received the investment advice shall sustain the burden of proof that the seller
or giver of investment advice knew of the untruth or omission and intended to
deceive the buyer or recipient of investment advice and that the buyer or
recipient of investment advice has suffered a financial detriment;

(2) If any claim is brought for violation of paragraph (2), (3), (4) or
(5) of subsection (a) of this section involving a purchase of securities by
others or investment advice as to the selling of securities, the person who sold
the security or who received the investment advice to sell the security shall
sustain the burden of proof that that person suffered a net loss with respect to
that sale or investment advice taking into account all transactions by that
person in the same security or any security convertible into that security
within one year before or after the sale or advice which is the basis of the
claim;

(c) Any person who offered, sold or purchased a security or engaged in the
business of giving investment advice to a person in violation of paragraph (1),
(2), (3), (4) or (5) of subsection (a) of this section is liable to that person,
who may bring an action either at law or in equity to recover the consideration
paid for the security or the investment advice and any loss due to the advice,
together with interest set at the rate established for interest on judgments for
the same period by the Rules Governing the Courts of the State of New Jersey
from the date of payment of the consideration for the investment advice or
security, and costs, less the amount of any income received on the security,
upon the tender of the security and any income received from the investment
advice or on the security, or for damages if he no longer owns the security.
Damages are the amount that would be recoverable upon a tender less the value of
the security when the buyer disposed of it and interest at the rate established
for interest on judgments for the same period by the Rules Governing the Courts
of the State of New Jersey from the date of disposition;

(d) Every person who directly or indirectly controls a seller liable under
subsection (a) of this section, every partner, officer, or director of such a
seller, or investment adviser, every person occupying a similar status or
performing similar functions, every employee of such a seller or investment
adviser who materially aids in the sale or in the conduct giving rise to the
liability, and every broker-dealer, investment adviser, investment adviser
representative or agent who materially aids in the sale or conduct are also
liable jointly and severally with and to the same extent as the seller or
investment adviser, unless the nonseller who is so liable sustains the burden of
proof that he did not know, and in the exercise of reasonable care could not
have known, of the existence of the facts under paragraphs (1) through (5) of
subsection (a) of this section which give rise to liability. There is
contribution as in cases of contract among the several persons so liable;

(e) Any tender specified in this section may be made at any time before
entry of judgment;

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(f) Every cause of action under this act survives the death of any person
who might have been a plaintiff or defendant;

(g) No person may bring an action under this section more than two years
after the contract of sale or the rendering of the investment advice, or more
than two years after the time when the person aggrieved knew or should have
known of the existence of his cause of action, whichever is later. No person may
bring an action under this section (1) if the buyer received a written offer,
before suit and at a time when he owned the security, to refund the
consideration paid, together with interest at the rate established for interest
on judgments for the same period by the Rules Governing the Courts of the State
of New Jersey at the time the offer was made, from the date of payment, less the
amount of any income received on the security, and he failed to accept the offer
within 30 days of its receipt, or (2) if the buyer received such an offer before
suit and at a time when he did not own the security, unless he rejected the
offer in writing within 30 days of its receipt;

(h) No person who has made or engaged in the performance of any contract
in violation of any provision of this act or any rule or order hereunder, or who
has acquired any purported right under any such contract with knowledge of the
facts by reason of which its making or performance was in violation, may base
any suit on the contract;

(i) Any condition, stipulation or provision binding any person acquiring
any security or receiving investment advice to waive compliance with any
provision of this act or any rule or order hereunder is void;

(j) The rights and remedies provided by this act are in addition to any
other rights or remedies that may exist at law or in equity, but this act does
not create any cause of action not specified in this section or subsection (e)
of section 10 of P.L.1967, c.93 (C.49:3-57).

NEW YORK BLUE SKY LAW (MARTIN ACT)

[NO PROVISION REQUIRING REGISTRATION OF SECURITIES.]

NORTH CAROLINA SECURITIES ACT

SECTION 78A-24. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this State
unless (i) it is registered under this Chapter, (ii) the security or transaction
is exempted under G.S. 78A-16 or 78A-17 and such exemption has not been denied
or revoked under G.S. 78A-18, or (iii) it is a security covered under federal
law.

SECTION. 78A-56. CIVIL LIABILITIES.

(a) Any person who:

(1) Offers or sells a security in violation of G.S. 78A-8(1), 78A, 8(3),
78A-10(b), 78A-12, 78A-24, or 78A-36(a), or of any rule or order under G.S.
78A-49(d) which requires the affirmative approval of sales literature before it
is used, or of any condition imposed under G.S. 78A-27(d) or 78A-28(g), or

(2) Offers or sells a security by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they
were made, not misleading (the purchaser not knowing of the untruth or
omission), and who does not sustain the burden of proof that he did not know,
and in the exercise of reasonable care could not have known, of the untruth or
omission, is liable to the person purchasing the security from him, who may sue
either at law or in equity to recover the consideration paid for the security,
together with interest at the legal rate from the date of payment, costs, and
reasonable attorneys' fees, less the amount of any income received on the
security, upon the tender of the security, or for damages if he no longer owns
the security. Damages are the amount that would be recoverable upon a tender
less the value of the security when the purchaser disposed of it and interest at
the legal rate as provided by G.S. 24-1 from the date of disposition.

(b) Any person who purchases a security by means of any untrue statement
of a material fact or any omission to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
are made, not misleading (the seller not knowing of the untruth or omission),
and who does not sustain the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of the untruth or omission,
shall be liable to the person selling the security to him, who may sue either at
law or in equity to recover the security, plus any income received by the
purchaser thereon, upon tender of the consideration received,

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or for damages if the purchaser no longer owns the security. Damages are the
excess of the value of the security when the purchaser disposed of it, plus
interest at the legal rate from the date of disposition, over the consideration
paid for the security.

(c) Every person who directly or indirectly controls a person liable under
subsection (a) or (b), every partner, officer, or director of such a person,
every person occupying a similar status or performing similar functions, every
employee of such a person who materially aids in the act or transaction, and
every dealer or salesman who materially aids in the sale are also liable jointly
and severally with and to the same extent as such person, unless the person who
is so liable sustains the burden of proof that he did not know, and in the
exercise of reasonable care should not have known, of the existence of the facts
by reason of which the liability is alleged to exist. There is contribution as
in cases of contract among the several persons so liable.

(d) Any tender specified in this section may be made at any time before
entry of judgment. Tender shall require only notice of willingness to exchange
the security for the amount specified. Any notice may be given by service as in
civil actions or by certified mail addressed to the last known address of the
person liable.

(e) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.

(f) No person may sue under this section more than two years after the
sale or contract of sale.

(g)(1) No purchaser may sue under this section if, before suit is
commenced, the purchaser has received a written offer stating the respect in
which liability under this section may have arisen and fairly advising the
purchaser of his rights; offering to repurchase the security for cash payable on
delivery of the security equal to the consideration paid, together with interest
at the legal rate as provided by G.S. 24-1 from the date of payment, less the
amount of any income received on the security or, if the purchaser no longer
owns the security, offering to pay the purchaser upon acceptance of the offer an
amount in cash equal to the damages computed in accordance with subsection (a);
and stating that the offer may be accepted by the purchaser at any time within
30 days of its receipt; and the purchaser has failed to accept such offer in
writing within the specified period.

(2) No seller may sue under this section if, before suit is commenced, the
seller has received a written offer stating the respect in which liability under
this section may have arisen and fairly advising the seller of his rights;
offering to return the security plus the amount of any income received thereon
upon payment of the consideration received, or, if the purchaser no longer owns
the security, offering to pay the seller upon acceptance of the offer an amount
in cash equal to the damages computed in accordance with subsection (b); and
providing that the offer may be accepted by the seller at any time within 30
days of its receipt; and the seller has failed to accept such offer in writing
within the specified period.

(3) Offers shall be in the form and contain the information the
Administrator by rule prescribes. Every offer under subsection (g) shall be
delivered to the offeree or sent by certified mail addressed to him at his last
known address. If an offer is not performed in accordance with its terms, suit
by the offeree under this section shall be permitted without regard to this
subsection.

(h) No person who has made or engaged in the performance of any contract
in violation of any provision of this Chapter or any rule or order hereunder, or
who has acquired any purported right under any such contract with knowledge of
the facts by reason of which its making or performance was in violation, may
base any suit on the contract.

(i) Any condition, stipulation, or provision binding any person acquiring
any security to waive compliance with any provision of this Chapter or any rule
or order hereunder is void.

(j) The rights and remedies provided by this Chapter are in addition to
any other rights or remedies that may exist at law or in equity, but this
Chapter does not create any cause of action not specified in this section or
G.S. 78A-37(d).

OHIO SECURITIES ACT

SECTION 1707.43. REMEDIES OF PURCHASER IN UNLAWFUL SALE.

Every sale or contract for sale made in violation of Chapter 1707 of the
Revised Code, is voidable at the election of the purchaser. The person making
such sale or contract for sale, and every person who has participated in or
aided the seller in any way in making such sale or contract for sale, are
jointly and severally liable to such purchaser, in an action at law in any court
of competent jurisdiction, upon tender to the seller in person or in open court
of the securities sold or of the contract made, for the full amount paid by such
purchaser and for all taxable

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court costs, unless the court determines that the violation did not materially
affect the protection contemplated by the violated provision.

No action for the recovery of the purchase price as provided for in this
section, and no other action for any recovery based upon or arising out of a
sale or contract for sale made in violation of Chapter 1707. of the Revised
Code, shall be brought more than two years after the plaintiff knew, or had
reason to know, of the facts by reason of which the actions of the person or
director were unlawful, or more than four years from the date of such sale or
contract for sale, whichever is the shorter period.

No purchaser is entitled to the benefit of this section who has failed to
accept, within thirty days from the date of such offer, an offer in writing made
after two weeks from the date of such sale or contract of sale, by the seller or
by any person who has participated in or aided the seller in any way in making
such sale or contract of sale, to take back the security in question and to
refund the full amount paid by such purchaser.

OKLAHOMA SECURITIES ACT

SECTION 301. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this state
unless:

(1) it is registered under this act or the security or transaction is
exempted under Section 401 of this title; or

(2) it is a federal covered security.

SECTION 408. CIVIL LIABILITIES.

(a) Any person who:

(1) offers or sells a security in violation of Sections 201(a), 301, or
404(b) of this title, or of any rule or order under Section 402 of this title,
or of any condition imposed under Sections 304(d), 305(f), or 305(g) of this
title; or

(2) offers or sells or purchases a security by means of any untrue
statement of a material fact or any omission to state a material fact necessary
in order to make the statements made, in the light of the circumstances under
which they are made, not misleading (the other party not knowing of the untruth
or omission), and who does not sustain the burden of proof that he did not know,
and in the exercise of reasonable care could not have known, of the untruth or
omission, is liable:

(A) in the case of an offer or sale of a security, to the person buying
the security from him, who may sue either at law or in equity to recover the
consideration paid for the security, together with interest at ten percent (10%)
per year from the date of payment, costs, and reasonable attorneys' fees, less
the amount of any income received on the security, upon the tender of the
security, or for damages if he no longer owns the security. Damages are the
amount that would be recoverable upon a tender, less the value of the security
when the buyer disposed of it, and interest at ten percent (10%) per year from
the date of disposition; or

(B) in the case of a purchase of a security, to the person selling the
security to him, who may sue at law or in equity, for a return of the security,
together with any income received by the purchaser on the security, costs and
reasonable attorneys' fees, upon a tender of the full amount of the
consideration received for the security, or, if the purchaser no longer owns the
security, for the difference between the fair value of the security at the date
of the transaction and the consideration received for the security, together
with interest on such difference at the rate of ten percent (10%) per year from
the date of the transaction, costs and reasonable attorneys' fees.

(b) Every person who materially participates or aids in a sale or purchase
made by any person liable under paragraph (1) or (2) of subsection (a) of this
section, or who directly or indirectly controls any person so liable, shall also
be liable jointly and severally with and to the same extent as the person so
liable, unless the person who so participates, aids or controls, sustains the
burden of proof that he did not know, and could not have known, of the existence
of the facts by reason of which liability is alleged to exist. There shall be
contribution as in cases of contract among the several persons so liable.

(1) in violation of Sections 201(c) and 201(d) of this title, engages in
the business of advising others for compensation, either directly or through
publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities, or who, for
compensation and as a part of a regular

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business, issues or promulgates analyses or reports concerning securities, in
violation of Sections 201(c) and 201(d) of this title; or

(2) receives, directly or indirectly, any consideration from another
person for advice as to the value of securities or their purchase or sale,
whether through the issuance of analyses, reports or otherwise and employs any
device, scheme, or artifice to defraud such other person or engages in any act,
practice or course of business which operates or would operate as a fraud or
deceit on such other person, is liable to that person who may sue either at law
or in equity to recover the consideration paid for such advice and any loss due
to such advice, together with interest at ten percent (10%) per year from the
date of payment of the consideration plus costs and reasonable attorney's fees,
less the amount of any income received from such advice.

(d) Any tender specified in this section may be made at any time before
entry of judgment.

(e) Every cause of action under this section survives the death of any
person who might have been a plaintiff or defendant.

(f) No person may sue under paragraph (1) of subsection (a) of this
section more than three (3) years after the sale. No person may sue under
paragraph (2) of subsection (a) of this section more than two (2) years after
the untruth or omission was discovered, but in no event more than three (3)
years after the sale. No person may sue under this section if:

(1) the buyer received a written offer, before suit and at a time when he
owned the security, to refund the consideration paid together with interest at
ten percent (10%) per year from the date of payment, less the amount of any
income received on the security, and he failed to accept the offer within thirty
(30) days of its receipt; or

(2) the buyer received such an offer before suit and at a time when he did
not own the security, unless he rejected the offer in writing within thirty (30)
days of its receipt.

(g) No person may sue under paragraph (1) of subsection (c) of this
section more than three (3) years from the date the advice was given. No person
may sue under paragraph (2) of subsection (c) of this section more than one (1)
year after the fraud or deceit was discovered, but in no event more than three
(3) years after the date the advice was given.

(h) Provided, any longer term of limitation as otherwise provided by law
shall apply to any actions brought under the Oklahoma Securities Act.

(i) No person who has made or engaged in the performance of any contract
in violation of any provision of this title or any rule or order promulgated
thereunder, or who has acquired any purported right under any such contract with
knowledge of the facts by reason of which its making or performance was in
violation, may base any suit on the contract. Any defendant who prevails in an
action brought under paragraph (1) or (2) of subsection (a) or paragraph (1) or
(2) of subsection (c) of this section may recover his reasonable attorneys' fees
and costs in the action from the plaintiff if the court, in its discretion,
determines that the action was without substantial merit. Any plaintiff who
prevails in an action brought under paragraph (1) or (2) of subsection (a) or
paragraph (1) or (2) of subsection (c) of this section may recover his
reasonable attorneys' fees and costs in the action from the defendant.

(j) Any condition, stipulation, or provision is void if it would bind a
person acquiring any security to waive compliance with any provision of this
title, or any rule or order promulgated thereunder.

(k) The rights and remedies provided for in this title are in addition to
other rights or remedies that may exist in law or in equity; however, no
additional cause of action is created unless specified in this section.

OREGON SECURITIES LAW

SECTION 59.055. CONDITIONS OF OFFER AND SALE OF SECURITIES.

It is unlawful for any person to offer or sell any security in this state,
unless:

(1) The security is registered and the offer or sale is not in violation
of any rule or order of the Director of the Department of Consumer and Business
Services or any condition, limitation or restriction imposed by the director
upon such registration;

(2) The security is exempt under ORS 59.025 or the sale is exempt under
ORS 59.035; or

(3) The security is a federal covered security for which a notice has been
filed and fees have been paid under ORS 59.049.

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SECTION 59.115. LIABILITY IN CONNECTION WITH SALE OF SECURITIES; RECOVERY
BY PURCHASER; LIMITATIONS ON PROCEEDING; ATTORNEY FEES.

(1) A person who sells a security is liable as provided in subsection (2)
of this section to a purchaser of the security if the person:

(a) Sells a security, other than a federal covered security, in violation
of the Oregon Securities Law or of any condition, limitation or restriction
imposed upon a registration or license under the Oregon Securities Law; or

(b) Sells a security by means of an untrue statement of a material fact or
an omission to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading
(the buyer not knowing of the untruth or omission), and who does not sustain the
burden of proof that the person did not know, and in the exercise of reasonable
care could not have known, of the untruth or omission.

(2) The purchaser may recover:

(a) Upon tender of the security, the consideration paid for the security,
and interest from the date of payment equal to the greater of the rate of
interest specified in ORS 82.010 for judgments and decrees for the payment of
money or the rate provided in the security if the security is an
interest-bearing obligation, less any amount received on the security; or

(b) If the purchaser no longer owns the security, damages in the amount
that would be recoverable upon a tender, less the value of the security when the
purchaser disposed of it and less interest on such value at the rate of interest
specified in ORS 82.010 for judgments and decrees for the payment of money from
the date of disposition.

(3) Every person who directly or indirectly controls a seller liable under
subsection (1) of this section, every partner, limited liability company
manager, including a member who is a manager, officer or director of such
seller, every person occupying a similar status or performing similar functions,
and every person who participates or materially aids in the sale is also liable
jointly and severally with and to the same extent as the seller, unless the
nonseller sustains the burden of proof that the nonseller did not know, and, in
the exercise of reasonable care, could not have known, of the existence of facts
on which the liability is based. Any person held liable under this section shall
be entitled to contribution from those jointly and severally liable with that
person.

(4) Notwithstanding the provisions of subsection (3) of this section, a
person whose sole function in connection with the sale of a security is to
provide ministerial functions of escrow, custody or deposit services in
accordance with applicable law is liable only if the person participates or
materially aids in the sale and the purchaser sustains the burden of proof that
the person knew of the existence of facts on which liability is based or that
the person's failure to know of the existence of such facts was the result of
the person's recklessness or gross negligence.

(5) Any tender specified in this section may be made at any time before
entry of judgment.

(6) Except as otherwise provided in this subsection, no action or suit may
be commenced under this section more than three years after the sale. An action
under this section for a violation of subsection (1)(b) of this section or ORS
59.135 may be commenced within three years after the sale or two years after the
person bringing the action discovered or should have discovered the facts on
which the action is based, whichever is later. Failure to commence an action on
a timely basis is an affirmative defense.

(7) No action may be commenced under this section solely because an offer
was made prior to registration of the securities.

(8) Any person having a right of action against a broker-dealer, state
investment adviser or against a salesperson or investment adviser representative
acting within the course and scope or apparent course and scope of authority of
the salesperson or investment adviser representative, under this section shall
have a right of action under the bond or irrevocable letter of credit provided
in ORS 59.175.

(9) Subsection (4) of this section shall not limit the liability of any
person:

(a) For conduct other than in the circumstances described in subsection
(4) of this section; or

(b) Under any other law, including any other provisions of the Oregon
Securities Law.

(10) Except as provided in subsection (11) of this section, the court may
award reasonable attorney fees to the prevailing party in an action under this
section.

(11) The court may not award attorney fees to a prevailing defendant under
the provisions of subsection (10) of this section if the action under this
section is maintained as a class action pursuant to ORCP 32.

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SECTION 59.125. EFFECT OF NOTICE OF OFFER TO REPAY PURCHASER; EXCEPTIONS;
REGISTRATION OF TRANSACTION.

(1) Except as provided in subsection (3) of this section, no action or
suit may be commenced under ORS 59.115 if the purchaser has received before suit
a written notice as outlined in subsection (2) of this section.

(2) The notice shall contain:

(a) An offer to pay the amount specified in ORS 59.115(2)(a) upon tender
of the security; and

(b) A statement of the effect on the purchaser's rights of failure to
respond as required in subsection (3) of this section.

(3) An action or suit under this section may be commenced after receipt of
a notice as outlined in subsection (2) of this section:

(a) If the purchaser owned the security when the notice was received,
accepted the payment offer within 30 days after its receipt, and has not been
paid the full amount offered; or

(b) If the purchaser did not own the security when the notice was received
and, within 30 days after receipt, gave written notice of inability to tender
back the security.

(4) An offer to repay the purchaser pursuant to this section involves the
offer or sale of a security. The transaction must be registered under ORS 59.055
unless there is an exemption from the registration requirement or a notice is
filed under ORS 59.049.

PENNSYLVANIA SECURITIES ACT OF 1972

SECTION 201. REGISTRATION REQUIREMENT.

It is unlawful for any person to offer or sell any security in this State
unless the security is registered under this act or the security or transaction
is exempted under section 202 or 203 hereof.

SECTION 502. VIOLATION OF REGISTRATION REQUIREMENTS.

Any person who violates section 201 or any material condition imposed
under section 206 or 207 shall be liable to the person purchasing the security
offered or sold in violation of section 201 from him who may sue either at law
or in equity to recover the consideration paid for the security, together with
interest at the legal rate from the date of payment, less the amount of any
income or distributions, in cash or in kind, received on the security, upon the
tender of the security, or for damages if he no longer owns the security.
Damages shall be the amount that would be recoverable upon a tender less the
value of the security when the purchaser disposed of it and interest at the
legal rate from the date of disposition. Any person on whose behalf an offering
is made and any underwriter of the offering, whether on a best efforts or a firm
commitment basis, shall be jointly and severally liable under this section, but
in no event shall any underwriter be liable in any suit or suits authorized
under this section for damages in excess of the total price at which the
securities underwritten by him and distributed to the public were offered to the
public. Tender requires only notice of willingness to exchange the security for
the amount specified. Any notice may be given by service as in civil actions or
by certified mail addressed to the last known address of the person liable. No
person shall be liable under this section if the sale of the security is
registered prior to the payment or receipt of any part of the consideration for
the security sold, even though an offer to sell or a contract of sale may have
been made or entered into without registration.

SECTION 504. TIME LIMITATIONS ON RIGHTS OF ACTION.

(a) No action shall be maintained to enforce any liability created under
section 501 (or section 503 in so far as it relates to that section) unless
brought before the expiration of four years after the act or transaction
constituting the violation or the expiration of one year after the plaintiff
receives actual notice or upon the exercise of reasonable diligence should have
known of the facts constituting the violation, whichever shall first expire.

(b) No action shall be maintained to enforce any liability created under
section 502 (or section 503 in so far as it relates to that section) unless
brought before the expiration of two years after the violation upon which it is
based or the expiration of one year after the plaintiff receives actual notice
or upon the exercise of reasonable diligence should have known of the facts
constituting such violation, whichever shall first expire.

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(c) No action shall be maintained to enforce any right of indemnification
or contribution created by section 503 unless brought before the expiration of
one year after final judgment based upon the liability for which the right of
indemnification or contribution exists.

(d) No purchaser may commence an action under section 501, 502 or 503 if,
before suit is commenced, the purchaser has received a written offer: (i)
stating the respect in which liability under such section may have arisen and
fairly advising the purchaser of his rights; offering to repurchase the security
for cash, payable on delivery of the security, equal to the consideration paid,
together with interest at the legal rate from the date of payment, less the
amount of any income or distributions, in cash or in kind, received thereon or,
if the purchaser no longer owns the security, offering to pay the purchaser upon
acceptance of the offer an amount in cash equal to the damages computed in
accordance with section 501(a); and (ii) stating that the offer may be accepted
by the purchaser at any time within a specified period of not less than thirty
days after the date of receipt thereof, or such shorter period as the commission
may by rule prescribe; and the purchaser has failed to accept such offer in
writing within the specified period.

(e) No seller may commence an action under section 501, 502 or 503 if,
before suit is commenced, the seller has received a written offer: (i) stating
the respect in which liability under such section may have arisen and fairly
advising the seller of his rights; (ii) offering to return the security plus the
amount of any income or distributions, in cash or in kind, received thereon upon
payment of the consideration received, or if the purchaser no longer owns the
security, offering to pay the seller upon acceptance of the offer an amount in
cash equal to the damages computed in accordance with section 501(b); and (iii)
providing that the offer may be accepted by the seller at any time within a
specified period of not less than thirty days after the date of receipt thereof,
or such shorter period as the commission may by regulation prescribe; and the
seller has failed to accept such offer in writing within the specified period.

(f) Offers under subsection (d) or (e) of this section 504 shall be in the
form and contain the information the commission by rule prescribes. Every offer
under this subsection shall be delivered to the offeree personally or sent by
certified mail addressed to him at his last known address. If an offer is not
performed in accordance with its terms, suit by the offeree under section 501,
502 or 503, shall be permitted without regard to subsections (d) and (e) of this
section 504.

SOUTH CAROLINA UNIFORM SECURITIES ACT

SECTION 35-1-810. REGISTERED, EXEMPTED, OR FEDERAL COVERED SECURITY
REQUIRED.

It is unlawful for any person to offer or sell any security in this State
unless (a) it is registered under this chapter, (b) the security or transaction
is exempted under Section 35-1-310 or 35-1-320, or (c) it is a federal covered
security.

SECTION 35-1-1490. LIABILITY TO BUYERS FOR ILLEGAL OR FRAUDULENT SALES OR
OFFERS.

Any person who:

(1) offers or sells a security in violation of subsection (2) of Section
35-1-170 or Section 35-1-410 or Section 35-1-810, or of any rule or order under
Section 35-1-50 which requires the affirmative approval of sales literature
before it is used or of any condition imposed under Section 35-1-950 or Section
35-1-990; or

Is liable to the person buying the security from him, who may sue either
at law or in equity to recover the consideration paid for the security, together
with interest at six percent per year from the date of payment, costs, and
reasonable attorneys' fees, less the amount of any income received on the
security, upon the tender of the security, or for damages if he no longer owns
the security. Damages are the amount that would be recoverable upon a tender
less the value of the security when the buyer disposed of it and interest at six
percent per year from the date of disposition.

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SECTION 35-1-1530. LIMITATION OF ACTIONS; EFFECT OF OFFER TO REFUND
CONSIDERATION WITH INTEREST.

No person may sue under Sections 35-1-1490 and 35-1-1500 more than three
years after the contract of sale. No person may sue under either section (a) if
the buyer received a written offer, before suit and at a time when he owned the
security, to refund the consideration paid together with interest at six percent
per year from the date of payment, less the amount of any income received on the
security, and he failed to accept the offer within thirty days of its receipt or
(b) if the buyer received such an offer before suit and at a time when he did
not own the security, unless he rejected the offer in writing within thirty days
of its receipt.

TENNESSEE SECURITIES ACT OF 1980

SECTION 48-2-104. SECURITIES REGISTRATION REQUIREMENT.

It is unlawful for any person to sell any security in this state unless:

(1) It is registered under this part;

(2) The security or transaction is exempted under ' 48-2-103; or

(3) The security is a covered security.

SECTION 48-2-122. CIVIL LIABILITIES.

(a)(1) Any person who:

(A) Sells a security in violation of Sections 48-2-104C48-2-109,
48-2-110(f), or of any condition imposed under Section 48-2-107(g), or any rule,
or order under this part of which he has notice; or

(B) Sells a security in violation of ' 48-2-121(a) (the purchaser not
knowing of the violation of ' 48-2-121(a)); shall be liable to the person
purchasing the security from the seller to recover the consideration paid for
the security, together with interest at the legal rate from the date of payment,
less the amount of any income received on the security, upon the tender of the
security, or, if the purchaser no longer owns the security, the amount that
would be recoverable upon a tender, less the value of the security when the
purchaser disposed of it and interest at the legal rate form the date of
disposition.

(2) Tender shall require only notice of willingness to exchange the
security for the amount specified.

(3) Any notice may be given by service as in civil actions or by certified
mail addressed to the last known address of the person liable.

(b)(1) Any person who purchases a security in violation of ' 48-2-121(a) (
the seller not knowing of the violation of ' 48-2-121(a), and who does not carry
the burden of proof of showing that he did not know and in the exercise of
reasonable care could not have known of the violation of ' 48-2-121(a)) shall be
liable to the person selling the security to the purchaser to return the
security, plus any income received by the purchaser thereon, upon tender of the
consideration received, or, if the purchaser no longer owns the security, the
excess of the value of the security when the purchaser disposed of it, plus
interest at the legal rate from the date of disposition, over the consideration
paid for the security.

(2) Tender requires only notice of willingness to pay the amount specified
in exchange for the security.

(3) Any notice may be given by service as in civil actions or by certified
mail to the last known address of the person liable.

(c)(1) Any person who willfully engages in any act or conduct which
violates ' 48-2-121 shall be liable to any other person (not knowing that any
such conduct constituted a violation of ' 48-2-121) who purchases or sells any
security at a price which was affected by the act or conduct for the damages
sustained as a result of such act or conduct unless the person sued shall prove
that the person sued acted in good faith and did not know, and in the exercise
of reasonable care could not have known, that such act or conduct violated '
48-2-121.

(2) Damages shall be the difference between the price at which the other
person purchased or sold securities and the market value which the securities
would have had at the time of the other person's purchase or sale in the absence
of the act or conduct plus interest at the legal rate.

(d) Any person who shall make or cause to be made any statement in any
application, report, or document filed pursuant to this part or any rule or
order hereunder or any undertaking contained in a registration statement
hereunder, or in any advice given in such person's capacity as an investment
adviser, which statement was at the time and in the light of the circumstances
under which it was made false or misleading with respect to any

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material fact shall be liable to any person (not knowing that any such statement
was false or misleading) who, in reliance upon such statement, shall have
purchased or sold a security at a price which was affected by such statement,
for damages (calculated as provided in subsections (a) and (b)) caused by such
reliance, unless the person sued shall prove that the person sued acted in god
faith and had no knowledge that such statement was false or misleading and in
the exercise of reasonable care could not have known that such statement was
false or misleading.

(e) A person seeking to enforce any liability under this section may sue
either at law or in equity in any court of competent jurisdiction.

(f) In any such suit under this section, the court may, in its discretion,
require an undertaking for the payment of the costs of such suit, and assess
reasonable cost, including reasonable attorneys' fees, against either party
litigant.

(g) Every person who directly or indirectly controls a person liable under
this section, every partner, principal executive officer, or director of such
person, every person occupying a similar status or performing similar functions,
every employee of such person who materially aids in the act or transaction
constituting the violation, and every broker-dealer or agent who materially aids
in the act or transaction constituting the violation, are also liable jointly
and severally with and to the same extent as such person, unless the person who
would be liable under subsection (d) proves that the person who would be liable
did not know, and in the exercise of reasonable care could not have known, of
the existence of the facts by reason of which the liability is alleged to exist.
There is contribution as in cases of contract among the several persons so
liable.

(h) No action shall be maintained under this section unless commenced
before the expiration of two (2) years after the act or transaction constituting
the violation or the expiration of one (1) year after the discovery of the facts
constituting the violation, or after such discovery should have been made by the
exercise of reasonable diligence, whichever first expires.

(i) Any condition, stipulation or provision binding any person acquiring
any security to waive compliance with any provision of this part or any rule or
order hereunder is void.

(j) The rights and remedies under this part are in addition to any other
rights or remedies that may exist at law or in equity.

(k) The legal rate of interest shall be that as provided by Section
47-14-121.

TEXAS SECURITIES ACT OF 1957

SECTION 7. PERMIT OR REGISTRATION FOR ISSUE BY COMMISSIONER; INFORMATION
FOR ISSUANCE OF PERMIT OR REGISTRATION.

A. Qualification of Securities.

(1) No dealer, agent or salesman shall sell or offer for sale any
securities issued after September 6, 1955, except those which shall have been
registered by Notification under subsection B or by Coordination under
subsection C of this Section 7 and except those which come within the classes
enumerated in Section 5 or Section 6 of this Act, until the issuer of such
securities or a dealer registered under the provisions of this Act shall have
been granted a permit by the Commissioner; and no such permit shall be granted
by the Commissioner until the issuer of such securities or a dealer registered
under the provisions of this Act shall have filed with the Commissioner a sworn
statement verified under the oath of an executive officer or partner of the
issuer, or of such registered dealer, and attested by the secretary or partner
thereof, setting forth the following information:

a. The names, residences and post office addresses of the officers and
directors of the company;

b. The location of its principal office and of all branch offices in this
State, if any;

c. A copy of its articles of incorporation or partnership or association,
as the case may be, and of any amendments thereto, if any; if a corporation, a
copy of all minutes of any proceedings of its directors, stockholders or members
relating to or affecting the issue of said security; if a corporation, a copy of
its bylaws and of any amendments thereto; if a trustee, a copy of all
instruments by which the trust is created and in which it is accepted,
acknowledged or declared;

d. A statement showing the amount of capital stock, if any, and if no
capital stock, the amount of capital of the issuer that is contemplated to be
employed; the number of shares into which such stock is divided, or if not
divided into shares of stock, what division is to be made or is contemplated;
the par value of each share, or if no par stock, the price at which such
security is proposed to be sold; the promotional fees or commissions to be paid
for the sale of same, including any and all compensations of every nature that
are in any way to be allowed the

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promoters or allowed for the sale of same; and how such compensation is to be
paid, whether in cash, securities, service or otherwise, or partly of either or
both; also, the amount of cash to be paid, or securities to be issued, given,
transferred or sold to promoters for promotion or organization services and
expenses, and the amount of promotion or organization services and expenses
which will be assumed or in any way paid by the issuer;

e. Copies of certificates of the stock and all other securities to be
sold, or offered for sale, together with application blanks therefor; a copy of
any contract it proposes to make concerning such security; a copy of any
prospectus or advertisement or other description of security prepared by or for
it for distribution or publication;

f.1. A detailed statement prepared in accordance with generally accepted
auditing standards and procedures and generally accepted accounting principles,
showing all the assets and all the liabilities of the issuer, said statement to
reflect the financial condition of the issuer on a day not more than ninety (90)
days prior to the date such statement is filed. Such statement shall list all
assets in detail and shall show how the value of such assets was determined,
that is, whether the value set forth in said statement represents the actual
cost in money of such assets, or whether such value represents their present
market value, or some other value than the actual cost in money, and shall show
the present actual value of said assets; also, whether the value set forth in
the statement is greater or less than the actual cost value in money and greater
or less than the present market value of such assets. If any of the assets
consist of real estate, then said statement shall show the amount for which said
real estate is rendered for State and county taxes, or assessed for taxes. If
any such assets listed shall consist of anything other than cash and real
estate, same shall be set out in detail so as to give the Commissioner the
fullest possible information concerning same, and the Commissioner shall have
the power to require the filing of such additional information as the
Commissioner may deem necessary to determine whether or not the true value of
said assets are reflected in the statement filed. Should any of the assets
listed in said statement be subject to any repurchase agreement, or any other
agreement of like character, by the terms of which the absolute ownership of, or
title to said assets is qualified or limited in any way, then the terms and
conditions of said agreement by which the absolute ownership of, or title to
said assets is qualified or limited, as well as the amount and character of the
assets subject thereto shall be fully stated. Said statement shall list all
current liabilities, that is, all liabilities which will mature and become due
within one year from the date of such application, and shall list separately
from such current liabilities, all other liabilities, contingent or otherwise,
showing the amount of those which are secured by mortgage or otherwise, the
assets of the issuer which are subject to such mortgage, and the dates of
maturity of any such mortgage indebtedness. Such application shall also include
a detailed income statement, prepared in accordance with generally accepted
auditing standards and procedures and generally accepted accounting principles,
which shall cover the last three (3) years' operations of the issuer, if such
issuer has been in operation for three (3) years, but if not, said income
statement shall cover the time that said issuer has been operating. If said
issuer has not been operating, but is taking over a concern of any kind which
has been previously operating, an income statement showing the operations of the
concern thus taken over for a period of the last three (3) years next preceding
the taking over of said concern shall be included in said statement; said income
statement shall clearly reflect the amount of net income or net loss incurred
during each of the years shown.

2. The financial statements required in subparagraph (1) of this paragraph
for a small business issuer, as defined by Board rule, may be reviewed by an
independent certified public accountant in accordance with the Statements on
Standards for Accounting and Review Services promulgated by the American
Institute of Certified Public Accountants in lieu of being audited and
certified, provided that the small business issuer otherwise meets all of the
requirements that the Board by rule, regulation, or order may prescribe,
conditionally or unconditionally.

SECTION 33. CIVIL LIABILITIES.

A. Liability of Sellers.

(1) Registration and Related Violations. A person who offers or sells a
security in violation of Section 7, 9 (or a requirement of the Commissioner
thereunder), 12, 23B, or an order under 23A of this Act is liable to the person
buying the security from him, who may sue either at law or in equity for
rescission or for damages if the buyer no longer owns the security.

(2) Untruth or Omission. A person who offers or sells a security (whether
or not the security or transaction is exempt under Section 5 or 6 of this Act)
by means of an untrue statement of a material fact or an omission to state a
material fact necessary in order to make the statements made, in the light of
the circumstances under which they are made, not misleading, is liable to the
person buying the security from him, who may sue either at law or in equity for
rescission, or for damages if the buyer no longer owns the security. However, a
person is not liable if he sustains the burden of proof that either (a) the
buyer knew of the untruth or omission or (b) he (the offeror or seller) did not
know, and in the exercise of reasonable care could not have known, of the
untruth or omission. The issuer of the security (other than a government issuer
identified in Section 5M) is not entitled to the defense in clause

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(b) with respect to an untruth or omission (i) in a prospectus required in
connection with a registration statement under Section 7A, 7B, or 7C, or (ii) in
a writing prepared and delivered by the issuer in the sale of a security.

B. Liability of Buyers. A person who offers to buy or buys a security
(whether or not the security or transaction is exempt under Section 5 or 6 of
this Act) by means of an untrue statement of a material fact or an omission to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading, is liable
to the person selling the security to him, who may sue either at law or in
equity for rescission or for damages if the buyer no longer owns the security.
However, a person is not liable if he sustains the burden of proof that either
(a) the seller knew of the untruth or omission, or (b) he (the offeror or buyer)
did not know, and in the exercise of reasonable care could not have known, of
the untruth or omission.

C. Liability of Nonselling Issuers Which Register.

(1) This Section 33C applies only to an issuer which registers under
Section 7A, 7B, or 7C of this Act, or under Section 6 of the U.S. Securities Act
of 1933, its outstanding securities for offer and sale by or for the owner of
the securities. (2) If the prospectus required in connection with the
registration contains, as of its effective date, an untrue statement of a
material fact or an omission to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they are
made, not misleading, the issuer is liable to a person buying the registered
security, who may sue either at law or in equity for rescission or for damages
if the buyer no longer owns the securities. However, an issuer is not liable if
it sustains the burden of proof that the buyer knew of the untruth or omission.

D. Rescission and Damages. For this Section 33:

(1) On rescission, a buyer shall recover (a) the consideration he paid for
the security plus interest thereon at the legal rate from the date of payment by
him, less (b) the amount of any income he received on the security, upon tender
of the security (or a security of the same class and series).

(2) On rescission, a seller shall recover the security (or a security of
the same class and series) upon tender of (a) the consideration he received for
the security plus interest thereon at the legal rate from the date of receipt by
him, less (b) the amount of any income the buyer received on the security.

(3) In damages, a buyer shall recover (a) the consideration he paid for
the security plus interest thereon at the legal rate from the date of payment by
him, less (b) the value of the security at the time he disposed of it plus the
amount of any income he received on the security.

(4) In damages, a seller shall recover (a) the value of the security at
the time of sale plus the amount of any income the buyer received on the
security, less (b) the consideration paid the seller for the security plus
interest thereon at the legal rate from the date of payment to the seller.

(5) For a buyer suing under Section 33C, the consideration he paid shall
be deemed the lesser of (a) the price he paid and (b) the price at which the
security was offered to the public.

(6) On rescission or as a part of damages, a buyer or a seller shall also
recover costs.

(7) On rescission or as a part of damages, a buyer or a seller may also
recover reasonable attorney's fees if the court finds that the recovery would be
equitable in the circumstances.

E. Time of Tender. Any tender specified in Section 33D may be made at any
time before entry of judgment.

F. Liability of Control Persons and Aiders.

(1) A person who directly or indirectly controls a seller, buyer, or
issuer of a security is liable under Section 33A, 33B, or 33C jointly and
severally with the seller, buyer, or issuer, and to the same extent as if he
were the seller, buyer, or issuer, unless the controlling person sustains the
burden of proof that he did not know, and in the exercise of reasonable care
could not have known, of the existence of the facts by reason of which the
liability is alleged to exist.

(2) A person who directly or indirectly with intent to deceive or defraud
or with reckless disregard for the truth or the law materially aids a seller,
buyer, or issuer of a security is liable under Section 33A, 33B, or 33C jointly
and severally with the seller, buyer, or issuer, and to the same extent as if he
were the seller, buyer, or issuer.

(3) There is contribution as in cases of contract among the several
persons so liable.

G. Survivability of Actions. Every cause of action under this Act survives
the death of any person who might have been a plaintiff or defendant.

H. Statute of Limitations.

(1) No person may sue under Section 33A(1) or 33F so far as it relates to
Section 33A(1):

(a) more than three years after the sale; or

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(b) if he received a rescission offer (meeting the requirements of Section
33I) before suit unless he (i) rejected the offer in writing within 30 days of
its receipt and (ii) expressly reserved in the rejection his right to sue; or

(2) No person may sue under Section 33A(2), 33C, or 33F so far as it
relates to 33A(2) or 33C:

(a) more than three years after discovery of the untruth or omission, or
after discovery should have been made by the exercise of reasonable diligence;
or

(b) more than five years after the sale; or

(c) if he received a rescission offer (meeting the requirements of Section
33I) before suit, unless he (i) rejected the offer in writing within 30 days of
its receipt, and (ii) expressly reserved in the rejection his right to sue; or

(d) more than one year after he so rejected a rescission offer meeting the
requirements of Section 33I.

(3) No person may sue under Section 33B or 33F so far as it relates to
Section 33B:

(a) more than three years after discovery of the untruth or omission, or
after discovery should have been made by the exercise of reasonable diligence;
or

(b) more than five years after the purchase; or

(c) if he received a rescission offer (meeting the requirements of Section
33J) before suit unless he (i) rejected the offer in writing within 30 days of
its receipt, and (ii) expressly reserved in the rejection his right to sue; or

(d) more than one year after he so rejected a rescission offer meeting the
requirements of Section 33J.

I. Requirements of a Rescission Offer to Buyers. A rescission offer under
Section 33H(1) or (2) shall meet the following requirements:

(1) The offer shall include financial and other information material to
the offeree's decision whether to accept the offer, and shall not contain an
untrue statement of a material fact or an omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading.

(2) The offeror shall deposit funds in escrow in a state or national bank
doing business in Texas (or in another bank approved by the commissioner) or
receive an unqualified commitment from such a bank to furnish funds sufficient
to pay the amount offered.

(3) The amount of the offer to a buyer who still owns the security shall
be the amount (excluding costs and attorney's fees) he would recover on
rescission under Section 33D(1).

(4) The amount of the offer to a buyer who no longer owns the security
shall be the amount (excluding costs and attorney's fees) he would recover in
damages under Section 33D(3).

(5) The offer shall state:

(a) the amount of the offer, as determined pursuant to Paragraph (3) or
(4) above, which shall be given (i) so far as practicable in terms of a
specified number of dollars and a specified rate of interest for a period
starting at a specified date, and (ii) so far as necessary, in terms of
specified elements (such as the value of the security when it was disposed of by
the offeree) known to the offeree but not to the offeror, which are subject to
the furnishing of reasonable evidence by the offeree. (b) the name and address
of the bank where the amount of the offer will be paid.

(c) that the offeree will receive the amount of the offer within a
specified number of days (not more than 30) after receipt by the bank, in form
reasonably acceptable to the offeror, and in compliance with the instructions in
the offer, of:

(i) the security, if the offeree still owns it, or evidence of the fact
and date of disposition if he no longer owns it; and

(ii) evidence, if necessary, of elements referred to in Paragraph (a)(ii)
above.

(d) conspicuously that the offeree may not sue on his purchase under
Section 33 unless:

(i) he accepts the offer but does not receive the amount of the offer, in
which case he may sue within the time allowed by Section 33H(1)(a) or 33H(2)(a)
or (b), as applicable; or

(ii) he rejects the offer in writing within 30 days of its receipt and
expressly reserves in the rejection his right to sue, in which case he may sue
within one year after he so rejects.

(e) in reasonable detail, the nature of the violation of this Act that
occurred or may have occurred.

(f) any other information the offeror wants to include.

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J. Requirements of a Rescission Offer to Sellers. A rescission offer under
Section 33H(3) shall meet the following requirements:

(2) The offeror shall deposit the securities in escrow in a state or
national bank doing business in Texas (or in another bank approved by the
commissioner).

(3) The terms of the offer shall be the same (excluding costs and
attorney's fees) as the seller would recover on rescission under Section 33D(2).

(4) The offer shall state:

(a) the terms of the offer, as determined pursuant to Paragraph (3) above,
which shall be given (i) so far as practicable in terms of a specified number
and kind of securities and a specified rate of interest for a period starting at
a specified date, and (ii) so far as necessary, in terms of specified elements
known to the offeree but not the offeror, which are subject to the furnishing of
reasonable evidence by the offeree.

(b) the name and address of the bank where the terms of the offer will be
carried out.

(c) that the offeree will receive the securities within a specified number
of days (not more than 30) after receipt by the bank, in form reasonably
acceptable to the offeror, and in compliance with the instructions in the offer,
of:

(i) the amount required by the terms of the offer; and

(ii) evidence, if necessary, of elements referred to in Paragraph (a)(ii)
above.

(d) conspicuously that the offeree may not sue on his sale under Section
33 unless:

(i) he accepts the offer but does not receive the securities, in which
case he may sue within the time allowed by Section 33H(3)(a) or (b), as
applicable; or

(ii) he rejects the offer in writing within 30 days of its receipt and
expressly reserves in the rejection his right to sue, in which case he may sue
within one year after he so rejects.

(e) in reasonable detail, the nature of the violation of this Act that
occurred or may have occurred.

(f) any other information the offeror wants to include.

K. Unenforceability of Illegal Contracts. No person who has made or
engaged in the performance of any contract in violation of any provision of this
Act or any rule or order or requirement hereunder, or who has acquired any
purported right under any such contract with knowledge of the facts by reason of
which its making or performance was in violation, may base any suit on the
contract.

L. Waivers Void. A condition, stipulation, or provision binding a buyer or
seller of a security to waive compliance with a provision of this Act or a rule
or order or requirement hereunder is void.

M. Saving of Existing Remedies. The rights and remedies provided by this
Act are in addition to any other rights (including exemplary or punitive
damages) or remedies that may exist at law or in equity.

N. Limitation of Liability in Small Business Issuances.

(1) For purposes of this Section 33N, unless the context otherwise
requires, "small business issuer" means an issuer of securities that, at the
time of an offer to which this Section 33N applies:

(a) has annual gross revenues in an amount that does not exceed $25
million; and

(b) does not have a class of equity securities registered, or required to
be registered, with the Securities and Exchange Commission under Section 12 of
the Securities Exchange Act of 1934, as amended (15 U.S.C. Section 78l).

(2) This Section 33N applies only to:

(a) an offer of securities made by a small business issuer or by the
seller of securities of a small business issuer that is in an aggregate amount
that does not exceed $5 million; and

(b) a person who has been engaged to provide services relating to an offer
of securities described by Section 33N(2)(a), including an attorney, an
accountant, a consultant, or the firm of the attorney, accountant, or
consultant.

(3) The maximum amount that may be recovered against a person to which
this Section 33N applies in any action or series of actions under Section 33
relating to an offer of securities to which this Section 33N applies is an
amount equal to three times the fee paid by the issuer or other seller to the
person for the services related to the

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offer of securities, unless the trier of fact finds the person engaged in
intentional wrongdoing in providing the services.

(4) A small business issuer making an offer of securities shall provide to
the prospective buyer a written disclosure of the limitation of liability
created by this Section 33N and shall receive a signed acknowledgment that the
disclosure was provided.

UTAH UNIFORM SECURITIES ACT

SECTION 61-1-7. REGISTRATION BEFORE SALE.

It is unlawful for any person to offer or sell any security in this state
unless it is registered under this chapter, the security or transaction is
exempted under Section 61-1-14, or the security is a federal covered security
for which a notice filing has been made pursuant to the provisions of Section
61-1-15.5.

SECTION 61-1-22. SALES AND PURCHASES IN VIOLATION; REMEDIES; LIMITATION OF
ACTIONS.

(1)(a) A person who offers or sells a security in violation of Subsection
61-1-3(1), Section 61-1-7, Subsection 61-1-17(2), any rule or order under
Section 61-1-15, which requires the affirmative approval of sales literature
before it is used, any condition imposed under Subsection 61-1-10(4) or
61-1-11(7), or offers, sells, or purchases a security in violation of Subsection
61-1-1(2) is liable to the person selling the security to or buying the security
from him, who may sue either at law or in equity to recover the consideration
paid for the security, together with interest at 12% per year from the date of
payment, costs, and reasonable attorney's fees, less the amount of any income
received on the security, upon the tender of the security or for damages if he
no longer owns the security.

(b) Damages are the amount that would be recoverable upon a tender less
the value of the security when the buyer disposed of it and interest at 12% per
year from the date of disposition.

(2) The court in a suit brought under Subsection (1) may award an amount
equal to three times the consideration paid for the security, together with
interest, costs, and attorney's fees, less any amounts, all as specified in
Subsection (1) upon a showing that the violation was reckless or intentional.

(3) A person who offers or sells a security in violation of Subsection
61-1-1(2) is not liable under Subsection (1)(a) if the purchaser knew of the
untruth or omission, or the seller did not know and in the exercise of
reasonable care could not have known of the untrue statement or misleading
omission.

(4)(a) Every person who directly or indirectly controls a seller or buyer
liable under Subsection (1), every partner, officer, or director of such a
seller or buyer, every person occupying a similar status or performing similar
functions, every employee of such a seller or buyer who materially aids in the
sale or purchase, and every broker-dealer or agent who materially aids in the
sale are also liable jointly and severally with and to the same extent as the
seller or purchaser, unless the nonseller or nonpurchaser who is so liable
sustains the burden of proof that he did not know, and in exercise of reasonable
care could not have known, of the existence of the facts by reason of which the
liability is alleged to exist.

(b) There is contribution as in cases of contract among the several
persons so liable.

(5) Any tender specified in this section may be made at any time before
entry of judgment.

(6) A cause of action under this section survives the death of any person
who might have been a plaintiff or defendant.

(7)(a) No action shall be maintained to enforce any liability under this
section unless brought before the expiration of four years after the act or
transaction constituting the violation or the expiration of two years after the
discovery by the plaintiff of the facts constituting the violation, whichever
expires first.

(b) No person may sue under this section if:

(i) the buyer or seller received a written offer, before suit and at a
time when he owned the security, to refund the consideration paid together with
interest at 12% per year from the date of payment, less the amount of any income
received on the security, and he failed to accept the offer within 30 days of
its receipt; or

(ii) the buyer or seller received such an offer before suit and at a time
when he did not own the security, unless he rejected the offer in writing within
30 days of its receipt.

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(8) No person who has made or engaged in the performance of any contract
in violation of this chapter or any rule or order hereunder, or who has acquired
any purported right under any such contract with knowledge of the facts by
reason of which its making or performance was in violation, may base any suit on
the contract.

(9) A condition, stipulation, or provision binding a person acquiring a
security to waive compliance with this chapter or a rule or order hereunder is
void.

(10)(a) The rights and remedies provided by this chapter are in addition
to any other rights or remedies that may exist at law or in equity.

(b) This chapter does not create any cause of action not specified in this
section or Subsection 61-1-4(6).

VERMONT SECURITIES ACT

SECTION 4205. REGISTRATION AND NOTICE FILING OF SECURITIES.

No securities except those exempted under section 4203a of this title,
those sold in any transaction exempt under section 4204a of this title, or those
that are federal covered securities may be offered for sale or sold within this
state unless such securities shall have been registered by notification or by
qualification as defined in this chapter. Registration of stock shall be deemed
to include the registration of rights to subscribe to such stock if the notice
under section 4207 of this title or the application under section 4208 of this
title for registration of such stock includes a statement that such rights are
to be issued.

SECTION 4240. CIVIL LIABILITY.

(a) Any person who offers or sells a security in violation of sections
4205, 4213, 4224a or 4234 of this title, or any rule of the commissioner
relating to those sections is liable to the person purchasing the security from
that person. The purchaser of the security may sue to recover the consideration
paid for the security, together with interest at the legal rate from the date of
payment, costs and reasonable attorneys' fees less the amount of any income
received on the security, upon the tender of the security, or for damages plus
costs and reasonable attorneys' fees if the purchaser no longer owns the
security. Damages are the amount that would be recoverable upon a tender less
the value of the security when the purchaser disposed of it and interest at the
legal rate from the date of disposition. Tender shall require only notice of
willingness to exchange the security for the amount specified.

(b) A person who offers or sells a security in violation of subsection
4224a(a) is not liable under this subsection if the purchaser knew of the untrue
statement of a material fact or omission of a statement of a material fact; or
the seller sustains the burden of proof to establish that the seller did not
know and in the exercise of reasonable care could not have known of the untrue
statement or omission.

(c) Any person who purchases a security in violation of subsection
4224a(a) is liable to the person selling the security to that person. The seller
of the security may sue to recover the security, plus any income received by the
purchaser on the security upon tender of the consideration received, costs and
reasonable attorneys' fees, or for damages plus costs and reasonable attorneys'
fees if the purchaser no longer owns the security. Damages are the excess of the
value of the security when the purchaser acquired it, plus interest at the legal
rate on that amount from the date of disposition, over the consideration paid
for the security plus any income received on the security. Tender requires only
notice of willingness to pay the amount specified in exchange for the security.

(d) A person who purchases a security in violation of subsection 4224a(a)
is not liable under this subsection if the seller knew of the untrue statement
of a material fact or omission of a statement of a material fact; or the
purchaser sustains the burden of proof to establish that the purchaser did not
know and in the exercise of reasonable care could not have known of the untrue
statement or omission.

(e)(1) A person who engages in the business of advising other persons, for
compensation, either directly or through publications or writings, as to the
value of securities or as to the advisability of investing in, purchasing, or
selling securities, or who, for compensation and as a part of a regular
business, issues or promulgates analyses or reports concerning securities in
violation of subsections 4213(f), (g), (h) or (i) of this title, subsections
4224a(e), (f), (g), or (i) of this title, or section 4234 of this title is
liable to such other persons, who may sue to recover the consideration paid for
such advice and any loss due to such advice, together with interest at the legal
rate from the date of payment of the consideration plus costs and reasonable
attorney's fees, less the amount of any income received from such advice.

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(2) A person who receives directly or indirectly any consideration from
another person for advice as to the value of securities or their purchase or
sale, whether through the issuance of analyses, reports, or otherwise and
employs any device, scheme, or artifice to defraud such other person or engages
in any act, practice, or course of business which operates or would operate as a
fraud or deceit on such other person, is liable to such other person, who may
sue to recover the consideration paid for such advice and any loss due to such
advice, together with interest at the legal rate from the date of payment of the
consideration plus costs and reasonable attorney's fees, less the amount of any
income received from such advice.

(f) Every person who directly or indirectly controls another person liable
under subsection (a), (c) or (e) of this section, every partner, officer or
director of that other person, every member in a member-managed limited
liability company, every manager in a manager-managed limited liability company,
and every member in a manager-managed limited liability company who materially
aids in the act or transaction constituting the violation, every person
occupying a similar status or performing similar functions, every employee of
that other person who materially aids in the act or transaction constituting the
violation and every broker-dealer or sales representative who materially aids in
the act or transaction constituting the violation is also liable jointly and
severally with and to the same extent as that other person, unless the person
otherwise secondarily liable under this chapter proves that the person did not
know, and in the exercise of reasonable care could not have known, of the
existence of the facts by reason of which the liability is alleged to exist.
There is contribution as in cases of contract among the several persons so
liable.

(g) An action under this section shall be brought within three years after
the act, omission or transaction constituting the violation, or within two years
after the violation is or reasonably should have been discovered, whichever
occurs later, but not later than six years after the act, omission or
transaction constituting the violation.

(h) No person subject to this chapter who has made or engaged in the
performance of any contract in violation of sections 4205, 4213, 4224a or 4234
of this chapter or any rule or order of the commissioner, or who has acquired
any purported right under any contract with knowledge of the facts by reason of
which its making or performance was in violation, may base any suit on the
contract.

(i) The rights and remedies provided by this chapter are in addition to
any other rights or remedies that may exist at law or in equity.

(j) Every cause of action under this chapter survives the death of any
person who might have been a plaintiff or defendant.

VIRGINIA SECURITIES ACT

SECTION 13.1-507. REGISTRATION REQUIREMENT; EXEMPTIONS.

It shall be unlawful for any person to offer or sell any security unless
(i) the security is registered under this chapter, (ii) the security or
transaction is exempted by this chapter, or (iii) the security is a federal
covered security. Notwithstanding the provisions of subdivision (iii), for the
period ending three years from October 11, 1996, the Commission may require the
registration of a federal covered security issued by any issuer who refuses to
pay a fee required by this chapter or rule promulgated pursuant to this chapter;
provided, that a delay in payment or an underpayment of a fee that is remedied
within fifteen days after receipt of notice from the Commission shall not
constitute a refusal to pay the fee.

SECTION 13.1-522. CIVIL LIABILITIES.

A. Any person who: (i) sells a security in violation of "13.1-502,
13.1-504A, 13.1-507(i) or (ii), 13.1-510(e) or (f), or (ii) sells a security by
means of an untrue statement of a material fact or any omission to state a
material fact necessary in order to make the statement made, in the light of the
circumstances under which they were made, not misleading (the purchaser not
knowing of such untruth or omission), and who shall not sustain the burden of
proof that he did not know, and in the exercise of reasonable care could not
have known, of such untruth or omission, shall be liable to the person
purchasing such security from him who may sue either at law or in equity to
recover the consideration paid for such security, together with interest thereon
at the annual rate of six percent, costs, and reasonable attorneys' fees, less
the amount of any income received on the security, upon the tender of such
security, or for the substantial equivalent in damages if he no longer owns the
security.

B. Any person who (i) engages in the business of advising others, for
compensation, either directly or through publications or writings, as to the
value of securities or as to the advisability of investing in, purchasing, or

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selling securities, or who, for compensation and as a part of a regular
business, issues or promulgates analyses or reports concerning securities in
willful and material violation of '13.1-503, subsection A of '13.1-504, or of
any rule or order under '13.1-505.1, or (ii) receives, directly or indirectly,
any consideration from another person for advice as to the value of securities
or their purchase or sale, whether through the issuance of analyses, reports or
otherwise and employs any device, scheme, or artifice to defraud such other
person or engages in any act, practice or course of business which operates or
would operate as a fraud or deceit on such other person, shall be liable to that
person who may sue either at law or in equity to recover the consideration paid
for such advice and any loss due to such advice, together with interest thereon
at the annual rate of six percent from the date of payment of the consideration
plus costs and reasonable attorney's fees, less the amount of any income
received from such advice and any other economic advantage.

C. Every person who directly or indirectly controls a person liable under
subsection A or B of this section, including every partner, officer, or director
of such a person, every person occupying a similar status or performing similar
functions, every employee of such a person who materially aids in the conduct
giving rise to the liability, and every broker-dealer, investment advisor,
investment advisor representative or agent who materially aids in such conduct
shall be liable jointly and severally with and to the same extent as such
person, unless able to sustain the burden of proof that he did not know, and in
the exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There shall be
contribution as in cases of contract among the several persons so liable.

D. No suit shall be maintained to enforce any liability created under this
section unless brought within two years after the transaction upon which it is
based; provided, that, if any person liable by reason of subsection A, B or C of
this section makes a written offer, before suit is brought, to refund the
consideration paid and any loss due to any investment advice provided by such
person, together with interest thereon at the annual rate of six percent, less
the amount of any income received on the security or resulting from such advice,
or to pay damages if the purchaser no longer owns the security, no purchaser or
user of the investment advisory service shall maintain a suit under this section
who has refused or failed to accept such offer within thirty days of its
receipt.

E. Any tender specified in this section may be made at any time before
entry of judgment.

F. Any condition, stipulation or provision binding any person acquiring
any security or receiving any investment advice to waive compliance with any
provision of this chapter or of any rule or order thereunder shall be void.

G. The rights and remedies provided by this chapter shall be in addition
to any and all other rights and remedies that may exist at law or in equity.

THE SECURITIES ACT OF WASHINGTON

SECTION 21.20.140. UNLAWFUL TO OFFER OR SELL UNREGISTERED SECURITIES;
EXCEPTIONS.

It is unlawful for any person to offer or sell any security in this state
unless: (1) The security is registered by coordination or qualification under
this chapter; (2) the security or transaction is exempted under RCW 21.20.310 or
21.20.320; or (3) the security is a federal covered security, and, if required,
the filing is made and a fee is paid in accordance with RCW 21.20.327.

SECTION 21.20.430. CIVIL LIABILITIES; SURVIVAL, LIMITATION OF ACTIONS;
WAIVER OF CHAPTER VOID; SCIENTER.

(1) Any person, who offers or sells a security in violation of any
provisions of RCW 21.20.010, 21.20.140(1) or (2), or 21.20.180 through
21.20.230, is liable to the person buying the security from him or her, who may
sue either at law or in equity to recover the consideration paid for the
security, together with interest at eight percent per annum from the date of
payment, costs, and reasonable attorneys' fees, less the amount of any income
received on the security, upon the tender of the security, or for damages if he
or she no longer owns the security. Damages are the amount that would be
recoverable upon a tender less (a) the value of the security when the buyer
disposed of it and (b) interest at eight percent per annum from the date of
disposition.

(2) Any person who buys a security in violation of the provisions of RCW
21.20.010 is liable to the person selling the security to him or her, who may
sue either at law or in equity to recover the security, together with any income
received on the security, upon tender of the consideration received, costs, and
reasonable attorneys' fees, or if the security cannot be recovered, for damages.
Damages are the value of the security when the buyer disposed

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of it, and any income received on the security, less the consideration received
for the security, plus interest at eight percent per annum from the date of
disposition, costs, and reasonable attorneys' fees.

(3) Every person who directly or indirectly controls a seller or buyer
liable under subsection (1) or (2) above, every partner, officer, director or
person who occupies a similar status or performs a similar function of such
seller or buyer, every employee of such a seller or buyer who materially aids in
the transaction, and every broker-dealer, salesperson, or person exempt under
the provisions of RCW 21.20.040 who materially aids in the transaction is also
liable jointly and severally with and to the same extent as the seller or buyer,
unless such person sustains the burden of proof that he or she did not know, and
in the exercise of reasonable care could not have known, of the existence of the
facts by reason of which the liability is alleged to exist. There is
contribution as in cases of contract among the several persons so liable.

(4)(a) Every cause of action under this statute survives the death of any
person who might have been a plaintiff or defendant.

(b) No person may sue under this section more than three years after the
contract of sale for any violation of the provisions of RCW 21.20.140(1) or (2)
or 21.20.180 through 21.20.230, or more than three years after a violation of
the provisions of RCW 21.20.010, either was discovered by such person or would
have been discovered by him or her in the exercise of reasonable care. No person
may sue under this section if the buyer or seller receives a written rescission
offer, which has been passed upon by the director before suit and at a time when
he or she owned the security, to refund the consideration paid together with
interest at eight percent per annum from the date of payment, less the amount of
any income received on the security in the case of a buyer, or plus the amount
of income received on the security in the case of a seller.

(5) No person who has made or engaged in the performance of any contract
in violation of any provision of this chapter or any rule or order hereunder, or
who has acquired any purported right under any such contract with knowledge of
the facts by reason of which its making or performance was in violation, may
base any suit on the contract. Any condition, stipulation, or provision binding
any person acquiring any security to waive compliance with any provision of this
chapter or any rule or order hereunder is void.

(6) Any tender specified in this section may be made at any time before
entry of judgment.

(7) Notwithstanding subsections (1) through (6) of this section, if an
initial offer or sale of securities that are exempt from registration under RCW
21.20.310 is made by this state or its agencies, political subdivisions,
municipal or quasi-municipal corporations, or other instrumentality of one or
more of the foregoing and is in violation of RCW 21.20.010(2), and any such
issuer, member of the governing body, committee member, public officer,
director, employee, or agent of such issuer acting on its behalf, or person in
control of such issuer, member of the governing body, committee member, public
officer, director, employee, or agent of such person acting on its behalf,
materially aids in the offer or sale, such person is liable to the purchaser of
the security only if the purchaser establishes scienter on the part of the
defendant. The word "employee" or the word "agent," as such words are used in
this subsection, do not include a bond counsel or an underwriter. Under no
circumstances whatsoever shall this subsection be applied to require purchasers
to establish scienter on the part of bond counsels or underwriters. The
provisions of this subsection are retroactive and apply to any action commenced
but not final before July 27, 1985. In addition, the provisions of this
subsection apply to any action commenced on or after July 27, 1985.

WISCONSIN UNIFORM SECURITIES LAW

SECTION 551.21. REGISTRATION REQUIREMENT.

(1) It is unlawful for any person to offer or sell any security in this
state unless at least one of the following conditions is met:

(a) The security is registered under this chapter.

(b) The security or transaction is exempted under s. 551.22 or 551.23.

(2) It is unlawful for any issuer or registrant of any securities
registered under this chapter, or any person in control of or controlled by or
under common control with the issuer or registrant, to offer or sell any of the
registered securities in this state if the issuer or registrant is in violation
of this chapter, or any rule under this chapter, or any order under this chapter
of which he or she has notice, or if the registration statement relating to the
securities, as of the date of such offer or sale, is incomplete in any material
respect or contains any statement which is false or misleading with respect to
any material fact.

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SECTION 551.59. CIVIL LIABILITIES.

(1)(a) Any person who offers or sells a security in violation of s.
551.21, 551.31, 551.41 or 551.55 or any rule relating thereto, or any condition
imposed under s. 551.26 or 551.27 or any order under this chapter of which the
person has notice is liable to the person purchasing the security from him or
her. The person purchasing the security may sue either at law or in equity to
recover the consideration paid for the security, together with interest at the
legal rate under s. 138.04 from the date of payment, and reasonable attorney
fees, less the amount of any income received on the security, upon the tender of
the security, or for damages if the person no longer owns the security. Damages
are the amount that would be recoverable upon a tender less the value of the
security when the purchaser disposed of it and interest at the legal rate under
s. 138.04 from the date of disposition. Tender shall require only notice of
willingness to exchange the security for the amount specified. Any notice may be
given by service as in civil actions or by certified mail addressed to the
last-known address of the person liable.

(1)(b) A person who offers or sells a security in violation of s.
551.41(2) is not liable under par. (a) if the purchaser knew of the untrue
statement of a material fact or omission of a statement of a material fact or
the person sustains the burden of proof to establish that he or she did not know
and in the exercise of reasonable care could not have known of the untrue
statement or omission.

(2)(a) Any person who purchases a security in violation of s. 551.41(2) is
liable to the person selling the security to him or her, who may sue either at
law or in equity to recover the security and reasonable attorney fees, plus any
income received by the purchaser thereon, upon tender of the consideration
received, or for damages and reasonable attorney fees if the purchaser no longer
owns the security. Damages are the excess of the value of the security when the
purchaser disposed of it, plus interest at the legal rate under s. 138.04 from
the date of disposition, over the consideration paid for the security. Tender
requires only notice of willingness to pay the amount specified in exchange for
the security. Any notice may be given by service as in civil actions or by
certified mail to the last-known address of the person liable.

(2)(b) A person who purchases a security in violation of s. 551.41(2) is
not liable under par. (a) if the seller knew of the untrue statement of a
material fact or omission of a statement of a material fact or the person
sustains the burden of proof to establish that he or she did not know and in the
exercise of reasonable care could not have known of the untrue statement or
omission.

(3) Any person who wilfully participates in any act or transaction in
violation of s. 551.42 shall be liable to any other person who purchases or
sells any security at a price which was affected by the act or transaction for
the damages sustained as a result of such act or transaction. Damages shall be
the difference between the price at which the other person purchased or sold
securities and the market value which the securities would have had at the time
of his or her purchase or sale in the absence of the act or transaction, plus
interest at the legal rate under s. 138.04 and reasonable attorney fees.

(4) Every person who directly or indirectly controls a person liable under
sub. (1), (2) or (3), every partner, principal executive officer or director of
such person, every person occupying a similar status or performing similar
functions, every employee of such person who materially aids in the act or
transaction constituting the violation, and every broker-dealer or agent who
materially aids in the act or transaction constituting the violation, are also
liable jointly and severally with and to the same extent as such person, unless
the person liable hereunder proves that he or she did not know, and in the
exercise of reasonable care could not have known, of the existence of the facts
by reason of which the liability is alleged to exist. There is contribution as
in cases of contract among the several persons so liable.

(5) No action shall be maintained under this section unless commenced
before the expiration of 3 years after the act or transaction constituting the
violation, but the time specified for commencing such action shall be extended
by reason of any fact and for the time specified in ss. 893.13 and 893.16 to
893.23.

(6)(a) No purchaser may commence an action under this section if, before
suit is commenced, the purchaser has received a written offer stating the
respect in which liability under this section may have arisen and fairly
advising the purchaser of his or her rights; offering to repurchase the security
for cash payable on delivery of the security equal to the consideration paid,
together with interest at the legal rate under s. 138.04 from the date of
payment, less the amount of any income received thereon or, if the purchaser no
longer owns the security, offering to pay the purchaser upon acceptance of the
offer an amount in cash equal to the damages computed in accordance with sub.
(1); and stating that the offer may be accepted by the purchaser at any time
within a specified period of not less than 30 days after the date of receipt
thereof or such shorter period as the division may by rule prescribe; and the
purchaser has failed to accept such offer in writing within the specified
period.

(b) No seller may commence an action under this section if, before suit is
commenced, the seller has received a written offer stating the respect in which
liability under this section may have arisen and fairly advising

B-53
<PAGE>

the seller of his or her rights; offering to return the security plus the amount
of any income received thereon upon payment of the consideration received, or,
if the purchaser no longer owns the security, offering to pay the seller upon
acceptance of the offer an amount in cash equal to the damages computed in
accordance with sub. (2); and providing that the offer may be accepted by the
seller at any time within a specified period of not less than 30 days after the
date of receipt thereof; and the seller has failed to accept the offer in
writing within the specified period.

(c) Offers shall be in the form and contain the information the division
by rule prescribes. Every offer under this subsection shall be delivered to the
offeree or sent by certified mail addressed to the offeree at the offeree's
last-known address. If an offer is not performed in accordance with its terms,
suit by the offeree under this section shall be permitted without regard to this
subsection.

(7) No person who has made or engaged in the performance of any contract
in violation of this chapter or any rule or order hereunder, or who has acquired
any purported right under any contract with knowledge of the facts by reason of
which its making or performance was in violation, may base any suit on the
contract.

(8) Any condition, stipulation or provision binding any person acquiring
any security to waive compliance with any provision of this chapter or any rule
or order hereunder is void.

(9) The rights and remedies under this chapter are in addition to any
other rights or remedies that may exist at law or in equity.

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<PAGE>

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

No dealer, sales person or other person is authorized to give any information or
to make any representations in connection with the offering described in this
Prospectus other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities offered hereby, or an offer
to sell or a solicitation of an offer to buy any securities offered hereby to or
from any person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof or that
there has been no change in the affairs of the Company since the date hereof.

PROSPECTUS SUMMARY.............................................................8
RISK FACTORS..................................................................12
RESCISSION OFFER..............................................................21
USE OF PROCEEDS...............................................................30
DIVIDEND POLICY...............................................................30
CAPITALIZATION................................................................31
SELECTED FINANCIAL INFORMATION................................................34
BUSINESS......................................................................35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................45
MANAGEMENT....................................................................52
PRINCIPAL SHAREHOLDERS........................................................63
DESCRIPTION OF CAPITAL STOCK..................................................63
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS.................................66
SHARES ELIGIBLE FOR FUTURE SALE...............................................68
LEGAL MATTERS.................................................................69
EXPERTS.......................................................................69
ADDITIONAL INFORMATION........................................................69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................F-1
EXHIBIT A RESCISSION ELECTION FORM...........................................A-1
EXHIBIT B INDEX TO EXCERPTS FROM STATE SECURITIES LAWS.......................B-1

Until , 1999 (90 days from the transactions in the registered
securities), all dealers effecting transactions in the registered securities
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters.

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

CYNET, INC.

RESCISSION OFFER

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

CLASS A COMMON STOCK

CLASS B COMMON STOCK

SERIES A PREFERRED STOCK

SERIES B PREFERRED STOCK

WARRANTS TO PURCHASE
CLASS A COMMON STOCK

PROSPECTUS

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

1. Article 2.02A of the TBCA provides, in relevant part, as follows:

Subject to the provisions of Sections B and C of this Article, each
corporation shall have power:

(16) to indemnify directors, officers, employees, and agents of the
corporation and to purchase and maintain liability insurance for
those persons.

2. Article Twelve of the Articles of Incorporation of the Company (therein
referred to as the "Corporation") provides as follows: "The Corporation
shall indemnify all current and former directors and officers of the
Corporation to the fullest extent of the applicable law, including,
without limitation, Article 2.02-1 of the Texas Business Corporation Act."

3. The Corporation may purchase and maintain insurance, at its expense, on
behalf of any indemnitee against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as a
representative of the Corporation, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the TBCA.

Item 25. Other Expenses of Issuance and Distribution.

The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.

SEC Registration Fee.............................................. $ 6,321
NASD Filing Fee................................................... --
Legal Fees and Expenses........................................... 125,000
Accounting Fees and Expenses...................................... 125,000
Blue Sky Fees and Expenses (including counsel fees)............... 18,000
Federal Taxes..................................................... --
State Taxes and Fees.............................................. --
Printing and Engraving Expenses................................... *
Transfer Agent and Registrar Fees and Expenses.................... *
Expenses by Selling Shareholders.................................. --
Miscellaneous.....................................................
----------
Total................................................. $
==========
==========

- -----------
* To be provided by Amendment.

Item 26. Recent Sales of Unregistered Securities

Transactions Subject to Rescission Offer

1. From August 1996 through December 1996, the Company issued (i) an
aggregate of 956,280 shares of Class A Common Stock to 124 individuals at
a purchase price of $1.00 per share and (ii) 43,720 shares of

II-1
<PAGE>

Class A Common Stock to Keith Shaffner for services rendered valued at
$43,720 in connection with the offering. Mr. Shaffner directed the
Company to issue 42,375 of such shares to nine other individuals. At the
time of the offering, the Company believed that such transactions were
exempt from registration under the Securities Act pursuant to Section
3(b) thereof as an exempt offering under Rule 504 of Regulation D
promulgated thereunder. However, subsequent events have led the Company
to believe that such transactions were not exempt from registration
under Regulation D under the Securities Act.

2. From October 1996 through December 1997, the Company issued an aggregate
of (i) 3,397,854 shares of Series A Preferred Stock to 355 individuals at
a purchase price of $2.00 per share and (ii) 70,000 shares of Series A
Preferred Stock to two individuals at a purchase price of $1.43 per
share. Subsequent to their issuance, 3,364,354 shares of the Series A
Preferred Stock converted into 4,036,724 shares of Class A Common Stock
(1 to 1.2 ratio) prior to January 1, 1998, leaving 103,500 shares of
Series A Preferred Stock outstanding. At the time of the offering, the
Company believed such individuals were sophisticated investors and
received adequate information concerning an investment in the Company.
As a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the
time of the offering such individuals were not sophisticated investors
or did not receive adequate information in connection with their
investment in the Company, the Company believes the transaction was not
exempt from registration under Section 4(2) of the Securities Act.

3. From March 1997 through November 1997, the Company issued an aggregate of
1,798,574 shares of Series B Preferred Stock to 324 individuals at a
purchase price of $3.00 per share. Subsequently, the Company repurchased
18,041 shares of Class B Common Stock (following the conversion of 15,034
shares of Series B Preferred Stock at a 1.2 conversion ratio) from certain
individuals at a purchase price of $2.50 per share (equivalent to $3.00
per share of Series B Preferred Stock). Subsequent to their issuance,
1,691,225 shares of Series B Preferred Stock converted into 2,029,470
shares of Class B Common Stock prior to March 31, 1998, leaving 87,349
shares of Series B Preferred Stock outstanding. At the time of the
offering, the Company believed such individuals were sophisticated
investors and received adequate information concerning an investment
in the Company. As a result, the Company believed the transaction was
exempt from registration under the Securities Act pursuant to Section
4(2) thereof as a transaction by an issuer not involving a public
offering. However, because subsequent events have led the Company to
believe that at the time of the offering such individuals were not
sophisticated investors or did not receive adequate information in
connection with their investment in the Company, the Company believes
the transaction was not exempt from registration under Section 4(2)
of the Securities Act.

4. From October 1996 through April 1997, the Company issued an aggregate of
272,000 shares of Class A Common Stock to 28 individuals at a purchase
price of $1.00 per share. At the time of the offering, the Company
believed such individuals were sophisticated investors and received
adequate information concerning an investment in the Company. As a result,
the Company believed the transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. However, because subsequent events
have led the Company to believe that at the time of the offering such
individuals were not sophisticated investors or did not receive adequate
information in connection with their investment in the Company, the
Company believes the transaction was not exempt from registration under
Section 4(2) of the Securities Act.

5. In July 1996, the Company issued Cliff Crutchfield 50,000 shares of Class
A Common Stock as compensation for services rendered valued at $50,000. At
the time of the offering, the Company believed Mr. Crutchfield was a
sophisticated investor and received adequate information concerning an
investment in the Company. As a result, the Company believed the
transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. However, because subsequent events have led the Company
to believe that at the time of the offering Mr. Crutchfield was not a
sophisticated investor or did not receive adequate information in
connection with his investment in the Company, the Company believes the
transaction was not exempt from registration under Section 4(2) of the
Securities Act.

6. In October 1996, the Company issued Boyd Jenkins 5,000 shares of Class A
Common Stock for services rendered valued at $5,000. At the time of the
offering, the Company believed Mr. Jenkins was a sophisticated investor
and received adequate information concerning an investment in the Company.
As a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because

II-2
<PAGE>

subsequent events have led the Company to believe that at the time of the
offering Mr. Jenkins was not a sophisticated investor or did not receive
adequate information in connection with his investment in the Company, the
Company believes the transaction was not exempt from registration under
Section 4(2) of the Securities Act.

7. In November 1996, the Company issued five-year warrants to 23 individuals
entitling such individuals to purchase an aggregate of 738,000 shares of
Class A Common Stock at an exercise price of $1.00 per share for services
rendered valued at $191,880. At the time of the offering, the Company
believed such individuals were sophisticated investors and received
adequate information concerning an investment in the Company. As a result,
the Company believed the transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. However, because subsequent events
have led the Company to believe that at the time of the offering such
individuals were not sophisticated investors or did not receive adequate
information in connection with their investment in the Company, the
Company believes the transaction was not exempt from registration under
Section 4(2) of the Securities Act.

8. In April 1997, the Company issued Antoni Albaut 100,000 shares of Class B
Common Stock for services rendered valued at $100,000. At the time of the
offering, the Company believed Mr. Albaut was a sophisticated investor and
received adequate information concerning an investment in the Company. As
a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering Mr. Albaut was not a sophisticated investor or did not
receive adequate information in connection with his investment in the
Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

9. In April 1997, the Company issued a three-year warrant to Dennis Eagleeye
entitling Mr. Eagleeye to purchase 61,000 shares of Class A Common Stock
at an exercise price of $1.00 per share for services rendered at minimal
value. At the time of the offering, the Company believed Mr. Eagleeye was
a sophisticated investor and received adequate information concerning an
investment in the Company. As a result, the Company believed the
transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. However, because subsequent events have led the Company
to believe that at the time of the offering Mr. Eagleeye was not a
sophisticated investor or did not receive adequate information in
connection with his investment in the Company, the Company believes the
transaction was not exempt from registration under Section 4(2) of the
Securities Act.

10. In April 1997, the Company issued John Berg 400,000 shares of Class B
Common Stock in exchange for the conversion of a promissory note in the
amount of $100,000 payable to Mr. Berg. At the time of the offering, the
Company believed Mr. Berg was a sophisticated investor and received
adequate information concerning an investment in the Company. As a result,
the Company believed the transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. However, because subsequent events
have led the Company to believe that at the time of the offering Mr. Berg
was not a sophisticated investor or did not receive adequate information
in connection with his investment in the Company, the Company believes the
transaction was not exempt from registration under Section 4(2) of the
Securities Act.

11. In May 1997, the Company issued Joe Flores 25,000 shares of Class B Common
Stock at a purchase price of $2.00 per share. At the time of the offering,
the Company believed Mr. Flores was a sophisticated investor and received
adequate information concerning an investment in the Company. As a result,
the Company believed the transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. However, because subsequent events
have led the Company to believe that at the time of the offering Mr.
Flores was not a sophisticated investor or did not receive adequate
information in connection with his investment in the Company, the Company
believes the transaction was not exempt from registration under Section
4(2) of the Securities Act.

II-3
<PAGE>

12. In May 1997, the Company issued Alex Najoan 1,267 shares of Class A Common
Stock in exchange for furniture and fixtures valued at $1,267. At the time
of the offering, the Company believed Mr. Najoan was a sophisticated
investor and received adequate information concerning an investment in the
Company. As a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering Mr. Najoan was not a sophisticated investor or did not
receive adequate information in connection with his investment in the
Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

13. In July 1997, the Company issued Boyd Jenkins 15,000 shares of Class A
Common Stock at a purchase price of $2.00 per share. At the time of the
offering, the Company believed Mr. Jenkins was a sophisticated investor
and received adequate information concerning an investment in the Company.
As a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering Mr. Jenkins was not a sophisticated investor or did not
receive adequate information in connection with his investment in the
Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

14. In October 1997, the Company issued five individuals an aggregate of
14,500 shares of Class A Common Stock at a purchase price of $2.00 per
share. At the time of the offering, the Company believed such individuals
were sophisticated investors and received adequate information concerning
an investment in the Company. As a result, the Company believed the
transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. However, because subsequent events have led the Company
to believe that at the time of the offering such individuals were not
sophisticated investors or did not receive adequate information in
connection with their investment in the Company, the Company believes the
transaction was not exempt from registration under Section 4(2) of the
Securities Act.

15. In December 1997, the Company issued Robert Horner 110,000 shares of Class
A Common Stock for services rendered valued at $42,900. At the time of the
offering, the Company believed Mr. Horner was a sophisticated investor and
received adequate information concerning an investment in the Company. As
a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering Mr. Horner was not a sophisticated investor or did not
receive adequate information in connection with his investment in the
Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

16. In February 1998, the Company issued Elmer Krause 10,000 shares of Class A
Common Stock at a purchase price of $2.00 per share. At the time of the
offering, the Company believed Mr. Krause was a sophisticated investor and
received adequate information concerning an investment in the Company. As
a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering Mr. Krause was not a sophisticated investor or did not
receive adequate information in connection with his investment in the
Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

17. In February 1998, the Company issued Valori Schoberg 3,333 shares of
Series B Preferred Stock at a purchase price of $3.00 per share pursuant
to claims by Ms. Schoberg that the Company had agreed to issue such shares
on such terms in 1997. At the time of the offering, the Company believed
Ms. Schoberg was a sophisticated investor and received adequate
information concerning an investment in the Company. As a result, the
Company believed the transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as a transaction by an
issuer not involving a public offering. However, because

II-4
<PAGE>

subsequent events have led the Company to believe that at the time of the
offering Ms. Schoberg was not a sophisticated investor or did not receive
adequate information in connection with his investment in the Company, the
Company believes the transaction was not exempt from registration under
Section 4(2) of the Securities Act.

18. In April 1998, the Company issued Michael R. Smith 3,333 shares of Series
B Preferred Stock at a purchase price for $3.00 per share pursuant to
claims by Mr. Smith that the Company had agreed to issue such shares on
such terms in 1997. At the time of the offering, the Company believed Mr.
Smith was a sophisticated investor and received adequate information
concerning an investment in the Company. As a result, the Company believed
the transaction was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not
involving a public offering. However, because subsequent events have led
the Company to believe that at the time of the offering Mr. Smith was not
a sophisticated investor or did not receive adequate information in
connection with his investment in the Company, the Company believes the
transaction was not exempt from registration under Section 4(2) of the
Securities Act.

19. In May 1998, the Company issued six limited partnerships an aggregate of
154,000 shares of Class B Common Stock. These shares were issued in
satisfaction of certain claims by these partnerships that they were
entitled to receive such shares in exchange for providing services valued
at $60,000 to the Company during 1997. At the time of the offering, the
Company believed such partnerships were sophisticated investors and
received adequate information concerning an investment in the Company. As
a result, the Company believed the transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
a transaction by an issuer not involving a public offering. However,
because subsequent events have led the Company to believe that at the time
of the offering such partnerships were not sophisticated investors or did
not receive adequate information in connection with their investment in
the Company, the Company believes the transaction was not exempt from
registration under Section 4(2) of the Securities Act.

Transactions Not Subject to Rescission Offer:

1. In May 1995, the Company issued an aggregate of 1,000,000 shares of Class
A Common Stock which were issued to various trusts and a partnership
related to Ray C. Davis, the founder of the Company, for $1,000. At the
time of the offering, the Company believed such trusts and partnership
were sophisticated investors and received adequate information concerning
an investment in the Company. As a result, the Company believes the
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public
offering.

2. In August 1995, the Company issued an aggregate of 9,000,000 shares of
Class A Common Stock to various trusts and a partnership related to the
founder of the Company after giving effect to a 9 for 1 share dividend. At
the time of the offering, the Company believed such trusts and partnership
were sophisticated investors and received adequate information concerning
an investment in the Company. As a result, the Company believes the
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public
offering.

3. Between May 1996 and July 1996, the Company issued Vickroy Stone an
aggregate of 500,000 shares of Class A Common Stock for services rendered
valued at $500,000. In February 1997, the Company repurchased 450,000 of
such shares of Class A Common Stock from Mr. Stone at a purchase price of
$1.00 per share. In February 1997, Mr. Stone sold the remaining 50,000
shares of Class A Common Stock to a partnership related to Ray C. Davis,
the founder of the Company, for $1.00 per share.

4. In July 1996, the Company issued an aggregate of 1,050,000 of Class A
Common Stock to the principals of International Fax Corporation ("IFC")
and IMedia, S.A. of France ("Imedia") in connection with (i) an agreement
granting the Company a right of first refusal to acquire all of the
outstanding capital stock of IMedia, (ii) the right to utilize IMedia's
European network of fax broadcasting equipment and (iii) the

II-5
<PAGE>

agreement of IMedia to use the Company's network for fax broadcast traffic
to the United States. The shares of Class A Common Stock were valued by
the Company at $1.00 per share. In connection with this transaction, Mr.
Davis caused the Davis Interests to sell Jean-David Benichou, a principal
of IFC and IMedia, 250,000 shares of Class A Common Stock at a price of
$1.00 per share. Subsequent to this series of transactions, the Company
wrote off the value of its investment.

5. In May, 1997, the Company issued a five-year warrant to Vickroy Stone
entitling Mr. Stone to purchase an aggregate of 450,000 shares of Class A
Common Stock at an exercise price of $2.00 per share. Inasmuch as the
exercise price of these warrants exceeded the fair market value of the
underlying Class A Common Stock, the Company determined that this warrant
had no value at the date of issuance. At the time of the offering, the
Company believed Mr. Stone was a sophisticated investor and received
adequate information concerning an investment in the Company. As a result,
the Company believes the transaction was exempt from registration pursuant
to Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering.

6. In July 1997, the Company issued Sam McKinley 400,000 shares of Class B
Common Stock in payment of a loan commitment fee. The Company determined
that it received no value in exchange for such shares. At the time of the
offering, the Company believed Mr. McKinley was a sophisticated investor
and received adequate information concerning an investment in the Company.
As a result, the Company believes the transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.

7. In December 1997, the Company issued 2,328,940 shares of its Class A
Common Stock to 125 individuals in exchange for their net equity interest
("Minority Interest") in certain affiliated limited liability companies
("LLCs"). In January 1998, the Company issued an additional 92,640 shares
of its Class A Common Stock to Sam McKinley incident to the acquisition of
Mr. McKinley's proportionate share of the Minority Interest. At the time
of the offering, the Company believed such individuals were sophisticated
investors and received adequate information concerning an investment in
the Company. As a result, the Company believes the transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.

8. On November 14, 1997, the Company entered into a Settlement Agreement and
Mutual Release with Keith Shaffner for services rendered by him during
1996 and 1997. In exchange for a complete release of all claims by Mr.
Shaffner and his affiliate, CyFax, Inc. ("CyFax"), against the Company,
the Company issued to Mr. Shaffner: (i) a warrant entitling Mr. Shaffner
to purchase 1,150,000 shares of Class B Common Stock at a price of $1.00
per share, exercisable on or before August 30, 1999 (which the Company
has agreed to extend until August 30, 2000 in exchange for certain
agreements not to sell the underlying shares of Class B Common Stock
prior to April 30, 2000), (ii) a warrant entitling Mr. Shaffner to
purchase 1,050,000 shares of Class B Common Stock at a price of
$1.00 per share, exercisable on or before February 28, 2000,
(iii) 500,000 shares of Class A Common Stock and (iv) $51,000 in
cash. In addition, the Company issued 200,000 shares of Class A Common
Stock to CyFax for the termination of an exclusive agent management
agreement with the Company. During 1996 and 1997, the Company paid Mr.
Shaffner, individually, an aggregate of $202,951 for services rendered and
CyFax an aggregate of $893,527 for services rendered. At the time of the
offering, the Company believed Mr. Shaffner was a sophisticated investor
and received adequate information concerning an investment in the Company.
As a result, the Company believes the transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.

9. In April 1998, the Company issued a five-year warrant entitling Ray Davis
to purchase an aggregate of 2,000,000 shares of Class A Common Stock at an
exercise price of $1.00 per share pursuant to Mr. Davis' employment
agreement with the Company. At the time of the offering, the Company
believed Mr. Davis was a sophisticated investor and received adequate
information concerning an investment in the Company. As a result, the
Company believes the transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering.

10. In May 1998, the Company issued five-year warrants entitling certain
individuals and entities to purchase an aggregate of 348,954 shares of
Class B Common Stock at prices of $1.00 and $2.00 per share. Inasmuch as

II-6
<PAGE>

the exercise prices of these warrants exceeded the fair market value of
the underlying Class B Common Stock, the Company determined that the
warrants had no value at the date of issuance.

11. In July 1998 the Company entered into a Subscription Agreement with Cynet
Holdings, LLC ("Cynet Holdings"), pursuant to which Cynet Holdings is
committed to purchase up to 10,000,000 shares of Class A Common Stock of
the Company for $1.00 per share prior to December 31, 1998. The
Subscription Agreement was subsequently amended to extend the duration of
the agreement to December 31, 1999. As of the date hereof, Cynet Holdings
has purchased an aggregate of 3,871,000 shares of Class A Common Stock
pursuant to the Subscription Agreement. Also pursuant to the Subscription
Agreement, the Company (i) issued a five-year warrant entitling Cynet
Holdings to purchase an aggregate of 4,800,000 shares of Class A Common
Stock at a price of $1.00 per share and (ii) entered into a registration
rights agreement granting Cynet Holdings certain demand and piggy-back
registration rights covering the Company's securities held by Cynet
Holdings. At the time of the offering, the Company believed Cynet Holdings
was a sophisticated investor and received adequate information concerning
an investment in the Company. As a result, the Company believes the
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public
offering.

Item 27. Exhibits.

(a)

+1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company, as amended.
3.2 Bylaws of the Company.
+4.1 Form of Certificate Representing Class A Common Stock.
+4.2 Form of Certificate Representing Class B Common Stock.
+4.3 Form of Certificate Representing Series A Preferred
Stock.
+4.4 Form of Certificate Representing Series B Preferred
Stock.
*4.5 Amended and Restated Certificate of Designation,
Preferences, Rights and Limitations of Convertible
Non-voting Series A Preferred Stock.
*4.6 Certificate of Designation, Preferences, Rights and
Limitations of Convertible Non-voting Series B Preferred
Stock.
+5.1 Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*10.1 Employment Agreement dated as of March 3, 1997, between
the Company and Ray C. Davis.
*10.2 Assignment of Intellectual Property dated as of March 3,
1997, between the Company and Ray C. Davis.
*10.3 Consulting Agreement dated as of June 17, 1997, between
the Company and Vincent W. Beale, Sr.
*10.4 Settlement Agreement and Mutual Release dated as of
November 14, 1997, among the Company, Keith Shaffner and
CyFax, Inc.
10.5 1997 Restated Stock Option Plan.
*10.6 Employment Agreement dated as of February 1, 1998,
between the Company and Vincent W. Beale, Sr.
*10.7 Employment Agreement dated as of March 1, 1998, between
the Company and David R. Hearon, Jr.
*10.8 Employment Agreement dated as of April 13, 1998, between
the Company and Ray C. Davis.
*10.9 Warrant dated April 13, 1998 issued to Ray C. Davis.
*10.10 Employment Agreement dated as of July 22, 1998, between
the Company and Bernard B. Beale.
*10.11 Employment Agreement dated as of July 22, 1998, between
the Company and Samuel C. Beale.
*10.12 Subscription Agreement dated as of July 22, 1998,
between the Company and Cynet Holdings, LLC.

II-7
<PAGE>

*10.13 Registration Rights Agreement dated as of July 22, 1998,
between the Company and Cynet Holdings, LLC.
*10.14 Warrant dated July 22, 1998 issued to Cynet Holdings,
LLC.
10.15 Form of Assignment Agreement between the Company and the
members of the LLCs.
10.16 Letter Agreement dated June 26, 1996, between the
Company, Ray Davis and International Fax Corporation.
10.17 Supplement dated October 30,1997, to the Letter
Agreement dated June 26, 1996, between the Company, Ray
Davis and International Fax Corporation.
10.18 Employment Agreement dated as of August 26, 1998,
between the Company and R. Greg Smith.
+10.19 Settlement Agreement and Mutual Release in Full dated as
of August 31, 1998, between the Company and Ray C.
Davis.
10.20 First Amendment to Subscription Agreement dated July 31,
1999 between the Company and Cynet Holdings, LLC.
10.21 Purchase and Sale Agreement as of July 31, 1999 between
the Company and Cynet Holdings, LLC.
21.1 Subsidiaries of the Company.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
27.1 Financial Data Schedule.

- -----------------
* Previously filed.
+ To be filed by amendment

Item 28. Undertakings

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and

iii. To include any additional or changed material information with
respect to the plan of distribution.

2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities

II-8
<PAGE>

offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

4. That, for the purpose of determining liability under the Securities
Act of 1933:

i. The information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared
effective.

ii. Each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-9
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the __ day of August, 1999.

CYNET, INC.

By: /s/ Vincent W. Beale, Sr.
____________________________________________
Vincent W. Beale, Sr., Chairman of the Board
and Chief Executive Officer

Each individual whose signature appears below constitutes and appoints Vincent
W. Beale, Sr., Samuel C. Beale and R. Greg Smith and each of them, his true and
lawful attorneys-in-fact and agents with full power and substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sell any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisition and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or his or their substitutes, may
lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:

Signature Title Date
- --------- ----- ----

/s/ Vincent W. Beale, Sr.
_________________________ Chairman of the Board of Directors August 12, 1999
Vincent W. Beale, Sr. and Chief Executive Officer
(Principal Executive Officer)

/s/ R. Greg Smith
_________________________ Chief Financial Officer August 12, 1999
R. Greg Smith (Principal Financial and
Accounting Officer)

/s/ Wayne Schroeder
______________________ Director August 12, 1999
Wayne Schroeder

II-10
<PAGE>

INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- --- ----------------------
<S> <C>
+1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company, as amended.
3.2 Bylaws of the Company.
+4.1 Form of Certificate Representing Class A Common Stock.
+4.2 Form of Certificate Representing Class B Common Stock.
+4.3 Form of Certificate Representing Series A Preferred
Stock.
+4.4 Form of Certificate Representing Series B Preferred
Stock.
*4.5 Amended and Restated Certificate of Designation,
Preferences, Rights and Limitations of Convertible
Non-voting Series A Preferred Stock.
*4.6 Certificate of Designation, Preferences, Rights and
Limitations of Convertible Non-voting Series B Preferred
Stock.
+5.1 Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*10.1 Employment Agreement dated as of March 3, 1997, between
the Company and Ray C. Davis.
*10.2 Assignment of Intellectual Property dated as of March 3,
1997, between the Company and Ray C. Davis.
*10.3 Consulting Agreement dated as of June 17, 1997, between
the Company and Vincent W. Beale, Sr.
*10.4 Settlement Agreement and Mutual Release dated as of
November 14, 1997, among the Company, Keith Shaffner and
CyFax, Inc.
10.5 1997 and Restated Stock Option Plan.
*10.6 Employment Agreement dated as of February 1, 1998,
between the Company and Vincent W. Beale, Sr.
*10.7 Employment Agreement dated as of March 1, 1998, between
the Company and David R. Hearon, Jr.
*10.8 Employment Agreement dated as of April 13, 1998, between
the Company and Ray C. Davis.
*10.9 Warrant dated April 13, 1998 issued to Ray C. Davis.
*10.10 Employment Agreement dated as of July 22, 1998, between
the Company and Bernard B. Beale.
*10.11 Employment Agreement dated as of July 22, 1998, between
the Company and Samuel C. Beale.
*10.12 Subscription Agreement dated as of July 22, 1998,
between the Company and Cynet Holdings, LLC.
*10.13 Registration Rights Agreement dated as of July 22, 1998,
between the Company and Cynet Holdings, LLC.
*10.14 Warrant dated July 22, 1998 issued to Cynet Holdings,
LLC.
10.15 Form of Assignment Agreement between the Company and the
members of the LLCs.
10.16 Letter Agreement dated June 26, 1996, between the
Company, Ray Davis and International Fax Corporation.
10.17 Supplement dated October 30,1997, to the Letter
Agreement dated June 26, 1996, between the Company, Ray
Davis and International Fax Corporation.
10.18 Employment Agreement dated as of August 26, 1998,
between the Company and R. Greg Smith.
+10.19 Settlement Agreement and Mutual Release in Full dated as
of August 31, 1998, between the Company and Ray C.
Davis.
10.20 First Amendment to Subscription Agreement dated July 31,
1999 between the Company and Cynet Holdings, LLC.
10.21 Purchase and Sale Agreement as of July 31, 1999 between
the Company and Cynet Holdings, LLC.
21.1 Subsidiaries of the Company.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>

- -----------------
* Previously filed.
+ To be filed by amendment

<PAGE>

ARTICLES OF INCORPORATION

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The period of its duration is perpetual.

ARTICLE THREE

The purpose or purposes for which the corporation is organized is to
transact any and all lawful business for which corporation may be incorporated
under the Texas Business Corporation Act.

ARTICLE FOUR

The aggregate number of shares which the corporation shall have authority
to issue is One Million (1,000,000) of no par value each.

ARTICLE FIVE

The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of not less than $1,000
consisting of money, labor done or property actually received.

ARTICLE SIX

The address of its registered office is 12777 Jones Road, Suite 400,
Houston, Texas 77070 and the name of its registered agent is DEBI VEIT.

ARTICLE SEVEN

The number of initial directors is one (1) and the name and address of the
director is DEBI VEIT - Houston, Texas.

ARTICLE EIGHT

The name and address of the incorporator is DEBI VEIT - Houston, Texas.

/s/ Debi Veit
---------------------------------------
Incorporator
filed April 19, 1995

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation which change the number of shares
of the corporation:

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on 5/1/1995.

The amendment alters Article Four of the Articles of Incorporation to read
as follows:

The aggregate number of shares which the corporation shall have authority
to issue is Ten Million (10,000,000) of no par value each.

ARTICLE THREE

The number of shares of the corporation outstanding at the time of the
adoption was One Million (1,000,000); and the number of shares entitled to vote
on the amendment was One Million (1,000,000).

ARTICLE FOUR

The holders of all of the shares outstanding and entitled to vote on the
amendment have signed a consent in writing adopting the amendment.

IN WITNESS WHEREOF, I hereunto set my hand and seal this _____ day of
5/7, 1995.

CYNET, INC.

/s/ Ray Davis
---------------------------------------
RAY DAVIS, President

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on May 15, 1996.

The amendment alters Article Four of the Articles of Incorporation to read
as follows:

The aggregate number of shares which the corporation shall have authority
to issue is Forty Million (40,000,000) of no par value each.

ARTICLE THREE

The number of shares of the corporation outstanding at the time of the
adoption was Ten Million (10,000,000); and the number of shares entitled to vote
on the amendment was Ten Million (10,000,000).

ARTICLE FOUR

The holders of all of the shares outstanding and entitled to vote on the
amendment have signed a consent in writing adopting the amendment.

IN WITNESS WHEREOF, I hereunto set my hand and seal this 22 day of
May, 1996.

CYNET, INC.

/s/ Ray Davis
---------------------------------------
RAY DAVIS, President

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on June 25, 1996.

The amendment adds Article Nine to the Articles of Incorporation which
is to read as follows:

Article Nine

No shareholder of the corporation shall have the right of cumulative
voting at any election of directors or upon any other matter.

No holder of securities of the corporation shall be entitled as a
matter of right, preemptive or otherwise, to subscribe for or purchase any
securities of the corporation now or hereafter authorized to be issued, or
securities held in the treasury of the corporation, whether issued or sold
for cash or other consideration or as dividend or otherwise. Any such
securities may be issued or disposed of by the board of directors to such
persons and on such terms as in its discretion it shall deem advisable.

ARTICLE THREE

The number of shares of the corporation outstanding at the time of the
adoption was Ten Million, Three Hundred Fifty Thousand (10,350,000); and the
number of shares entitled to vote on the amendment was Ten Million, Three
Hundred Fifty Thousand (10,350,000).

ARTICLE FOUR

The holders of all of the shares outstanding and entitled to vote on the
amendment have signed a consent in writing adopting the amendment.

IN WITNESS WHEREOF, I hereunto set my hand and seal this 25 day of
June, 1996.

CYNET, INC.

/s/ Ray Davis
---------------------------------------
RAY DAVIS, President

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on June 27, 1996.

The amendment alters Article Four of the Articles of Incorporation to
read as follows:

The aggregate number of shares which the corporation shall have authority
to issue is Fifty Million (50,000,000) consisting of Forty Million (40,000,000)
shares of common stock, having no par value ("Common Stock"), and Ten Million
(10,000,000) shares of preferred stock, of no par value ("Preferred Stock").

Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall have
such distinctive designation or title as shall be determined by the Board of
Directors of the Corporation ("Board of Directors") prior to the issuance of any
shares thereof. Each such class or series of Preferred Stock shall have such
voting powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, and shall be stated in such
resolution or resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of Texas.

Subject to all of the rights of the Preferred Stock or any series thereof
described in appropriate certificates of designation, the holders of the Common
Stock shall be entitled to received, when, as, and if declared by the Board of
Directors, out of funds legally available therefor, the dividends payable in
cash, common stock, or otherwise.

<PAGE>

ARTICLE THREE

The following amendment to the Articles of Incorporation was also adopted
by the shareholders of the corporation on June 27, 1996.

The amendment adds Article Ten to the Articles of Incorporation, which
reads as follows:

Article Ten

Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action which may be taken
at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting which the holders of all shares
entitled to vote on the action were present and voted.

ARTICLE FOUR

The number of shares of the corporation outstanding at the time of the
adoption was ten million three hundred fifty thousand (10,350,000); and the
number of shares entitled to vote on the amendment was ten million three
hundred fifty thousand (10,350,000).

ARTICLE FIVE

The holders of all of the shares outstanding and entitled to vote on said
amendment have signed a consent in writing pursuant to Article 9.10 adopting
said amendment and any written notice required by Article 9.10 has been given.

<PAGE>

Dated: June 27, 1996.

CYNET, INC.

By: /s/ Ray Davis
------------------------------------------
Ray Davis, Its President

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

Pursuant to the applicable provisions of the Texas Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation which authorizes the issuance of one or more
classes of common stock and authorizes the issuance of 20,000,000 shares of
Class B non-voting no par value common stock of the corporation.

ARTICLE ONE

The name of the corporation is CYNET, INC.

ARTICLE TWO

The following amendment of the Articles of Incorporation was adopted by
the shareholders of the corporation on February 15, 1997. The amendment adds two
additional paragraphs to Article Four of the Articles of Incorporation, as
follows:

"Shares of Common Stock of the Corporation may be issued from time to time
in one or more classes or series, each of which class or series shall have such
distinctive designation or title as shall be determined by the Board of
Directors of the Corporation ("Board of Directors") prior to the issuance of any
shares thereof. Each such class or series of Common Stock shall have such voting
powers, full or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, and shall be stated in such resolution or
resolutions providing for the issue of such class or series of Common Stock as
may be adopted from time to time by the Board of Directors prior to the issuance
of any shares thereof pursuant to the authority hereby expressly vested in it,
all in accordance with the laws of the State of Texas."

"The Corporation is authorized to issue, out of the 40,000,000 authorized
shares of no par value Common Stock, two initial classes of common stock, Class
A and Class B, each class having no par value. Class A shall consist of up to
20,000,000 shares designated as Class A Common Stock ("Class A Common Stock")
and Class B shall consist of up to 20,000,000 shares designated as Class B
Common Stock ("Class B Common Stock"). The preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions of each class shall be the same except that, unless
otherwise required by law, the shares of Class B Common Stock shall not be
entitled to vote, either on any matters presented at any annual or special
meeting of stockholders of the Corporation, or by written consent."

ARTICLE THREE

Shares of Common Stock of the Corporation previously issued and currently
outstanding as of the date of this amendment are hereby designated as Class A
Common Stock, with no change whatsoever in voting power or any other right,
qualification, limitation or restriction, if any.

ARTICLE FOUR

<PAGE>

The number of shares of the corporation outstanding at the time of the
adoption was Thirteen Million Six Hundred Seventy-One Thousand (13,671,000); and
the number of shares entitled to vote on the amendment was 12,519,000.

ARTICLE FIVE

The holders of a majority of all of the shares outstanding and entitled to
vote on said amendment have signed a consent in writing pursuant to Article 9.10
and other applicable provisions of the Texas Business Corporation Act adopting
said amendment and any written notice required by Article 9.10.

Dated: February 15, 1997.

CYNET, INC.

By: /s/ Ray Davis
---------------------------------------
Ray Davis, Its President

<PAGE>

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF CYNET, INC.

Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:

ARTICLE ONE

The name of the Corporation is CYNET, Inc.

The amendments add Article Eleven and Article Twelve to the Articles of
Incorporation to read as follows:

ARTICLE ELEVEN

No director of the Corporation shall be liable to the Corporation or its
shareholders or members for monetary damages for any act or omission in such
director's capacity as a director, except for (i) a breach of such director's
duty of loyalty to the Corporation or its shareholders or members; (ii) an act
or omission not in good faith that constitutes a breach of duty of the director
to the Corporation, or an act or omission that involves intentional misconduct
or a knowing violation of the law; (iii) a transaction from which a director
received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; or (iv) an act or omission for
which the liability of a director is expressly provided by an applicable
statute.

ARTICLE TWELVE

The Corporation shall indemnify all current and former directors and
officers of the Corporation to the fullest extent of the applicable law,
including, without limitation, Article 2.02-1 of the Texas Business Corporation
Act.

The amendments were adopted by the majority shareholder, who voted
8,623,000 shares in favor of the adoption out of 12,166,267 shares outstanding
and entitled to vote on September 3, 1997.

Dated: September 3, 1997.

By: /s/ Ray Davis
---------------------------------------
Ray Davis
President of CyNet, Inc.
<PAGE>

ARTICLES OF AMENDMENT

TO THE ARTICLES OF INCORPORATION

OF CYNET, INC.

ARTICLE ONE

The name of the Corporation is CYNET, Inc.

The following amendment to the Articles of Incorporation was adopted by
the shareholders of the corporation on October 30, 1997.

The amendment alters Article Four of the Articles of Incorporation to read
as follows:

"The aggregate number of shares which the corporation shall have authority
to issue is seventy million (70,00O,000) consisting of sixty million
(60,000,000) shares of common stock ("Common Stock") having no par value, and
ten million (10,000,000) shares of preferred stock having no par value. The
corporation is authorized to issue, out of the sixty million (60,000,000) shares
of Common Stock, forty million (40,000,000) shares designated as Class A Common
Stock and twenty million (20,000,000) shares designated as Class B Common
Stock."

Shares of Common Stock previously issued and currently outstanding as of
the date of this amendment will experience no change whatsoever in voting power
or any other right, qualification, limitation or restriction, if any.

The amendment was adopted by the majority shareholder, who voted 9,523,000
shares in favor of the adoption out of 12,166,267 shares outstanding and
entitled to vote on October 30, 1997.

Dated: October 30, 1997.

By: /s/ Ray Davis
---------------------------------------
Ray Davis
President of CyNet, Inc.
<PAGE>

ARTICLES OF CORRECTION
OF
CYNET, INC.

This correction is submitted pursuant to Article 1302-7.01, Texas Miscellaneous
Corporation Laws Act, to correct a document which is an inaccurate record of
corporate action, contains an inaccurate or erroneous statement or was
defectively or erroneously executed, sealed, acknowledged or verified.

ARTICLE ONE

The name of the corporation is CyNet, Inc. (the "Corporation").

ARTICLE TWO

The documents to be corrected are the Articles of Amendment to the Articles of
Incorporation of CyNet, Inc., which were filed in the Office of the Secretary of
State of Texas on December 10, 1997.

ARTICLE THREE

The inaccuracies, errors, or defects to be corrected are contained in Paragraphs
3 and 4 of Article One of the Articles of Amendment.

ARTICLE FOUR

As corrected, the inaccurate, erroneous, or defective portions of the Articles
of Amendment read as follows:

"The amendment alters the first paragraph of Article Four of the
Articles of Incorporation to read as follows:

"The aggregate number of shares which the Corporation shall have
authority to issue is Seventy Million (70,000,000) consisting of Sixty
Million (60,000,000) shares of common stock, having no par value ("Common
Stock"), and Ten Million (10,000,000) shares of preferred stock, of no par
value ("Preferred Stock").'

The amendment alters the fifth paragraph of Article Four of the
Articles of Incorporation to read as follows:

"The Corporation is authorized to issue, out of the 60,000,000
authorized shares of no par value Common Stock, two initial classes of
common stock, Class A and Class B, each class having no par value. Class A
shall consist of up to 40,000,000 shares designated as Class A Common
Stock ("Class A Common Stock") and Class B shall consist of up to
20,000,000 shares designated as Class B Common Stock ("Class B Common
Stock"). The preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions of

<PAGE>

each class shall be the same except that, unless otherwise required by
law, the shares of Class B Common Stock shall not be entitled to vote,
either on any matters presented at any annual meeting of shareholders of
the Corporation, or by written consent.'"

DATED: October ___, 1998.

CYNET, INC.

By: /s/ Vincent W. Beale, Sr.
---------------------------------------
Vincent W. Beale, Sr.,
Chief Executive Officer and President

<PAGE>

BYLAWS

CYNET, INC.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE 1.

OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 PRINCIPAL OFFICES. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 REGISTERED OFFICES.. . . . . . . . . . . . . . . . . . . . . . .1
Section 1.3 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . .1

ARTICLE 2.

SHAREHOLDERS MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.1 ANNUAL MEETING.. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.2 SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.3 NOTICES OF MEETINGS AND ADJOURNED MEETINGS.. . . . . . . . . . .2
Section 2.4 VOTING LISTS.. . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.5 QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.6 ORGANIZATION.. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.7 VOTING.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.8 VOTING OF SHARES BY CERTAIN HOLDERS. . . . . . . . . . . . . . .4
Section 2.9 CLOSING OF TRANSFER RECORDS OR FIXING OF RECORD DATE.. . . . . .4
Section 2.10 ORDER OF BUSINESS; RULES OF PROCEDURE. . . . . . . . . . . . . .5
Section 2.11 ACTION BY WRITTEN CONSENT. . . . . . . . . . . . . . . . . . . .5
Section 2.12 AUTHORIZATION OF PROXIES.. . . . . . . . . . . . . . . . . . . .6
Section 2.13 INSPECTORS AND VOTING PROCEDURES.. . . . . . . . . . . . . . . .6

ARTICLE 3.

DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.1 MANAGEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.2 NUMBER AND TERM. . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.3 QUORUM AND MANNER OF ACTION. . . . . . . . . . . . . . . . . . .7
Section 3.4 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.5 RESIGNATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.6 REMOVALS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.7 ANNUAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.8 REGULAR MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.9 SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.10 ORGANIZATION OF MEETINGS.. . . . . . . . . . . . . . . . . . . .9
Section 3.11 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.12 COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . .9
Section 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. . . . . . . . . . . . . . .9
Section 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE.. . . . . . . . . . . . .9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4.

COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 MEMBERSHIP AND AUTHORITIES.. . . . . . . . . . . . . . . . . . 10
Section 4.2 MINUTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.3 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.4 TELEPHONE MEETINGS.. . . . . . . . . . . . . . . . . . . . . . 10
Section 4.5 ACTION WITHOUT MEETING.. . . . . . . . . . . . . . . . . . . . 11

SECTION 5.

OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.1 NUMBER AND TITLE.. . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.2 TERM OF OFFICE; VACANCIES. . . . . . . . . . . . . . . . . . . 11
Section 5.3 REMOVAL OF ELECTED OFFICERS. . . . . . . . . . . . . . . . . . 11
Section 5.4 RESIGNATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.5 THE CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . 12
Section 5.6 CHIEF EXECUTIVE OFFICER. . . . . . . . . . . . . . . . . . . . 12
Section 5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.10 ASSISTANT SECRETARIES. . . . . . . . . . . . . . . . . . . . . 13
Section 5.11 TREASURER OR CHIEF FINANCIAL OFFICER.. . . . . . . . . . . . . 13
Section 5.12 ASSISTANT TREASURERS.. . . . . . . . . . . . . . . . . . . . . 13
Section 5.13 SUBORDINATE OFFICERS.. . . . . . . . . . . . . . . . . . . . . 14
Section 5.14 SALARIES AND COMPENSATION. . . . . . . . . . . . . . . . . . . 14

ARTICLE 6.

INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE 7.

CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1 CERTIFICATES OF STOCK. . . . . . . . . . . . . . . . . . . . . 16
Section 7.2 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.3. DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.4. REGISTERED SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . 16
Section 7.5. TRANSFER OF STOCK. . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE 8.

MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.1. CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.2. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.3. CHECKS, DRAFTS, NOTES. . . . . . . . . . . . . . . . . . . . . 17
Section 8.4. NOTICE AND WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . 17
</TABLE>

<PAGE>
<TABLE>
<S> <C>
Section 8.5. EXAMINATION OF BOOKS AND RECORDS.. . . . . . . . . . . . . . . 18
Section 8.6. VOTING UPON SHARES HELD BY THE CORPORATION. . . . . . . . . . 18

ARTICLE 9.

AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

<PAGE>
BYLAWS

CYNET, INC..
(the "Corporation")

ARTICLE 1.

OFFICES

Section 1.1 PRINCIPAL OFFICES.

The principal office of the Corporation shall be in the City of Houston,
Texas.

Section 1.2 REGISTERED OFFICES.

The registered office of the Corporation required to be maintained in
the State of Texas by the Texas Business Corporation Act (the "TBCA") may be,
but need not be, identical with the Corporation's principal office, and the
address of the registered office may be changed from time to time by the
Board of Directors.

Section 1.3 OTHER OFFICES.

The Corporation may also have offices at such other places both within
and without the State of Texas as the Board of Directors may from time to
time determine or the business of the Corporation may require.

ARTICLE 2.

SHAREHOLDERS MEETINGS

Section 2.1 ANNUAL MEETING.

The annual meeting of the holders of shares of each class or series of
stock as are entitled to notice thereof and to vote at such meeting pursuant
to applicable law and the Corporation's Articles of Incorporation for the
purpose of electing directors and transacting such other proper business as
may come before it shall be held in each year, at such time, on such day and
at such place, within or without the State of Texas, as may be designated by
the Board of Directors.

Section 2.2 SPECIAL MEETINGS.

In addition to such special meetings as are provided by law or the
Corporation's Articles of Incorporation, special meetings of the holders of
any class or series or of all classes or series of the

<PAGE>

Corporation's stock for any purpose or purposes, may be called at any time by
(i) the President or the Board of Directors or (ii) the holders of at least
fifty percent (50%) of all the shares entitled to vote at such special
meeting and may be held on such day, at such time and at such place, within
or without the State of Texas, as shall be designated by the person or
persons calling such meeting.

Section 2.3 NOTICES OF MEETINGS AND ADJOURNED MEETINGS.

Except as otherwise provided by law or by the Corporation's Articles of
Incorporation, written or printed notice of any meeting of Shareholders (i)
shall be given either by personal delivery or by mail to each Shareholder of
record entitled to vote at such meeting, (ii) shall be in such form as
approved by the Board of Directors, and (iii) shall state the date, place and
hour of the meeting, and, in the case of a special meeting, the purpose for
which the meeting is called. Unless otherwise provided by law or by the
Corporation's Articles of Incorporation, such written notice shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. Except when a Shareholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened,
presence in person or by proxy of a Shareholder shall constitute a waiver of
notice of such meeting. Further, a written waiver of any notice required by
law or by these Bylaws, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to
notice. Except as otherwise provided by law or by the Corporation's Articles
of Incorporation, the business that may be transacted at any special meeting
of the Shareholders shall be limited to and consist of the purpose or
purposes stated in such notice. If a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken;
PROVIDED, HOWEVER, that if the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Shareholder
of record entitled to vote at the meeting.

Section 2.4 VOTING LISTS.

The officer or agent having charge of the share transfer books for
shares of the Corporation shall make, at least ten (10) days before each
meeting of Shareholders, a complete list of Shareholders entitled to vote at
meetings or any adjournments thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, in accordance with
applicable law and shall make same available prior to and during each
Shareholders' meeting for inspection by the Corporation's Shareholders as
required by law. The Corporation's original share transfer books shall be
PRIMA FACIE evidence as to who are the Shareholders entitled to examine such
list or transfer books or to vote at any meeting of Shareholders.

Section 2.5 QUORUM.

Except as otherwise provided by law or by the Corporation's Articles of
Incorporation, the holders of a majority of the Corporation's shares entitled
to vote at a meeting, represented at the meeting in person or represented by
proxy, without regard to class or series, shall constitute a quorum at all
meetings of the Shareholders for the transaction of business. If, however,
such quorum

<PAGE>

shall not be present or represented at any meeting of the Shareholders, the
holders of a majority of the shares represented in person or by proxy at that
meeting may adjourn any meeting from time to time without notice other than
announcement at the meeting, except as otherwise required by these Bylaws,
until such time and to such place as may be determined by a vote of the
holders of a majority of the shares represented in person or by proxy at that
meeting. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally called.

Section 2.6 ORGANIZATION.

Meetings of the Shareholders shall be presided over by the Chairman of
the Board of Directors, if one shall be elected, or in his absence, by the
President or by any Vice President, or, in the absence of any such officers,
by a chairman to be chosen by a majority of the Shareholders entitled to vote
at the meeting who are present in person or by proxy. The secretary, or, in
his absence, any Assistant Secretary or any person appointed by the
individual presiding over the meeting, shall act as Secretary at meetings of
the Shareholders.

Section 2.7 VOTING.

Each Shareholder of record, as determined pursuant to SECTION 2.9, who
is entitled to vote in accordance with the terms of the Corporation's
Articles of Incorporation and in accordance with the provisions of these
Bylaws, shall be entitled to one vote, in person or by proxy, for each share
of stock registered in his name on the books of the Corporation. Every
Shareholder entitled to vote at any Shareholders' meeting may authorize
another person or persons to act for him by proxy executed in writing
pursuant to SECTION 2.12, provided that no proxy shall be valid after eleven
(11) months from the date of its execution, unless the proxy provides for a
longer period. A duly executed proxy shall be revocable unless the proxy
form conspicuously states that the proxy is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A Shareholder's attendance at any meeting shall not have
the effect of revoking a previously granted proxy unless such Shareholder
shall in writing so notify the Secretary of the meeting prior to the voting
of the proxy. Unless otherwise provided by law, no vote on the election of
directors or any question brought before the meeting need be by ballot unless
the chairman of the meeting shall determine that it shall be by ballot or the
holders of a majority of the shares of stock present in person or by proxy
and entitled to participate in such vote shall so demand. In a vote by
ballot, each ballot shall state the number of shares voted and the name of
the Shareholder or proxy voting. Except as otherwise provided by law, by the
Corporation's Articles of Incorporation or these Bylaws, all elections of
directors shall be elected by a plurality of votes cast by the holders of
shares entitled to vote in the election of directors at a meeting of
Shareholders at which a quorum is present. Except as otherwise provided by
law or the Corporation's Articles of Incorporation, all other matters before
the Shareholders shall be decided by the vote of the holders of a majority of
the shares entitled to vote on that matter and represented in person or by
proxy at a meeting of Shareholders at which a quorum is present. In the
election of directors, votes may not be cumulated.

<PAGE>

Section 2.8 VOTING OF SHARES BY CERTAIN HOLDERS.

Shares standing in the name of another corporation may be voted by an
officer, agent or proxy as designated in the bylaws of such corporation, or
in the absence of such designation, as the board of directors of such
corporation may determine. Shares held by an administrator, executor,
guardian or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name
of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without transfer of such
shares into his name. Shares standing in the name of a receiver may be voted
by such receiver and shares held by or under the control of a receiver may be
voted by such receiver without the transfer into his name if authority to do
so be contained in an appropriate order of the Court by which such receiver
was appointed. A Shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred. Shares standing in the name of the Corporation or held by it in
a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.

Section 2.9 CLOSING OF TRANSFER RECORDS OR FIXING OF RECORD DATE.

(a) FIXING RECORD DATES FOR MATTERS OTHER THAN CONSENTS TO ACTION.
The Board of Directors of the Corporation may provide that the stock
transfer books be closed for a stated period not to exceed sixty (60) days
for the purpose of determining Shareholders entitled to notice of or to
vote at any meeting of Shareholders or any adjournment thereof, or
Shareholders entitled to receive payment of any distribution or share
dividend, or in order to make a determination of Shareholders for any
other proper purpose (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares). If the share
transfer records are closed as set forth in this Section, the records
shall be closed for at least ten (10) days immediately preceding the
meeting. In lieu of closing the share transfer records, the Board of
Directors may fix in advance a date as the record date for any such
determination of Shareholders, the date to be not more than sixty (60)
days, and in case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which the particular action requiring
determination of Shareholders is to be taken. If the share transfer
records are not closed and no record date is fixed for determination of
Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or Shareholders entitled to receive payment of a
distribution or share dividend (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares), the
date on which notice of the meeting is mailed, or the date on which the
resolution of the Board of Directors declaring such dividend is adopted,
as the case may be, shall be the record date for determination of
Shareholders. When a determination of Shareholders entitled to vote at
any meeting of Shareholders has been made as provided in this Section,
such determination shall apply to any adjournment thereof except where the
determination has been made by closing the share transfer records and the
stated period of closing has expired.

(b) FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date has previously been determined by the Board of Directors, whenever
action by Shareholders is

<PAGE>

proposed to be taken by consent in writing without a meeting of
Shareholders, the Board of Directors may fix a record date for the
purpose of determining Shareholders entitled to consent to that action,
which record date shall not proceed, and shall not be more than ten (10)
days after, the date on which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors and the prior action of the Board of Directors is
not otherwise required by statute, the record date for determining
Shareholders entitled to consent to action in writing without a meeting
shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office, its principal place of business, or
an officer or agent of the Corporation having custody of the books in
which proceedings of meetings of Shareholders are recorded. Delivery to
the Corporation's principal place of business shall be addressed to the
President or the principal executive officer of the Corporation. If no
record date shall have been fixed by the Board of Directors and prior
action of the Board of Directors is required by statute, the record date
for determining Shareholders entitled to consent to action in writing
without a meeting shall be at the close of business on the date on which
the Board of Directors adopts a resolution taking such prior action.

Section 2.10 ORDER OF BUSINESS; RULES OF PROCEDURE.

The order of business at all meetings of Shareholders shall be as
determined by the chairman of the meeting or as is otherwise determined by
the vote of the holders of a majority of the shares of stock present in
person or by proxy and entitled to vote without regard to class or series at
the meeting.

Section 2.11 ACTION BY WRITTEN CONSENT.

Unless otherwise provided by law or the Corporation's Articles of
Incorporation, any action required or permitted to be taken by the
Shareholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing setting forth the action
so taken, shall have been signed by (i) all of the Shareholders, or (ii) if a
consent by less than all of the Shareholders is expressly authorized in the
Corporation's Articles of Incorporation, the holder or holders of shares
having not less than the minimum number of votes that would be necessary to
take such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted.

Section 2.12 AUTHORIZATION OF PROXIES.

Any Shareholder may vote either in person or by proxy executed in
writing by the Shareholder. A telegram, telex, cablegram, or similar
transmission by the Shareholder, or a photographic, photostatic, facsimile,
or similar reproduction or a writing executed by the Shareholder, shall be
treated as an execution in writing. No proxy will be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the
proxy. A proxy shall be revocable unless the proxy form conspicuously states
that the proxy is irrevocable and the proxy is coupled with an interest.

<PAGE>

Section 2.13 INSPECTORS AND VOTING PROCEDURES.

(a) The Corporation may, in advance of any meeting of Shareholders,
appoint one or more inspectors to act at the meeting and make a written
report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of Shareholders, the
person presiding at the meeting shall appoint one or more inspectors to
act at the meeting. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of
his ability.

(b) If any inspectors are elected, the inspectors shall
(i) ascertain the number of shares outstanding and the voting power of
each share, the number of shares represented at the meeting, the existence
of a quorum, and the authority, validity and effect of proxies, (ii) count
and tabulate all votes, assents and consents, and determine and announce
results, and (iii) do all other acts as may be proper to conduct elections
or votes with fairness to all Shareholders. The inspectors, if any are
elected, may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.

ARTICLE 3.

DIRECTORS

Section 3.1 MANAGEMENT.

The property, affairs and business of the Corporation shall be managed
by or under the direction of the Board of Directors which may exercise all
powers of the Corporation and do all lawful acts and things as are not by
law, by the Corporation's Articles of Incorporation or by these Bylaws
directed or required to be exercised or done by the Shareholders.

Section 3.2 NUMBER AND TERM.

The number of directors may be fixed from time to time by resolution of
the Board of Directors adopted by the affirmative vote of a majority of the
members of the entire Board of Directors, but shall consist of not less than
one (1) member, who shall be elected annually by the Shareholders except as
provided in SECTION 3.4. Directors need not be Shareholders. No decrease in
the number of directors shall have the effect of shortening the term of
office of any incumbent director.

Section 3.3 QUORUM AND MANNER OF ACTION.

At all meetings of the Board of Directors a majority of the total number
of directors holding office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law, by the Corporation's Articles
of

<PAGE>

Incorporation or these Bylaws. When the Board of Directors consists of one
director, the one director shall constitute a majority and a quorum. If at
any meeting of the Board of Directors there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to
time until a quorum is obtained, and no further notice thereof need be given
other than by announcement at such adjourned meeting. Attendance by a
director at a meeting shall constitute a waiver of notice of such meeting
except where a director attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.

Section 3.4 VACANCIES.

Except as otherwise provided by law or the Corporation's Articles of
Incorporation, in the case of any vacancy in the Board of Directors, however
created, the vacancy or vacancies may be filled by majority vote of the
directors remaining on the Board of Directors although less than a quorum, or
by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled
by election at an annual or special meeting of Shareholders called for that
purpose, or by a majority of the directors who will remain on the Board of
Directors, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of an
increase in the number of Directors shall be filled by the Board of Directors
for a term of office continuing only until the next election of one or more
directors by the Shareholders; provided that the Board of Directors may not
fill more than two such directorships during the period between any two
successive annual meetings of Shareholders.

Section 3.5 RESIGNATIONS.

A director may resign at any time upon written notice of resignation to
the Corporation. Any resignation shall be effective immediately unless a
certain effective date is specified therein, in which event it will be
effective upon such date and acceptance of any resignation shall not be
necessary to make it effective.

Section 3.6 REMOVALS.

Any director or the entire Board of Directors may be removed, for cause,
and another person or persons may be elected to serve for the remainder of
his or their term, by the holders of a majority of the shares of the
Corporation entitled to vote in the election of directors. In case any
vacancy so created shall not be filled by the Shareholders at such meeting,
such vacancy may be filled by the directors as provided in SECTION 3.4.

Section 3.7 ANNUAL MEETINGS.

The annual meeting of the Board of Directors shall be held, if a quorum
be present, immediately following each annual meeting of the Shareholders at
the place such meeting of Shareholders took place, for the purpose of
organization and transaction of any business that might be transacted at a
regular meeting of the Board of Directors, and no notice of such meeting
shall be

<PAGE>

necessary. If a quorum is not present, such annual meeting may be held at
any other time or place that may be specified in a notice given in the manner
provided in SECTION 3.9 for special meetings of the Board of Directors or in
a waiver of notice thereof.

Section 3.8 REGULAR MEETINGS.

Regular meetings of the Board of Directors may be held without notice at
such places and times as shall be determined from time to time by resolution
of the Board of Directors. Except as otherwise provided by law, any business
may be transacted at any regular meeting of the Board of Directors.

Section 3.9 SPECIAL MEETINGS.

Special meetings of the Board of Directors may be called by the Chairman
of the Board, if any, the President, or by any director. Notice of any
special meeting, effective upon delivery in accordance herewith, shall be
given at least two (2) Business Days prior thereto by written notice
delivered personally, or by written notice mailed or sent by facsimile
transmission to each director at his business address. If mailed, the notice
shall be deemed to be delivered three (3) days following its deposit in the
United States mail so addressed, with postage thereon prepaid. If given by
facsimile transmission, the notice shall be deemed to be delivered when sent
and confirmed electronically. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any special meetings
need be specified in any notice or written waiver of notice unless so
required by the Corporation's Articles of Incorporation or by these Bylaws.
Any and all business may be transacted at a special meeting, unless limited
by law, the Corporation's Articles of Incorporation or by these Bylaws.

Section 3.10 ORGANIZATION OF MEETINGS.

At any meeting of the Board of Directors, business shall be transacted
in such order and manner as such Board of Directors may from time to time
determine, and all matters shall be determined by the vote of a majority of
the directors present at any meeting at which there is a quorum, except as
otherwise provided by the Corporation's Articles of Incorporation, these
Bylaws or required by law.

Section 3.11 PLACE OF MEETINGS.

The Board of Directors may hold its meetings and have one or more
offices, and keep the books of the Corporation, outside the State of Texas,
at any office or offices of the Corporation, or at any other place as it may
from time to time by resolution determine.

<PAGE>

Section 3.12 COMPENSATION OF DIRECTORS.

Directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be allowed for attendance at
each meeting. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending such committee meetings.

Section 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT.

Unless otherwise restricted by law, the Corporation's Articles of
Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board of Directors or of such
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors
or the committee.

Section 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE.

Unless otherwise restricted by the Corporation's Articles of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee thereof may participate in a meeting of such Board of Directors or
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting in such manner shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the grounds that the meeting
is not lawfully called or convened.

ARTICLE 4.

COMMITTEES OF THE BOARD

Section 4.1 MEMBERSHIP AND AUTHORITIES.

The Board of Directors may, by resolution or resolutions passed by a
majority of the Board of Directors, designate one (1) or more directors to
constitute such committees as the Board of Directors may determine, each of
which committees to the extent provided in such resolution or resolutions or
in these Bylaws, shall have and may exercise, subject to the provisions of
Article 2.36 of the TBCA, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
such committee or committees by law, the Corporation's Articles of
Incorporation or these Bylaws, and may authorize the seal of the Corporation
to be affixed to all papers that may require such seal. The designation of
any committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.

<PAGE>

Section 4.2 MINUTES.

Each committee designated by the Board of Directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.

Section 4.3 VACANCIES.

The Board of Directors may designate one (1) or more of its members as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of such committee. If no alternate members have been
appointed, the committee member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any absent or disqualified member. The Board of
Directors shall have the power at any time to fill vacancies in, to change
the membership of, and to dissolve, any committee.

Section 4.4 TELEPHONE MEETINGS.

Members of any committee designated by the Board of Directors may
participate in or hold a meeting by use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
SECTION 4.4 shall constitute presence in person at such meeting, except where
a person participates in the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the
ground that the meeting is not lawfully called or convened.

Section 4.5 ACTION WITHOUT MEETING.

Any action required or permitted to be taken at a meeting of any
committee designated by the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by all
the members of the committee and filed with the minutes of the committee
proceedings. Such consent shall have the same force and effect as a
unanimous vote at a meeting.

ARTICLE 5.

OFFICERS

Section 5.1 NUMBER AND TITLE.

The officers of the corporation shall be a President and a Secretary,
each of whom shall be elected by the Board of Directors and such officers,
including a Chairman of the Board, a Chief Executive Officer, one (1) or more
Vice Presidents, the number thereof to be determined by the Board of
Directors, a Chief Financial Officer or Treasurer, and such other officers as
the Board of Directors may deem to be necessary, may be elected or appointed
by the Board of Directors. Any two (2) or more offices may be held by the
same person. If any two (2) or more offices are held by the same person,
such person shall be entitled to exercise the rights and duties of each
office as set

<PAGE>

forth hereinafter. If the holder of two (2) or more corporate offices is
required to sign any corporate documents, instruments, certificates,
agreements, or any other documents on the Corporation's behalf, then the
signature of such person in any one (1) of his capacities shall be sufficient
to bind the Corporation. Any one or more of the Vice Presidents may be
designated as an Executive Vice President or Senior Vice President.

Section 5.2 TERM OF OFFICE; VACANCIES.

So far as is practicable, all elected officers shall be elected by the
Board of Directors at the annual meeting of the Board of Directors each year,
and except as otherwise provided in this ARTICLE 5, shall hold office until
the next such meeting of the Board of Directors in the subsequent year and
until their respective successors are elected and qualified or until their
earlier resignation or removal. All appointed officers shall hold office at
the pleasure of the Board of Directors. If any vacancy shall occur in any
office, the Board of Directors may elect or appoint a successor to fill such
vacancy for the remainder of the term.

Section 5.3 REMOVAL OF ELECTED OFFICERS.

Any elected officer may be removed at any time, with or without cause,
by affirmative vote of a majority of the Board of Directors, at any regular
meeting or at any special meeting called for such purpose.

Section 5.4 RESIGNATIONS.

Any officer may resign at any time upon written notice of resignation to
the President, Secretary or Board of Directors of the Corporation. Any
resignation shall be effective immediately unless a date certain is specified
for it to take effect, in which event it shall be effective upon such date,
and acceptance of any resignation shall not be necessary to make it
effective, irrespective of whether the resignation is tendered subject to
such acceptance.

Section 5.5 THE CHAIRMAN OF THE BOARD.

The Chairman of the Board, if one shall be elected, shall preside at all
meetings of the Shareholders and Board of Directors. In addition, the
Chairman of the Board shall perform whatever duties and shall exercise all
powers that are given to him by the Board of Directors.

Section 5.6 CHIEF EXECUTIVE OFFICER.

The Chief Executive Officer shall be the most senior executive officer
of the Corporation; shall (in the absence of the Chairman of the Board, if
one be elected) preside at meetings of the Shareholders and Board of
Directors; shall be EX OFFICIO a member of all standing committees; shall
have general and active management of business of the Corporation; shall
implement the general directives, plans and policies formulated by the Board
of Directors; and shall further have such duties, responsibilities and
authorities as may be assigned to him by the Board of Directors. He may
sign, with any other proper officer, certificates for shares of the
Corporation and any deeds, bonds,

<PAGE>

mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise
signed and executed and except where the signing and execution thereof shall
be expressly delegated by the Board of Directors or these Bylaws, to some
other officer or agent of the corporation. In the absence of the Chief
Executive Officer, his duties shall be performed and his authority may be
exercised by the President of the Corporation.

Section 5.7 PRESIDENT.

The President shall, after the Chief Executive Officer, be the most
senior executive officer of the corporation and shall, subject to the
authority of the Chief Executive Officer, implement the general plans and
directives of the Board of Directors and perform such other duties as may be
assigned to him by the Board of Directors.

Section 5.8 VICE PRESIDENTS.

The several Vice Presidents, including Executive Vice Presidents and
Senior Vice Presidents, shall have such powers and duties as may be assigned
to them by these Bylaws and as may from time to time be assigned to them by
the Board of Directors and may sign, with any other proper officer,
certificates for shares of the Corporation.

Section 5.9 SECRETARY.

The Secretary, if available, shall attend all meetings of the Board of
Directors and all meetings of the Shareholders and record the proceedings of
the meetings in a book to be kept for that purpose and shall perform like
duties for any committee of the Board of Directors as shall designate him to
serve. The Secretary shall give, or cause to be given, notice of all
meetings of the Shareholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office
of secretary or as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. The Secretary shall have
custody of the corporate seal of the Corporation and he, or any Assistant
Secretary, or any other person whom the Board of Directors may designate,
shall have authority to affix the same to any instrument requiring it, and
when so affixed it may be attested by his signature or by the signature of
any Assistant Secretary or by the signature of such other person so affixing
such seal.

Section 5.10 ASSISTANT SECRETARIES.

Each Assistant Secretary shall have the usual powers and duties
pertaining to his office, together with such other powers and duties as may
be assigned to him by the Board of Directors, the President or the Secretary.
The Assistant Secretary or such other person as may be designated by the
President shall exercise the powers of the Secretary during that officer's
absence or inability to act.

<PAGE>

Section 5.11 TREASURER OR CHIEF FINANCIAL OFFICER.

The Treasurer or Chief Financial Officer shall have the custody of and
be responsible for the corporate funds and securities, shall keep full and
separate accounts of receipts and disbursements in the books belonging to the
Corporation and shall deposit all monies and other valuable effects in the
name and the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer or Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his
transactions as Treasurer or Chief Financial Officer and of the financial
condition of the Corporation and he shall perform all other duties incident
to the position of Treasurer or Chief Financial Officer, or as may be
prescribed by the Board of Directors or the President. If required by the
Board of Directors, the Treasurer or Chief Financial Officer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation

Section 5.12 ASSISTANT TREASURERS.

Each Assistant Treasurer shall have the usual powers and duties
pertaining to his office, together with such other powers and duties as may
be assigned to him by the Board of Directors, the President or the Treasurer.
The Assistant Treasurer or such other person designated by the President
shall exercise the power of the Treasurer during that officer's absence or
inability to act.

Section 5.13 SUBORDINATE OFFICERS.

The Board of Directors may (i) appoint such other subordinate officers
and agents as it shall deem necessary who shall hold their offices for such
terms, have such authority and perform such duties as the Board of Directors
may from time to time determine, or (ii) delegate to any committee or officer
the power to appoint any such subordinate officers or agents.

Section 5.14 SALARIES AND COMPENSATION.

The salary or other compensation of officers shall be fixed from time to
time by the Board of Directors. The Board of Directors may delegate to any
committee or officer the power to fix from time to time the salary or other
compensation of subordinate officers and agents appointed in accordance with
the provisions of SECTION 5.2.

<PAGE>

ARTICLE 6.

INDEMNIFICATION

(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such
action, suit or proceeding, and any inquiry or investigation that would lead
to such action, suit or proceeding (hereinafter a "proceeding"), by reason of
the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
TBCA, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all judgments, fines, penalties (including excise tax and
similar taxes), settlements, and reasonable expenses actually incurred by
such indemnitee in connection therewith. The right to indemnification
conferred in this Section shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition (hereinafter an "advancement of expenses");
PROVIDED, HOWEVER, that, if the TBCA requires, an advancement of expenses
incurred by an indemnitee shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such indemnitee, to repay all amounts
so advanced if it shall ultimately be determined that such indemnitee is
not entitled to be indemnified for such expenses under this Section or
otherwise.

(b) INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, on behalf of any indemnitee against any liability asserted
against him and incurred by him in such a capacity or arising out of his
status as a representative of the Corporation, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the TBCA.

(c) INDEMNITY OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article or as otherwise permitted under the TBCA with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.

<PAGE>

ARTICLE 7.

CAPITAL STOCK

Section 7.1 CERTIFICATES OF STOCK.

Certificates of stock shall be issued to each Shareholder certifying the
number of shares owned by him in the Corporation and shall be in a form not
inconsistent with the Articles of Incorporation or the TBCA and as approved
by the Board of Directors. The certificates shall be signed by the Chairman
of the Board, the Chief Executive Officer, the President or a Vice President
and by the Secretary or an Assistant Secretary and may be sealed with the
seal of the Corporation or a facsimile thereof. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon
a certificate ceases to hold such position, such certificate may nevertheless
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.

Section 7.2 LOST CERTIFICATES.

The Board of Directors may direct a new certificate to be issued in
place of any certificate theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the owner of such certificate, or his legal representative. When
authorizing the issuance of a new certificate, the Board of Directors may in
its discretion, as a condition precedent to the issuance thereof, require the
owner, or his legal representative, to give a bond in such form and substance
with such surety as it may direct, to indemnify the Corporation against any
claim that may be made on account of the alleged loss, theft or destruction
of such certificate or the issuance of such new certificate.

Section 7.3. DIVIDENDS.

Subject to Article 2.38 of the TBCA and the provisions of the
Corporation's Articles of Incorporation, if any, and except as otherwise
provided by law, the directors may declare dividends upon the capital stock
of the Corporation as and when they deem it to be expedient. Such dividends
may be paid in cash, in property or in shares of the Corporation's capital
stock. Before declaring any dividend there may be set apart out of the funds
of the Corporation available for dividends, such sum or sums as the directors
from time to time in their discretion determine to be proper for working
capital or as a reserve fund to meet contingencies or for equalizing
dividends, or for such other purposes as the directors shall determine to be
in the best interest of the Corporation and the directors may modify or
abolish any such reserve in the manner in which it was created.

Section 7.4. REGISTERED SHAREHOLDERS.

Except as expressly provided by law, the Corporation's Articles of
Incorporation or these Bylaws, the Corporation shall be entitled to treat
registered Shareholders as the only holders and owners in fact of the shares
standing in their respective names and the Corporation shall not be

<PAGE>

bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, regardless of whether it shall have express
or other notice thereof.

Section 7.5. TRANSFER OF STOCK.

Transfers of shares of the capital stock of the Corporation shall be
made only on the books of the Corporation by the registered owners thereof,
or by their legal representatives or their duly authorized attorneys. Upon
any such transfers the old certificates shall be surrendered to the
Corporation by the delivery thereof to the person in charge of the stock
transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.

ARTICLE 8.

MISCELLANEOUS PROVISIONS

Section 8.1. CORPORATE SEAL.

If one is adopted, the corporate seal shall have inscribed thereon the
name of the Corporation and shall be in such form as may be approved by the
Board of Directors. Such seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.

Section 8.2. FISCAL YEAR.

The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors. Unless otherwise designated by the Board of Directors,
the fiscal year of the Corporation shall end on December 31 of each year.

Section 8.3. CHECKS, DRAFTS, NOTES.

All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall
be signed by such officer or officers, agent or agents of the Corporation,
and in such manner as shall from time to time be determined by resolution
(whether general or special) of the Board of Directors or may be prescribed
by any officer or officers, or any officer and agent jointly, thereunto duly
authorized by the Board of Directors.

Section 8.4. NOTICE AND WAIVER OF NOTICE.

Whenever notice is required to be given to any director or Shareholder
under the provisions of applicable law, the Corporation's Articles of
Incorporation or these Bylaws, such notice shall be in writing and delivered
whether (i) personally, or (ii) by registered or certified mail, or (iii) by
telegram, telecopy, or similar facsimile means (delivered during the
recipient's regular business hours). Such notice shall be sent to such
director or Shareholder at the address or telecopy number as it appears on
the records of the Corporation, unless prior to the sending of such notice he
has designated, in a written request to the Secretary of the Corporation,
another address or telecopy

<PAGE>

number to which notices are to be sent. Notices shall be deemed given when
received, if sent by telegram, telex, telecopy or similar facsimile means
(confirmation of such receipt by confirmed facsimile transmission being
deemed receipt of communications sent by telex, telecopy or other facsimile
means); and when delivered and receipted for (or upon the date of attempted
delivery where delivery is refused), if hand delivered, sent by express
courier or delivery service, or sent by certified or registered mail.
Whenever notice is required to be given under any provision of law, the
Corporation's Articles of Incorporation or these Bylaws, a waiver thereof in
writing, by telegraph, cable or other form of recorded communication, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Shareholders, directors, or members of a committee of
directors need be specified in any written waiver of notice unless so
required by the Corporation's Articles of Incorporation or these Bylaws.

Section 8.5. EXAMINATION OF BOOKS AND RECORDS.

The Board of Directors shall determine from time to time whether, and if
allowed, when and under what conditions and regulations the accounts and
books of the Corporation (except such as may by statute be specifically
opened to inspection) or any of them shall be open to inspection by the
Shareholders, and the Shareholders' rights in this respect are and shall be
restricted and limited accordingly.

Section 8.6. VOTING UPON SHARES HELD BY THE CORPORATION.

Unless otherwise provided by law or by the Board of Directors, the
Chairman of the Board of Directors, if one shall be elected, or the
President, if a Chairman of the Board of Directors shall not be elected,
acting on behalf of the Corporation, shall have full power and authority to
attend and to act and to vote at any meeting of Shareholders of any
corporation, partnership, venture or limited liability company in which the
Corporation may hold stock or other equity interest and, at any such meeting,
shall possess and may exercise any and all of the rights and powers incident
to the ownership of such equity interest which, as the owner thereof, the
Corporation might have possessed and exercised, if present. The Board of
Directors by resolution from time to time may confer like powers upon any
person or persons.

ARTICLE 9.

AMENDMENTS

Except as expressly provided in the Corporation's Articles of
Incorporation, the directors, by the affirmative vote of a majority of the
entire Board of Directors and without the assent or vote of the Shareholders,
may at any meeting, provided the substance of the proposed amendment shall
have been stated in the notice of the meeting, make, repeal, alter, amend or
rescind any of these Bylaws or to adopt new Bylaws. The Shareholders shall
not make, repeal, alter, amend or rescind any of the

<PAGE>

provisions of these Bylaws except by the holders of not less than a majority
of the shares of stock of the Corporation entitled to vote in the election of
directors.

I HEREBY CERTIFY, as Secretary of the Corporation, that the foregoing are
the Bylaws of the Corporation, as adopted by written consent of the Board of
Directors as of the 31 day of July, 1999.

/s/ Samuel C. Beale
----------------------------------------
Samuel C. Beale, Secretary

<PAGE>

CYNET, INC.

1997 RESTATED STOCK OPTION PLAN

(As amended through July 31, 1999)

The following CyNet, Inc. Restated Stock Option Plan (the "Plan") is
effective as of October 20, 1997, and as amended through July 31, 1999,
subject to approval by the shareholders of CyNet, Inc. ("Company") no later than
twelve months following the adoption by the Board of Directors, as follows:

ARTICLE I

Section 1. Purpose.

The purposes of the Plan are to advance the best interest of the Company
and to attract, retain, and motivate key employees, and persons affiliated with
the Company (the "Participants"), and provide such persons with additional
incentive to further the business, promote the long-term financial success and
increase shareholder value of the Company by increasing their proprietary
interest in the success of the Company. Pursuant to the Plan, the Company may
grant (i) non-qualified stock options ("Stock Options"), and (ii) incentive
stock options ("ISO Options") (collectively herein "Options"). The ISO Options
to be granted under the Plan are intended to be qualified pursuant to Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"); and the Stock
Options to be granted are intended to be non-qualified stock options as
described in Sections 83 and 421 of the Code.

Section 2. General.

The terms and provisions of this Article I shall be applicable to Stock
Options and ISO Options, unless the context herein clearly indicates to the
contrary.

Section 3. Administration of the Plan.

The Plan shall be administered by the Board of Directors (the "Board") of
the Company. The Board, at its discretion, may designate and appoint a committee
(the "Compensation Committee") which shall be constituted solely of outside
directors (within the meaning of Section 162(m) of the Code) and so as to permit
the Plan to comply with Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All references to the Board shall also
include the Committee, if one is appointed. The members of the Committee shall
serve at the pleasure of the Board. The Board shall have the power consistent
with the general purpose and intent of the Plan to (i) modify the requirements
of the Plan to conform with the law or to meet special circumstances not
anticipated or covered in the Plan, (ii) establish policies, (iii) adopt rules
and regulations and (iv) prescribe forms for carrying out the purposes and
provisions of the Plan, including the form of any stock option agreements
("Option Agreements"). Unless otherwise provided in the Plan, the Board shall
have the authority to interpret and construe the Plan and

<PAGE>

determine all questions arising under the Plan and any agreement made pursuant
to the Plan. Any interpretation, decision or determination made by the Board
shall be final, binding and conclusive. A majority of the Board shall constitute
a quorum and an act of the majority of the members present at any meeting at
which a quorum is present shall be the act of the Board.

Section 4. Stock Subject to the Plan.

The aggregate number of shares of the Company's Class A Common Stock, no
par value ("Common Stock"), which may be issued upon the exercise of Options
granted under the Plan shall not exceed 2,000,000, subject to adjustment under
the provisions of Section 7 of this Article I. The shares of Common Stock to be
issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought in the open market
for the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.

Section 5. Participation in the Plan.

The Board shall determine from time to time those Participants who are to
be granted Options, and the number of shares of Common Stock covered thereby.

Section 6. Determination of Fair Market Value.

As used in the Plan, "Fair Market Value" shall mean on any particular day
(i) if the Common Stock is listed or admitted for trading on any national
securities exchange or the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System, the last sale price, or if
no sale occurred, the mean between the closing high bid and low asked quotations
for such date of the Common Stock on the principal securities exchange on which
shares of the Common Stock are listed, (ii) if the Common Stock is not traded on
any national securities exchange but is quoted on the National Association of
Securities Dealers, Inc. Automated Operations System, or any similar system of
automated dissemination of quotations or securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the
Common Stock on such system, (iii) if neither clause (i) nor (ii) is applicable,
the mean between the high bid and low asked quotations for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for shares of the
Common Stock on at least five (5) of the ten (10) preceding days or (iv) if none
of the conditions set forth above is met, the fair market value of shares of the
Common Stock as determined in a good faith manner by the Board. Provided, for
purposes of determining Fair Market Value of the Common Stock of the Company,
such value shall be determined without regard to any restriction other than a
restriction which will never lapse.

Section 7. Adjustments Upon Changes in Capitalization.

The aggregate number of shares of Common Stock under Options granted under
the Plan, the Stock Option Price and the ISO Price, and the total number of
shares of Common Stock which may be purchased by a Participant upon exercise of
an Option shall be appropriately adjusted by the

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<PAGE>

Board to reflect any recapitalization, stock split, merger, consolidation,
reorganization, combination, liquidation, stock dividend or similar transaction
involving the Company.

Section 8. Amendment and Termination of the Plan.

The Plan shall terminate at midnight, October 19, 2007, but prior thereto
may be altered, changed, modified, amended or terminated by written amendment
approved by the Board. Provided, that no action of the Board may, without the
approval of the shareholders; (i) increase the aggregate number of shares of
Common Stock which may be purchased under Options granted under the Plan, or
(ii) withdraw the administration of the Plan from the Board. Except as provided
in this Article I, no amendment, modification or termination of the Plan shall
in any manner adversely affect any Option previously granted under the Plan
without the consent of the affected Participant.

Section 9. Effective Date.

The Plan shall be effective October 20, 1997, subject to approval by the
holders of a majority of the Common Stock of the Company present or represented
and entitled to vote at a meeting called for such purpose within twelve (12)
months before or after the Plan's adoption by the Board.

Section 10. Securities Law Requirements.

(a) Legality of Issuance.

No Common Stock shall be issued upon the exercise of any Option
unless and until the Board has determined that:

(i) The Company and the Participant have taken all actions required
to register the Common Stock under the Securities Act of 1933, as amended
(the "Securities Act"), or to perfect an exemption from registration
requirements of the Securities Act, or to determine that the registration
requirements of the Securities Act do not apply to such exercise;

(ii) Any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and

(iii) Any other applicable provision of state, federal or foreign
law has been satisfied.

(b) Restrictions on Transfer; Representations of Participant; Legends.

Regardless of whether the offering and sale of Common Stock under
the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the
Company may impose restrictions and/or prohibitions upon the sale, pledge,
or other transfer of such Common Stock (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Company and its counsel, such restrictions and/or prohibitions are
necessary or desirable to achieve compliance with the provisions of the
Securities Act, the securities laws of any state, or any other law or
rule,

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<PAGE>

including rules of accounting. If the offering and/or sale of Common Stock
under the Plan is not registered under the Securities Act and the Company
determines that the registration requirements of the Securities Act apply
but an exemption is available which requires an investment representation
or other representation, the Participant shall be required, as a condition
to acquiring such Common Stock, to represent that such Common Stock is
being acquired for investment, and not with a view to the sale or
distribution thereof, except in compliance with the Securities Act, and to
make such other representations as are deemed necessary or appropriate by
the Company and its counsel. Certificates evidencing Common Stock acquired
pursuant to an unregistered transaction to which the Securities Act
applies shall bear a restrictive legend as may be required or deemed
advisable under the Plan or the provisions of any applicable law.

Any determination by the Company and its counsel in connection with any of
the matters set forth in this Section 10 shall be conclusive and binding on all
persons.

The Company may, but shall not be obligated to, register or qualify
the offering or sale of Common Stock under the Securities Act or any other
applicable law.

(d) Exchange of Certificates.

If, in the opinion of the Company and its counsel, any legend placed
on a stock certificate representing shares of Common Stock issued pursuant
to the Plan is no longer required, the Participant or the holder of such
certificate shall be entitled to exchange such certificate for a
certificate representing the same number of shares of Common Stock but
lacking such legend.

Section 11. Separate Certificate.

Separate certificates representing the Common Stock of the Company to be
delivered to a Participant upon the exercise of any Option will be issued to
such Participant.

Section 12. Payment for Stock.

Payment for shares of Common Stock purchased under this Plan shall be made
in full and in cash or check made payable to the Company. However, the Board in
its discretion may allow payment for shares of Common Stock purchased under this
Plan to be made in Common Stock of the Company or a combination of cash and
Common Stock of the Company. Further, the Option Agreement may provide for a
"cashless exercise" of Options pursuant to procedures established by the Board.
In the event that Common Stock of the Company is utilized in consideration for
the purchase of Common Stock upon the exercise of an Option, then, such Common
Stock shall be valued at the Fair Market Value as defined in Section 6 of this
Article I as of the date the payment is made.

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<PAGE>

Section 13. Incurrence of Disability.

A Participant shall be deemed to have terminated employment or consulting
and incurred a disability ("Disability") if such Participant suffers a physical
or mental condition which (i) satisfies the definition of "total disability" in
the disability policy or plan provided by the Company covering the Participant;
or (ii) if no such policy or plan is then covering the Participant, in the
judgment of the Board, totally and permanently prevents a Participant from
engaging in any substantial gainful employment or consulting with the Company.

Section 14. Stock Options and ISO Options Granted Separately.

Since the Board is authorized to grant Stock Options and ISO Options to
Participants, the grant thereof and Option Agreements relating thereto will be
made separately and totally independent of each other. Except as it relates to
the total number of shares of Common Stock which may be issued under the Plan,
the grant or exercise of a Stock Option shall in no manner affect the grant and
exercise of any ISO Options. Similarly, the grant and exercise of any ISO Option
shall in no manner affect the grant and exercise of any Stock Option.

Section 15. Grants of Options and Option Agreement.

Each Option granted under this Plan shall be evidenced by a written Option
Agreement effective on the date of grant and executed by the Company and the
Participant. Each Option granted hereunder shall contain such terms,
restrictions and conditions as the Board may determine, which terms restrictions
and conditions may or may not be the same in each case.

Section 16. Use of Proceeds.

The proceeds received by the Company from the sale of Common Stock
pursuant to the exercise of Options granted under the Plan shall be added to the
Company's general funds and used for general corporate purposes.

Section 17. Non-Transferability of Options.

Except as otherwise herein provided, any Option granted shall not be
transferable otherwise than by will or the laws of descent and distribution and
only the Participant may exercise the Option during his lifetime. Specifically
(but without limiting the generality of the foregoing), the Option may not be
assigned, transferred (except as provided above), pledged or hypothecated in any
way, shall not be assignable by operation of law, and shall not be subject to
execution, attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of the Option contrary to the
provisions hereof shall be null and void and without effect.

Section 18. Additional Documents on Death of Participant.

No transfer of an Option by the Participant by will or the laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice and such other evidence as the Board may
deem necessary to establish the validity of the

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<PAGE>

transfer and the acceptance by the successor to the Option of the terms and
conditions of such Option.

Section 19. Changes in Employment.

So long as the Participant shall continue to be an employee or consultant
of the Company, any Option granted to him shall not be affected by any change of
duty or position.

Section 20. Shareholder Rights.

No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock subject to an Option prior to the purchase of such shares
of Common Stock by exercise of the Option.

Section 21. Change of Control.

(a) In the event of a Change of Control (as defined in Section 21(b) of
this Article I),

(i) all outstanding Options shall immediately vest and become
exercisable; and

(ii) the Board, in its discretion, may act to effect one or more of
the following alternatives with respect to outstanding Options, which may
vary among individual Participants and which may vary among Options held
by any individual Participant:

(1) Determine a limited period of time after which all
unexercised Options and all rights of Participants thereunder shall
terminate.

(2) Require the mandatory surrender to the Company by selected
Participants of some or all of the outstanding Options held by such
Participants (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date specified
by the Board, in which event the Board shall thereupon cancel such
Options and the Company shall pay to each Participant an amount of
cash per share equal to the excess, if any, of the Change of Control
value (as determined by the Board) of the shares subject to such
Option over the exercise price(s) under such Options for such
shares.

(3) Make such adjustments, if any, to Options then outstanding
as the Board deems appropriate in its sole discretion, to reflect
such Change of Control.

(4) Provide that upon the exercise of an Option, the
Participant shall be entitled to purchase, in lieu of the Common
Stock covered by such Option, the number and class of shares of
stock, other securities or property (including, without limitation,
cash) to which the Participant would have been entitled pursuant to
the terms of the agreement of merger, consolidation or sale of
assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution the

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<PAGE>

Participant had been the holder of record of the number of shares of
Common Stock covered by such Option.

The foregoing provisions shall not terminate any rights of the
Participant to further payments pursuant to any other agreement with the
Company following a Change of Control.

(b) For purposes of this Plan, the term "Change of Control" means the
occurrence, following successful completion of the Company's IPO (as defined in
Section 21(c) of this Article I), of any one of the following events:

(i) The Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of
an entity other than a previously wholly-owned subsidiary of the Company).

(ii) The Company sells, leases or exchanges all or substantially all
of its assets to any other person or entity (other than a wholly-owned
subsidiary of the Company).

(iii) The Company is to be dissolved and liquidated.

(iv) Any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act, acquires or gains ownership or
control (including, without limitation, power to vote) of more than 50% of
the outstanding shares of the Company's voting stock (based upon voting
power).

(v) As a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such
election, together with their nominees, shall cease to constitute a
majority of the Board.

(c) For purposes of this Plan, the term "IPO" means the first underwritten
public offering of the Company's Common Stock other than any offering pursuant
to any registration statement (i) relating to any capital stock of the Company
or options, warrants or other rights to acquire any such capital stock issued or
to be issued primarily to directors, officers or employees of the Company, or
any of its subsidiaries, (ii) relating to any employee benefit plan or interest
therein, (iii) relating principally to any preferred stock or debt securities of
the Company or (iv) filed pursuant to Rule 145 under the Securities Act, as
amended, or any successor or similar provisions.

Section 22. Non-Qualifying Options.

Notwithstanding anything to the contrary contained in this Plan, with
respect to all or any portion of any Option granted under the Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
Option shall be considered as a Stock Option granted under this Plan for all
purposes.

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<PAGE>

Section 23. Tax Status.

The Board shall take all appropriate steps at the time of the grant of
Options or the exercise of Options, or both, consistent with such Options'
status for federal income tax purposes (including but not limited to,
designating whether such Option is considered a Stock Option or an ISO Option).

ARTICLE II

Granting of Stock Options

Section 1. Grants and Terms of Stock Options.

Stock Options shall be granted by the Board on the following terms and
conditions: No Stock Option shall be exercisable within six (6) months from the
date of grant (except as specifically provided in Section 3 of this Article II,
with regard to the death or Disability of a Participant), nor more than ten (10)
years after the date of grant. Subject to such limitation, the Board shall have
the discretion to fix the period during which any Stock Option may be exercised
(the "Option Period"). No Stock Option shall be exercisable after the expiration
of its Option Period. Each Stock Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Board shall approve. Each Option Agreement shall
specify the effect of termination of employment or consulting on the
exercisability of Stock Options.

Section 2. Stock Option Price.

The option price for shares of Common Stock subject to a Stock Option
("Stock Option Price") shall be determined by the Board, but in no event shall
such Stock Option Price be less than 85% of the Fair Market Value of the Common
Stock on the date of grant.

Section 3. Acceleration of Otherwise Unexercisable Stock Options on Retirement,
Death, Disability or Other Special Circumstances.

All Stock Options which are not exercisable as of the date of termination
of a Participant's employment or consulting shall expire as of such date;
provided, however, the Board, in its sole discretion, may permit any Participant
whose employment or consulting with the Company terminates, for any cause
whatsoever, to exercise, at any time within the Option Period, any or all Stock
Options previously granted to such Participant notwithstanding that such Stock
Options have not yet vested, in whole or in part, as of the date of termination
of such Participant's employment or consulting. However, such discretionary
authority of the Board shall not be exercised with respect to any Stock Option
(or portion thereof) if the applicable six-month waiting period for exercise has
not yet expired, except in the event of the death or Disability of the
Participant when the personal representative of the Participant or the disabled
Participant may, with the consent of the Board, exercise such Stock Option
notwithstanding that the applicable six-month waiting period has not yet
expired.

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<PAGE>

Section 4. Number of Stock Options Granted.

Subject to the applicable limitations contained in the Plan, the Board
shall determine the number of Stock Options which are to be granted to each
Participant. In making such determinations, the Board shall obtain the advice
and recommendation of the officers of the Company. The granting of a Stock
Option under the Plan shall not affect any outstanding Option previously granted
to a Participant under the Plan.

Section 5. Notice to Exercise Stock Option.

Upon exercise of a Stock Option, a Participant shall give written notice
to the Secretary of the Company, or other officer designated by the Board at the
Company's principal office in Houston, Texas. No Common Stock shall be issued to
any Participant until the Company receives full payment for the Common Stock
purchased, if applicable, and any required state and federal withholding taxes.

ARTICLE III

Granting of ISO Options

Section 1. General.

With respect to ISO Options granted on or after the effective date of the
Plan, the following provisions in this Article III shall apply to the exclusion
of any inconsistent provisions in any other Article in this Plan since the ISO
Options to be granted under the Plan are intended to qualify as "incentive stock
options" as defined in Section 422 of the Code.

Section 2. Grant of ISO Options.

ISO Options may be granted only to key employees of the Company and any of
its subsidiaries. No ISO Options shall be granted to any person who is not
eligible to receive incentive stock options as provided in Section 422 of the
Code. No ISO Options shall be granted to any key employee if, immediately before
the grant of an ISO Option, such employee owns more than 10% of the total
combined voting power of all classes of stock of the Company or its subsidiaries
(as determined in accordance with the stock attribution rules contained in
Section 424(d) of the Code). Provided, the preceding sentence shall not apply if
at the time the ISO Option is granted, the ISO Price is at least 110% of the
Fair Market Value of the Common Stock subject to the ISO Option, and such ISO
Option by its terms is not exercisable after the expiration of five years from
the date such ISO Option is granted.

Section 3. ISO Option Price.

The option price for shares of Common Stock subject to an ISO Option ("ISO
Price") shall be determined by the Board, but in no event shall such ISO Price
be less than the Fair Market Value of the Common Stock on the date of grant.

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<PAGE>

Section 4. Annual ISO Option Limitation.

The aggregate Fair Market Value (determined as of the time the ISO Option
is granted) of the Common Stock with respect to which ISO Options are
exercisable for the first time by any Participant during any calendar year
(under all "incentive stock option" plans qualified under Section 422 of the
Code sponsored by the Company) shall not exceed $100,000.

Section 5. Terms of ISO Options.

ISO Options shall be granted by the Board on the following terms and
conditions: No ISO Option shall be exercisable within six (6) months from the
date of grant (except as specifically provided in Section 6 of this Article III
with regard to the death or Disability of a Participant), nor more than ten (10)
years after the date of grant. Subject to such limitation, the Board shall have
the discretion to fix the period during which any ISO Option may be exercised
(the "ISO Period"). No ISO Option shall be exercisable after the expiration of
its ISO Period. Each ISO Option shall be evidenced by an Option Agreement in
such form and containing such provisions not inconsistent with the provisions of
the Plan as the Board shall approve, including provisions to qualify an ISO
Option under Section 422 of the Code. Each Option Agreement shall specify the
effect of termination of employment or consulting on the exercisability of ISO
Options.

Section 6. Acceleration of Otherwise Unexercisable ISO Option on Retirement,
Death, Disability or Other Special Circumstances.

All ISO Options which are not exercisable as of the date of termination of
a Participant's employment, shall expire as of such date; provided, however, the
Board, in its sole discretion, may permit any Participant whose employment with
the Company terminates, for any cause whatsoever, to exercise, at any time
within the ISO Period, any or all ISO Options previously granted to such
Participant notwithstanding that such ISO Options have not yet vested, in whole
or in part, as of the date of the termination of such Participant's employment.
However, that such discretionary authority of the Board shall not be exercised
with respect to any ISO Options (or portion thereof) if the applicable six-month
waiting period has not yet expired, except in the event of the death or
Disability of the Participant, when the personal representative of the
Participant or the disabled Participant may, with the consent of the Board,
exercise such ISO Options notwithstanding that the six-month waiting period has
not yet expired.

Section 7. Number of ISO Options Granted.

Subject to the applicable limitations contained in the Plan, the Board
shall determine the number of ISO Options which are to be granted to each
Participant. In making such determinations, the Board shall obtain the advice
and recommendation of the officers of the Company. The granting of an ISO Option
under the Plan shall not affect any outstanding Option previously granted to a
Participant under the Plan.

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<PAGE>

Section 8. Notice to Exercise ISO Option.

Upon exercise of an ISO Option, a Participant shall give written notice to
the Secretary of the Company, or other officer designated by the Board at the
Company's principal office in Houston, Texas. No Common Stock shall be issued to
any Participant until the Company receives full payment for the Common Stock
purchased, if applicable, and any required state and federal withholding taxes.

ARTICLE IV

Miscellaneous

Section 1. No Right to a Grant.

Neither the adoption of the Plan by the Company nor any action of the
Board shall be deemed to give a Participant any right to be granted an Option or
any of the rights hereunder except as may be evidenced by an Option Agreement.

Section 2. No Employment Rights Conferred.

Nothing in the Plan or in any Option Agreement which relates to the Plan
shall confer upon any Participant any right to continue in the employ as an
employee or consultant of the Company, or interfere in any way with the right of
the Company to terminate his employment or consulting arrangement at any time.

Section 3. Rule 16b-3.

It is intended that the Plan and any grant of Options made to a person
subject to Section 16 of the Exchange Act meet all of the requirements of Rule
16b-3 promulgated thereunder. If any provision of the Plan or any such grant
would disqualify the Plan or such grant under, or would otherwise not comply
with, Rule 16b-3, such provision or grant shall be construed or deemed amended
to conform to Rule 16b-3.

Section 4. Governing Law.

This Plan shall be construed in accordance with the laws of the state of
Texas.

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<PAGE>
ASSIGNMENT

THIS ASSIGNMENT ("Assignment") is made as of the date set forth below, by
and between the undersigned ("Assignor") and CyNet, Inc. ("Assignee"). The
Assignor owns an ownership interest ("Ownership Interest") in a Texas limited
liability company, ("LLC") and desires to exchange the Ownership Interest for
shares of CyNet, Inc. Class A Common Stock ("Shares"), which exchange is based
upon the exchange ratio of 1.2 Shares for each $1.000 in capital originally
contributed to the LLC. The terms of the exchange offer and exchange value are
set forth in the Private Placement Memorandum dated November 10, 1996, and any
defined terms used in this Assignment not otherwise defined herein shall have
the meaning as ascribed in the Memorandum. In connection with the Exchange
Offer, Assignor agrees to execute this Assignment and acknowledges that the
Shares will be forwarded by the Assignee to the Assignor within 10 business days
of the date hereof. In consideration of the mutual covenants contained herein,
and other good and valuable consideration set forth below, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be bound legally, hereby agree as follows:

1. Assignor does hereby irrevocably sell, assign, grant, convey, transfer
and deliver to Assignee all of Assignor's right, title and interest in and to
the Ownership Interest, free and clear of all liens, encumbrances and claims.

2. Assignee does hereby irrevocably accept this Assignment.

3. Assignor hereby represents and warrants to Assignee that (i) the
undersigned has full power and authority and legal right to execute and deliver
this Assignment and to perform and observe the terms hereof, and (ii) this
Assignment constitutes legal, valid and binding obligations enforceable in
accordance with its terms.

4. Assignee represents and warrants to Assignor that (i) it has full power
and authority and legal right to execute and deliver this Agreement and to
perform and observe the terms hereof, (ii) it has taken all necessary legal and
corporate action to authorize the execution and delivery of this Agreement and
the performance and observance of the terms and conditions hereof, and (iii)
this Agreement constitutes legal, valid and binding obligations enforceable in
accordance with its terms.

5. This Assignment and all of its terms and conditions shall be binding
upon and shall inure to the benefit of Assignor and Assignee and their
respective successors and assigns.

<PAGE>

6. This Assignment may be executed in any number of counterparts and each
such counterpart shall be for all purposes deemed an original and all such
counterparts together shall constitute but one and the same instrument.

7. The Assignor hereby acknowledges and understands that in connection
with this Assignment, the Assignor hereby relinquishes all rights to the
Ownership Interest in exchange for the Shares and therefor, foregoes and
releases the Company, its shareholders, officers, directors and agents from any
other right or entitlement to receive any additional consideration, value or
return on investment in the occurrence of certain events, including without
limitation, any initial public offering, any a public market for the Assignee
capital stock.

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

ASSIGNOR:

____________________________________________
Printed Name:_______________________________
Name of LLC:________________________________
Capital Contributed (if known):_____________
Date:_______________________________________

ASSIGNEE:

CyNet, Inc.

By:_________________________________________
Name:_______________________________________
Title:______________________________________
Date:_______________________________________

<PAGE>
CYNET, INC.
12777 JONES ROAD, SUITE 400
HOUSTON, TEXAS 77070
(713) 897-8317

June 26, 1996

Mr. Jean-David Benichou
International Fax Corporation
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola, British Virgin Islands

LETTER AGREEMENT

Gentlemen:

This letter is to memorialize THE AGREEMENT among you, Jean-Davit Benichou
("Benichou"), your company, International Fax Corporation ("IFC"), Ray Davis
("Davis") and CyNet, Inc. ("CyNet") for IFC to acquire 1,050,000 shares of stock
in CyNet, Inc. ("CyNet"), a Texas corporation controlled by Davis, in exchange
for CyNet acquiring a right of first refusal to acquire all of the outstanding
common stock of I-Media, S. A., a French company controlled by Benichou.
The following paragraphs describe our mutual agreement:

1. Right of First Refusal to Acquire I-Media, S.A. CyNet agrees to issue
1,050,000 shares of unregistered, restricted CyNet stock to IFC and IFC agrees
to acquire such shares from CyNet in exchange for the night of first refusal to
acquire all the outstanding common shares of I-Media, S.A., subject to the
fulfillment of the following conditions:

a. Authority and Identity of IFC Shareholders. The IFC shareholder
represents that he is also the controlling shareholder of I-Media,
S.A.,, a French company operating an international European fax
Network similar to that of CyNet, and further represents that he has
full authority to cause I-Media, S.A. to carry out the transactions
agreed to herein;

b. Transfer of Shares at Closing. On or before June 28, 1996 (the
"Closing Date"), CyNet shall have issued 1,050,000 of its private,
unregistered and restricted common shares to IFC, or as the
shareholders of IFC may direct, and the parties acknowledge and
agree that up to 300,000 of the shares so issued may be subsequently
transferred to shareholders of I-Media, S.A.;

<PAGE>

c. Right of First Refusal. As consideration for the common shares, the
IFC shareholders grant CyNet the right of first refusal to acquire
all the outstanding shares of I-Media in the event such shares are
offered for sale at any time prior to CyNet's initial public
offering (IPO). CyNet shall have, for fifteen days following receipt
of notice of the sale offer, the option to exercise its right of
first refusal;

d. Valuation. In the event shares of capital stock of the I-Media and
CyNet are exchanged as part of the agreed transaction, the necessary
valuation of each company's shares for the exchange will be made on
a basis that is the same for each Company,

e. Directorship. Ray Davis, as controlling shareholder of CyNet, will
amend the By-Laws of CyNet, if necessary, and appoint or elect
Jean-David Benichou as a Director of CyNet, and continue to so
appoint or elect him as director until the time of CyNet's IPO;

f Director's Expenses. Jean-David Benichou will receive the normal
travel and expense reimbursements for his service as a board member
and such other compensation and travel and expense reimbursements as
he and CyNet shall from time to time agree; and

h Closing Documents. At Closing Date, and at any exercise of the Right
of First Refusal, IFC, I-Media, CyNet and their respective
shareholders will execute all such documents as our respective legal
counsel shall deem necessary to effectuate the transaction
contemplated hereby in compliance with all applicable laws and
regulations.

2. Contingent Reacquisition by CyNet. In the event that IFC has exercised its
options pursuant to paragraphs 2 and 3 of a certain agreement dated June
_______, 1996 by and between the Ray C. Davis Family Partnership, Ltd. ("Davis")
and IFC and Davis has repurchased all of the CyNet shares acquired by IFC
pursuant to that agreement, and that CyNet has not acquired I-Media, then this
agreement is terminated and IFC and its shareholders shall return the 1,050,000
shares to CyNet and neither CyNet nor IFC and its shareholders shall have any
further obligations or liability to the other party.

3. Contingent Purchase by CyNet on Sale of Controlling Interest by Davis. At
IFC's sole option and upon written notice of such demand, CyNet agrees to
purchase all of the CyNet shares acquired by IFC at a price equal to the price
per share received by Davis in the event Davis, or Ray Davis, individually,
sells sufficient of its shares so that it no longer holds controlling interest
in CyNet. Such amounts shall be due and payable in full fifteen days following
the receipt of IFC's written notice.

4. Obligation to Provide Financial Information. Prior to the exercise of the
Right of First Refusal granted hereby, I-Media shall provide its most recent
financial statements to CyNet as well as

<PAGE>

documents and other evidence sufficient for CyNet to determine the bona fides of
the third party offer it must match;

5. Confidentiality. This letter agreement, our discussions and all information
and data furnished to each party by the other pursuant to this letter agreement
shall be confidential and shall not be divulged by any party to any third party
without the prior written consent of the other party providing said confidential
information, except that CyNet, Inc. shall be permitted to make all disclosures
of this transaction as are necessary to comply with state and federal security
laws, rules and regulations.

6. Publicity. All announcements and publicity relating to this letter agreement
shall be subject to the mutual approval of both IFC and CyNet, except as
otherwise required by laws or regulations.

7. Choice of Law. The parties agree that this letter agreement shall be governed
by and interpreted in accordance with the laws of the State of Texas, excluding
any principle or provision thereof that would require application of the laws of
any other jurisdiction.

8. Arbitration. Any dispute as to any matter or activities arising out of or
in connection with this letter agreement, including, without limitation, any
dispute as to the validity, construction, enforceability or breach of this
letter agreement, which cannot be settled amicably shall be exclusively and
finally settled by arbitration, and any party may submit such a dispute to
arbitration.

Arbitration proceedings shall be conducted by three (3) arbitrators in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce. Unless otherwise agreed in writing by the parties, the
third arbitrator appointed in accordance with said rules shall not be a national
of the United States or France.

In any arbitration proceeding hereunder:

a. proceedings shall, unless otherwise agreed in writing by the parties,
be held in London, England;

b. proceedings shall be construed under and governed by the laws of the
State of Texas, excluding any choice of law rule thereof that would direct the
application of the laws of any other jurisdiction;

c. the English language shall be the official language for all purposes;
and

d. the decision of a majority of the arbitrators shall be final and
binding and shall be enforceable in any court of competent jurisdiction.

9. Prior Agreements. This Agreement supersedes and is in lieu of any and all
prior or contemporaneous agreements, communications or understandings, whether
written or unwritten,

<PAGE>

verbal or tacit, or implied by prior dealings, between and among any of the
parties, their predecessors or affiliates with respect to the matters set out
herein.

10. Amendment in writing. No amendment, modification or change to this agreement
shall be binding unless in writing, signed by all the parties hereto.

11. Agreement binding. This letter constitutes a binding agreement between us.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, legatees, administrators, executors, legal
representatives, successors, and assigns (including remote, as well as
immediate, successors to and assignees of said parties).

12. Representations, Warranties and Agreements of CyNet. CyNet represents,
warrants and agrees as follows:

a. Authority. CyNet is a corporation duly organized, validly existing, and
in good standing under the laws of Texas, with full corporate power and
authority to carry on its business as it is now being conducted, to own or
hold under lease the properties and assets it now owns or holds under
lease, and to enter into and perform its obligations under this Agreement.
Copies of the charter documents and bylaws have been delivered to IFC and
such copies are complete and correct. The execution and delivery of this
Agreement and the consummation of all the transactions contemplated
thereby have been duly authorized by all necessary corporate action on
behalf of CyNet. The persons signing on behalf of CyNet are duly
authorized to do so and this Agreement will be binding upon CyNet. CyNet
is not subject to any lien or encumbrance of any kind nor subject to any
agreement, instrument, order, or decree of any court or government body
which would prevent consummation of the transaction contemplated by this
agreement.

b. Tax Obligations. CyNet has filed all tax returns required to be filed
and paid all taxes and assessments due, including interest and penalties
(the "Taxes"). There are no unpaid Taxes that are or could become a lien
on the property or assets of CyNet, except for current Taxes not yet due
and payable.

c. No Suits Pending. There are no actions, suits, or proceedings pending,
outstanding or threatened, against or affecting CyNet or any of the
assets, properties or business of CyNet at law or in equity, or before or
by any governmental authority, except for a lawsuit by a placement agency
for an unpaid, disputed $10,000 placement fee.

d. No Violations of Laws. CyNet is not in default or violation under any
law, ordinance or regulation, or with respect to any order, writ,
injunction, decree or demand of any court or any governmental authority,
or in the payment of any indebtedness for borrowed money or
under the terms or provisions of any agreement or instrument evidencing or
security any such indebtedness.

<PAGE>

e. Governmental Agencies. CyNet will comply with the requirements of all
applicable laws, regulations, and requirements pertaining to CyNet.

f. Information Provided. To the best of its knowledge, all information
provided by CyNet to IFC was and is accurate in all material respects and
did not or does not, to the best of CyNet's knowledge, omit any
information necessary to make sure information and documentation not
misleading.

g. Financial Statements. CyNet has delivered to IFC its 1995 audited
annual report and the interim unaudited financial statements. The
financial statements present fairly the financial position and results of
operations of CyNet.

h. Licenses and Permits. CyNet has all licenses, permits, approvals,
consents, orders, rights and other authorizations which are necessary in
order to enable it to conduct its business as currently conducted.

I. No Undisclosed Liabilities. Except as set out in its financial
statements, and except for a meritless suit by an employment agency for a
disputed $10,000 placement fee, CyNet has no liabilities or obligations.

j. No Conflict with Other Documents. Neither the execution and delivery of
this agreement nor the carrying out of this transaction will result in any
violation, termination or modification of, or be in conflict with CyNet's
charter documents or bylaws, any contract or agreement to which CyNet or
any of its shareholders is a party or is bound, or result in the creation
of any lien or encumbrance upon any of the properties or assets of CyNet.

13. Representation, Warranties and Agreements of IFC. IFC represents, warrants
and agrees as follows:

a. Authority. IFC is, or will be at all times material hereto, duly
organized, validly existing, and in good standing in its state or county
of organization. The persons signing on behalf of IFC are duly authorized
to do so and this Agreement will be binding upon IFC.

b. Tax Obligations. IFC has filed all tax returns required to be filed
and paid all taxes due, including interest and penalties.

c. No Suits Pending. There are no actions, suits, or proceedings pending,
outstanding or threatened, against or affecting IFC at law or in equity,
or before or by any governmental authority.

d. No Violations of Laws. IFC is not in default under any law, ordinance
or regulation, or with respect to any order, writ, injunction, decree, or
demand of any court or any governmental authority, or in the payment of
any indebtedness for borrowed money or under the terms or provisions of
any agreement or instrument evidencing or security any such indebtedness.

<PAGE>

e. Governmental Agencies. IFC will comply with the requirements of all
applicable laws, regulations, and requirements pertaining to IFC.

14. Representations, Warranties and Agreements of I-Media represents, warrants
and agrees as follows:

a. Authority. I-Media is a corporation duly organized, validly existing,
and in good standing under the laws of its state or country of
organization, with full corporate power and authority to carry on its
business as it is now being conducted, to own or hold under lease the
properties and assets it now owns or holds under lease, and to enter into
and perform its obligations under this Agreement. Copies of the charter
documents and bylaws have been delivered to CyNet and such copies are
complete and correct. The execution and delivery of this Agreement and the
consummation of all the transactions contemplated thereby have been duly
authorized by all necessary corporate action on behalf of I-Media. The
persons signing on behalf of I-Media are duly authorized to do so and this
Agreement will be binding upon I-Media. I-Media is not subject to any lien
or encumbrance of any kind nor subject to any agreement, instrument,
order, or decree of any court or government body which would prevent
consummation of the transaction contemplated by this agreement.

b. Tax Obligations. I-Media has filed all tax returns required to be filed
and paid all taxes and assessments due, including interest and penalties
(the "Taxes"). There are no unpaid Taxes that are or could become a lien
on the property or assets of I-Media, except for current Taxes not yet due
and payable.

c. No Suits Pending. There are no actions, suits, or proceedings pending,
outstanding or threatened, against or affecting I-Media or any of the
assets, properties or business of I-Media at law or in equity, or before
or by any governmental authority.

d. No Violations of Laws. I-Media is not in default or violation under any
law, ordinance or regulation, or with respect to any order, writ,
injunction, decree, or demand of any court or any governmental authority,
or in the payment of any indebtedness for borrowed money or under the
terms or provisions of any agreement or instrument evidencing or security
any such indebtedness.

e. Governmental Agencies. I-Media will comply with the requirements of all
applicable laws, regulations, and requirements pertaining to I-Media.

f. Information Provided. To the best of its knowledge, all information
provided by I-Media to CyNet was and is accurate in all material respects
and did not or does not, to the best of IMedia's knowledge, omit any
information necessary to make such information and documentation not
misleading.

<PAGE>

g. Financial Statements. I-Media has delivered to CyNet its 1995 audited
annual report and the interim financial statements. The financial
statements present fairly the financial position and results of operations
of CyNet.

15. Representations, Warranties and Agreements of IFC and its Shareholders. For
purposes of this paragraph, "IFC" shall include onto only the corporation to be
formed with that name but IMedia, S.A., as well, and the term "IFC and its
shareholders" shall also include the shareholders of I-Media, S.A. IFC and its
shareholders represent, warrant and agree as follows:

a. familiarity with CyNet's Business. IFC and its shareholders are
familiar with the fax broadcast industry in general and CyNet's business
in particular, have had opportunities to ask questions of its officer(s),
and have received all information requested.

b. Knowledge and Experience. IFC and its shareholders possess the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in CyNet.

c. Substantial Net Worth. The shareholders of IFC and I-Media, S.A are
individuals having a net worth, either individually or together with his
or her spouse, of at least $1,000,000.

d. Willingness to Bear Risk of Economic Loss. IFC and its shareholders are
willing and able to bear the economic risk of this agreement, and have
considered whether they could afford to hold the shares for an indefinite
period and whether, at this time, they could afford a complete loss of the
Funds.

e. Purchase for Own Account. IFC and its shareholders are entering into
this agreement for their own account and not for the account of any other
person.

f. No Market for Shares. IFC and its shareholders acknowledge that there
is no market of the shares of CyNet, there may not be any market in the
future and the agreed price for these shares has been arbitrarily
determined by the parties and is not an indication of the actual value of
the shares, if any.

g. No Registration. IFC and its shareholders are aware that the Shares
have not been registered nor is registration contemplated under the
Securities Act of 1933, and accordingly, that the Shares must be held
indefinitely (except for the provisions of paragraph 2 above) unless they
are subsequently registered under said Act or unless, in the opinion of
counsel for CyNet, a sale or transfer may be made without registration
thereunder. IFC and its shareholders are further aware that they may not
be entitled to make any sales or transfers of the Shares pursuant to the
exemption afforded by Rule 144 promulgated under said Act. IFC and its
shareholders agree that any certificates evidencing the Shares may bear a
legend restricting the transfer thereof consistent with the foregoing and
that a notation may be made in the records of CyNet restricting the
transfer of the Shares in a manner consistent with the foregoing.

<PAGE>

I. No Advertising. IFC and its shareholders acknowledge that neither CyNet
nor any person acting on its behalf offered to sell them shares by means
of any form of general advertising, such as media advertising or seminars.

j. No Preemptive Rights. IFC and its shareholders acknowledge and agree
that they have no preemptive rights with respect to the shares to be
conveyed hereunder.

16. Unenforceable Provisions. In the event any one or more provisions contained
in this letter agreement shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this letter, this letter shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.

17. Indemnification by CyNet. CyNet agrees to indemnify IFC and I-Media
(collectively referred to as IFC), as follows:

a. Indemnification for Breach. CyNet covenants and agrees to indemnify,
defend and hold harmless IFC, any of its officers, directors,
shareholders, employees, agents or affiliates, successors and assigns, at
all times from and after Closing, from and against any and all claims,
suits, losses, damages, judgement and liabilities (collectively referred
to as "Claims") to which IFC may become subject, if such Claims arise out
of or are based upon any facts or circumstances that could result in or
give rise to a misrepresentation, omission, breach of warranty, or breach
of covenant by CyNet of IFC in this Agreement. This right of
indemnification is in addition to any other right available to IFC.

b. Indemnification for Income Tax. Without limiting the foregoing, CyNet
shall indemnify, defend and hold harmless IFC from and against any Losses
to which IFC may become subject insofar as such Losses arise out of or are
based on any income tax on or measured by the net income of CyNet in any
period on or before Closing.

c. Notice and Defense. IFC agrees to give prompt notice to CyNet of any
action or proceeding to which it believes it has a right to
indemnification hereunder. On receipt of the notice, CyNet shall have the
right to direct the defense of the matter, but IFC shall be entitled to
participate in the defense and, to the extent that IFC desires to jointly
direct the defense with CyNet with Counsel mutually satisfactory to CyNet
and IFC, at CyNet's expenses.

18. Indemnification by IFC/I-Media. IFC and I-Media (collectively referred to as
IFC) agree to indemnify CyNet, as follows:

a Indemnification for Breach. IFC covenants and agrees to indemnify,
defend and hold harmless CyNet, any of its officers, directors,
shareholders, employees, agents or affiliates, successors and assigns, at
all times from and after Closing, from and against any and all claims,
suits, losses, damages, judgements and liabilities (collectively referred
to as "Claims") to which CyNet may become subject, if such Claims arise
out of or are based upon any facts

<PAGE>

or circumstances that could result in or give rise to a misrepresentation,
omission, breach of warranty, or breach of covenant by IFC to CyNet in
this Agreement. This right of indemnification is in addition to any other
right available to CyNet.

b. Indemnification for Income Tax. Without limiting the foregoing, IFC
shall indemnify, defend and hold harmless CyNet from and against any
Losses to which CyNet may become subject insofar as such Losses arise out
of or are based on any income tax on or measured by the net income of IFC
in any period on or before Closing.

c. Notice and Defense. CyNet agrees to give prompt notice to IFC of any
action or proceeding to which it believes it has a right to
indemnification hereunder. On receipt of the notice, IFC shall have the
right to direct the defense of the matter, but CyNet shall be entitled to
participate in the defense and, to the extent that CyNet desires to
jointly direct the defense with IFC with Counsel mutually satisfactory to
IFC and CyNet, at IFC's expense.

19. Survival. The representations, warranties and agreements made by the parties
in this Agreement and in any other document delivered in connection herewith
shall survive the Closing.

20. Unenforceable Provisions. In the event any one or more provisions contained
in this letter agreement shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this letter, this letter shall be
construed as if such invalid, illegal or unenforceable provisions had never been
contained herein.

21. Additional Condition to Closing: The obligations of IFC to consummate the
transactions contemplated by this agreement are subject to the following
condition:

All representations and warranties of CyNet contained in this agreement,
information and documentation delivered pursuant hereto, on or before the
closing or in connection with the transaction provided to IFC shall have
been true and correct in all respect on and as of Closing as if made on or
as of the Closing.

Please acknowledge your agreement with the contents of this letter by signing
and dating one counterpart of its in the space provided below, and returning
that counterpart to us for our records. Thank you for prompt attention to this
matter.

Very truly yours,

CYNET, INC.

By:________________________________

<PAGE>

Ray Davis, CEO

___________________________________
Ray Davis, Individually

ACKNOWLEDGED AND AGREED TO THIS _________DAY OF JUNE __________, 1996.

INTERNATIONAL FAX CORPORATION

By: __________________________________________________________
Jean-David Benichou, on behalf of IFC and its Shareholders

Title: _______________________________________________________

______________________________________________________________
Jean-David Benichou, Individually

I-MEDIA, S.A.

______________________________________________________________
Jean-David Benichou, General Manager

<PAGE>

CYNET, INC.
12777 JONES ROAD, SUITE 400
HOUSTON, TEXAS 77070
(713) 897-8317

October 30, 1997

Mr. Jean-David Benichou
International Fax Corporation
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola, British Virgin Islands

Re: Supplement to Letter Agreement

Gentlemen:

This, letter is to supplement the letter agreement ("Agreement") dated
June 26, 1996, among you, Jean-David Benichou ("Benichou"), your company,
International Fax Corporation ("IFC"), Ray Davis ("Davis") and CyNet, Inc.
("CyNet") which provides for IFC to acquire 1,050,000 shares of Class A common
stock ("Common Stock") in CyNet, a Texas corporation controlled by Davis, in
exchange for CyNet acquiring a right of first refusal to acquire all of the
outstanding common stock of I-Media, S.A. ("I-Media"), a French company
controlled by Benichou. The following paragraphs supplement our mutual
Agreement:

In connection with the issuance of 1,050,000 shares of Common Stock,
I-Media agrees to form a strategic alliance whereby CyNet gains access to
I-Media's network in Europe for fax broadcasting purposes and I-Media agrees to
use CyNet's network exclusively for their fax broadcast traffic to the United
States. Benichou represents that he has full authority to cause I-Media to carry
out the transaction agreed to herein.

Benichou has not been appointed or elected as a director of CyNet as of
the date of this supplement. CyNet agrees to appoint or elect Benichou as a
director in the future.

Please acknowledge your agreement with the contents of this letter by
signing and dating one counterpart of it in the space provided below, and
returning that counterpart to us for our records.
Thank you for prompt attention to this matter.

Very truly yours,

CYNET, INC.

<PAGE>

By:__________________________________________
Ray Davis, Chief Executive Officer

_____________________________________________
Ray Davis, Individually

ACKNOWLEDGED AND AGREED TO THIS 30TH DAY OF OCTOBER, 1997.

INTERNATIONAL FAX CORPORATION

By:__________________________________________
Jean-David Benichou, on behalf of IFC and
its Shareholders

Title:_______________________________________

_____________________________________________
Jean-David Benichou, Individually

I-MEDIA, S.A.

_____________________________________________
Jean-David Benichou, General Manager

<PAGE>

EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is made as of August 26,
1998 by CYNET, INC, a Texas corporation (the "Employer"), and R. GREG
SMITH, an individual resident of the State of Texas (the "Executive").

INTRODUCTION

Employer, directly or through one or more subsidiaries, is engaged in
the business of providing fax and related communication services. The
Employer desires to employ the Executive, and the Executive wishes to accept
such employment, upon the terms and conditions set forth in this Agreement.

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

Section 1. DEFINITIONS. For the purposes of this Agreement, the
following terms have the meanings specified or referred to in this Section 1.

1.1 "AFFILIATE" or "AFFILIATES" --any Person that, directly or
indirectly, controls, or is controlled by or under common control with, the
Employer, including the Employer. For the purposes of this definition,
"control" (including the terms "controlled by," and "under common control
with") means the power to direct or cause the direction of the management and
policies of any Person, directly or indirectly, through ownership of voting
securities, by contract, or otherwise.

1.2 "AGREEMENT" -- this Consulting Agreement, as amended from time to
time.

1.3 "BASIC COMPENSATION" -- Salary and Benefits.

1.4 "BENEFITS" -- as defined in Section 3.1 (c).

1.5 "BOARD OF DIRECTORS" -- the board of directors of the Employer.

1.6 "CONFIDENTIAL INFORMATION" -- any and all:

(a) trade secrets concerning the business and affairs of Employer
or any Affiliate, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs,
drawings, samples, inventions and ideas, past, current, and planned
research and development, current and planned manufacturing or
distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, data
bases, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures,
and architectures (and related formulae, compositions, processes,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information), and any other information, however
documented, that is a trade secret within the meaning of the common law of
the State of Texas, and

1
<PAGE>

(b) information concerning the business and affairs of Employer or
any Affiliate (which includes historical financial statements, financial
projections and budgets, historical and projected sales, marketing and
customer data, capital spending budgets, acquisition prospects and
plans, the names and backgrounds of key personnel, personnel training and
techniques and materials), however documented; and

(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for any Affiliate containing or based, in whole
or in part, on any information included in the foregoing.

1.7 "DISABILITY" -- as defined in Section 5.2.

1.8 "EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.

1.9 "EMPLOYEE INVENTION" -- any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registrable or not), any mask work, however fixed
or encoded, that is suitable to be fixed, embedded or programmed in a
semiconductor product (whether recordable or not), and any work of authorship
(whether or not copyright protection may be obtained for it) created,
conceived, or developed by the Executive, either solely or in conjunction
with others, during the Employment Period, OF a period that includes a
portion of the Employment Period, that relates in any way to, or is useful in
any manner in, the business then being conducted or proposed to be conducted
by the Employer or the Affiliates, and any such item created by the
Executive, either solely or in conjunction with others, following termination
of the Executive's employment with the Employer, that is based upon or uses
Confidential Information.

1.10 "EMPLOYMENT PERIOD" -- the term of the Executive's employment
under this Agreement.

1.11 "FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.

1.12 "FOR CAUSE" -- as defined in Section 5.3.

1.13 "INCENTIVE COMPENSATION" -- as defined in Section 3.2.

1.14 "OPTION PLAN" -- the CyNet, Inc. Stock Incentive Option Plan.

1.15 "NONINCENTIVE COMPENSATION" -- as defined in Section 3.3.

1.16 "PERSON" -- any individual, general or limited partnership, joint
venture, corporation (including any non-profit corporation), limited
liability company, bank, estate, trust, association, entity, unincorporated
organization, or government body.

1.17 "POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2.

2
<PAGE>

1.18 "PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv).

1.19 "SALARY" -- as defined in Section 3.1(a).

1.20 "SIGNING BONUS" -- as defined in Section 3.1(b).

Section 2. EMPLOYMENT TERM AND DUTIES.

2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.

2.2 TERM. Subject to the provisions of Section 5, the term of the
Executive's employment under this Agreement will be three (3) years,
beginning on the Effective Date and ending on the third anniversary of the
Effective Date. Thereafter, the term may continue for additional one (1)
year periods upon the mutual written agreement of the Executive and the
Employer.

2.3 DUTIES. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors (which duties shall be of a
senior management or executive level) and will initially serve as Vice
President, Finance and Chief Financial Officer. The Executive will devote
substantially all of his entire business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the
Employer. For the Executive's service as a director of the Employer or
officer of any of its Affiliates, the Executive will fulfill his duties as
such director or officer without additional compensation.

Section 3. COMPENSATION.

3.1 BASIC COMPENSATION.

(a) SALARY. The Executive will be paid an annual salary of
$125,000.00, subject to adjustment as provided below (the "Salary"), which
will be payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The Salary
will be reviewed by the Board of Directors not less frequently than annually,
and may be adjusted upward or downward in the sole discretion of the Board of
Directors, but in no event will the Salary be less than $125,000.00 per year.
Employer further agrees to a targeted minimum base salary of $140,000.00
following the first anniversary of this Agreement.

(b) SIGNING BONUS. In order to induce the Executive to accept
employment with the Employer, the Employer agrees to pay the Executive a
bonus of $30,000.00 ("Signing Bonus"). Subject to the Executive's employment
by the Employer, such bonus shall be paid to the Executive $15,000.00 on
September 30, 1998 and $15,000.00 on December 31, 1998, unless Executive, at
his sole discretion, grants Employer an extension of time to pay the Signing
Bonus.

3
<PAGE>

(c) BENEFITS. The Executive will, during the Employment
Period, be permitted to participate in such pension, profit sharing, bonus,
life insurance, hospitalization, major medical, and other employee benefit
plans of the Employer that may be in effect from time to time, to the extent
the Executive is eligible under the terms of those plans (collectively, the
"Benefits").

(d) LIFE INSURANCE. Employer will provide or reimburse Executive
with a separate term life insurance policy in the amount of $250,000.00 through
the term of Executive's employment Agreement, payable to the Executive's
designated beneficiary.

3.2 INCENTIVE COMPENSATION. As additional compensation (the
"Incentive Compensation"), for the services to be rendered by the Executive
pursuant to this Agreement, the Executive will be entitled to receive such
Incentive Compensation as may be determined by the Board of Directors.

3.3 NONINCENTIVE COMPENSATION. As additional compensation (the
"Nonincentive Compensation") for the services to be rendered by the Executive
pursuant to this Agreement, the Executive shall be granted an incentive stock
option to purchase 100,000 shares of Class A Common Stock, at an exercise
price of $.39 per share, under the Option Plan. Employer shall cause to be
issued a Stock Option Agreement reflecting the date of grant as August 26,
1998. The options associated with this grant shall vest ratably over a three
(3) year period.

3.4 VACATIONS AND HOLIDAYS. The Executive will be entitled to paid
vacation each Fiscal Year in accordance with the vacation policies of the
Employer in effect for its executive officers from time to time which
vacation shall not be less than four (4) weeks. Vacation must be taken by
the Executive at such time or times as approved by the Chairman of the Board
of Directors. The Executive will also be entitled to the paid holidays and
other paid leave set forth in the Employer's policies. Vacation days and
holidays during any Fiscal Year that are not used by the Executive during
such Fiscal Year may not be used in any subsequent Fiscal Year without prior
written approval of the Chief Executive Officer, but Executive shall be paid
at the end of each Fiscal Year for any vacation days which Executive was
unable to use as a result of a request for approval of a vacation having been
denied by the Chairman of the Board of Directors.

Section 4. FACILITIES AND EXPENSES.

Section 4. FACILITIES AND EXPENSES. The Employer will furnish the
Executive office space, equipment, supplies, and such other facilities and
personnel as the Employer deems necessary or appropriate for the performance
of the Executive's duties under this Agreement and as are commensurate, with
Executive's duties under Section 2.3. The Employer will pay the Executive's
dues in such professional societies and organizations as the Chairman of the
Board of Directors of the Employer deems appropriate, and will pay on behalf
of the Executive (or reimburse the Executive for) reasonable expenses incurred
by the Executive at the request of, or on behalf of, the Employer in the
performance of the Executive's duties pursuant to this Agreement, and in
accordance with the Employees employment policies, including reasonable expenses
incurred by the Executive in attending conventions, seminars, and other business
meetings, in appropriate business

4
<PAGE>

entertainment activities, and for promotional expenses. The Executive must
file expense reports with respect to such expenses in accordance with the
Employer's policies.

Section 5. TERMINATION.

5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's
Basic Compensation, Incentive Compensation, Nonincentive Compensation, and
any and all other rights of the Executive under this Agreement or otherwise
as an employee of the Employer will terminate (except as otherwise provided
in this Section 5)

(a) upon the death of the Executive;

(b) upon the Disability of the Executive (as defined in Section
5.2) immediately upon notice from either party to the other;

(c) for cause (as defined in Section 5.3), immediately upon
notice from the Employer to the Executive, or at such later time as such
notice may specify, or

(d) upon Executive's voluntary termination of employment, which
termination shall be effective thirty (30) days after Employer's receipt of
Executive's written resignation.

5.2 DISABILITY. For purposes of this Section 5, the Executive will
be deemed to have a "Disability", if, for physical or mental reasons, the
Executive is unable to perform the Executive's duties under this Agreement
for 120 consecutive days, or 180 days during any twelve month period, as
determined in accordance with this Section 5.2. The Disability of the
Executive will be determined by a medical doctor selected by written agreement
of the Employer and the Executive upon the request of either party no notice
to the other. If the Employer and Executive cannot agree on the selection of
a medical doctor then the two medical doctors will select a third medical
doctor who will determine whether the Executive has a Disability. The
determination of the medical doctor selected under this Section 5.2 will be
binding on both parties. The Executive must submit to a reasonable number of
examinations by the medical doctor making the determination of Disability
under this Section 5.2, and the Executive hereby authorizes the disclosure
and release to the Employer of such determination and all supporting medical
records. If the Executive is not legally competent, the Executive's legal
guardian or duly authorized attorney-in-fact will act on behalf of the
Executive, under this Section 5.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 5.2.

5.3 FOR CAUSE. For purposes of Section 5.1, the phrase "For Cause"
means (a) the Executive's breach of a material provision of this Agreement,
which breach is not substantially cured within (30) days after receipt of
written notice thereof from Employer; (b) the Executive's repeated failure to
adhere to any written Employer policy and Executive's failure to cure such
noncompliance within thirty (30) days after receipt of written notice hereof
from Employer; (c) the appropriation (or attempted appropriation) of a
material business opportunity of the Employer, including attempting to secure
or securing any personal profit in connection with any transaction entered
into on behalf of the Employer; (d) the misappropriation (or attempted
misappropriation) of

5
<PAGE>

any of the Employer's funds or property; or (e) the conviction of, the
indictment for (or its procedural equivalent), or the entering of a guilty
plea or plea or no contest with respect to, a felony or the equivalent
thereof.

5.4 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 5.4, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive
may have against the Employer under this Agreement. For purposes of this
Section 5.4, the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive may designate
by notice to the Employer from time to time or, if the Executive fails to give
notice to the Employer of such a beneficiary, the Executive's estate.
Notwithstanding the preceding sentence, the Employer will have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duty authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.

(a) Termination by the Employer for Cause. If the Employer
terminates this Agreement for Cause, the Executive will be entitled to
receive his Salary or Benefits through the date such termination is effective
and the vested portion of any Incentive Compensation and any Nonincentive
Compensation.

(b) TERMINATION AND DISABILITY. If this Agreement is
terminated by either party as a result of the Executive's Disability, as
determined under Section 5.2, the Employer will pay the Executive his Salary
and Benefits through the remainder of the calendar month during which such
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until Disability insurance benefits commence
under the Disability insurance coverage, if any, furnished by the Employer to
the Executive. The Executive shall be entitled to the vested portions of his
Incentive Compensation and Nonincentive Compensation and to a pro rata
portion of his Incentive Compensation and Nonincentive Compensation for the
year during which such Disability occurs, but shall not be entitled to any
other Incentive Compensation or Nonincentive Compensation. Executive shall
be entitled to continue to participate in Employer's group health insurance
(if such participation is permitted by the insurance company providing such
insurance coverage) after Disability occurs, provided Executive reimburses
Employer for the costs of such coverage, Executive shall also be entitled to
acquire from Employer any life insurance policy in effect on Executive's life
at the date of Disability, provided Executive reimburses Employer the cash
surrender value, if any, accumulated in such life insurance policy and
assumes the obligation to make payments to maintain such insurance policy in
effect.

(c) TERMINATION UPON DEATH. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to receive
his Salary and Benefits through the end of the calendar month in which his
death occurs. The Executive shall be entitled to

6
<PAGE>

receive the vested portions of his Incentive Compensation and Nonincentive
Compensation and to a pro rata portion of his Incentive Compensation and
Nonincentive Compensation for the year during which the Executive's death
occurs, but shall not be entitled to any other Incentive Compensation or
Nonincentive Compensation for any subsequent year. Executive's family shall
be entitled to continue to participate in Employer's group health insurance
(if such participation is permitted by the insurance company providing such
insurance coverage) after Executive's occurs, provided Executive's family
reimburses Employer for the costs of such coverage.

(d) TERMINATION UPON RESIGNATION. If this Agreement is
terminated because of the voluntary resignation of the Executive hereunder,
the Executive shall be entitled to receive his Salary and Benefits through
the effective date of his termination and any vested portions of his
Incentive Compensation or Nonincentive Compensation. The Executive shall not
be entitled to any other Incentive Compensation or to any other Nonincentive
Compensation.

(e) TERMINATION BY THE EMPLOYER NOT FOR CAUSE. If the Employer
terminates this Agreement not for cause, the Executive, at the option of the
Executive, will be entitled to either: (i) receive all of the compensation
and Benefits provided by Section 3.1, and the Incentive Compensation provided
by Section 3.2 and the Nonincentive Compensation provided by Section 3.3 for the
remainder of the Employment Term, and the Executive shall be subject to the
provisions of Section 7.2 hereof, or (ii) the Executive shall be entitled to
receive all of the compensation and Benefits provided by Section 3.1 and the
vested portions of any Incentive Compensation provided by Section 3.2 and
Nonincentive Compensation provided by Section 3.3 through the end of the
calendar month in which such termination occurs, and the Executive shall not be
subject to the provisions of Section 7.2.

(f) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. The
Executive will not receive, as part of his termination pay pursuant to this
Section 5, any payment or other compensation for any holiday, sick leave, or
other leave unused on the date the notice of termination is given under this
Agreement.

(g) EXPIRATION OF EMPLOYMENT. Employer agrees to notify the
Executive not less than sixty (60) days prior to the expiration of the initial
term of this Agreement or any subsequent continuation thereof as to whether
Employer desires to extend the Employment Period of this Agreement.

5.5 This Agreement may be terminated by Executive, by written notice
to Employer, in the event of the Employer's breach of a material provision of
this Agreement, which breach is not substantially cured within thirty (30)
days after Employer's receipt of written notice thereof from Executive. If
this Agreement is terminated by Executive as a result of Employer's breach,
Executive shall not be subject to the provisions of Section 7.2 hereof.

7
<PAGE>

5.6 TERMINATION UPON CHANGE IN CONTROL. Notwithstanding any other
provision of this Agreement, the Executive's employment under this Agreement
may be terminated during the Employment Period by the Executive if a "Change
of Control" (as defined below) of the Employer occurs without the consent of
the Executive. If Executive elects to terminate his employment as a result
of a Change of Control, Executive will be entitled to receive his salary and
benefits and the vested portions of his Incentive Compensation and
Nonincentive Compensation for a period of two (2) years after the Effective
Date of such termination. For purposes of this Agreement, a "Change of
Control" of Employer shall be deemed to have occurred if, after the Effective
Date (a) any "person" (as such term is defined in Sections 1 3(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is
or becomes the "beneficial owner" (as defined in Rule ]3d-3 under the
Exchange Act), directly or indirectly, of securities of the Employer
representing 50% or more of the combined voting power of Employer's then
outstanding securities, without the prior approval of at least a majority of
the members of the Board in office immediately prior to such person obtaining
such percentage interest; (b) there occurs a proxy contest or a consent
solicitation, or Employer is a party to a merger, consolidation, sale of
assets, plan of liquidation or other reorganization not approved by at least
a majority of the members of the Board, as a consequence of which members of
the Board in office immediately prior to such transaction or event constitute
less than a majority of the Board thereafter; or (c) during any period of two
consecutive years, other than as a result of an event described in clause (b)
of this Section 5.6, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election was approved by a vote of at least a majority of the directors then
in office who were directors at the beginning of such period) cease for any
reason to constitute at least a majority of the members of the Board.

Section 6. NON-DISCLOSURE CONVENANT. EMPLOYEE INVENTIONS.

6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that during the Employment Period and as a part of his employment, the
Executive will be afforded access to Confidential Information; public
disclosure of such Confidential Information could have an adverse effect on
the Employer and its business; because the Executive possesses substantial
technical expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee Invention,
and the Employer will be at a substantial competitive disadvantage if it
fails to acquire exclusive ownership of each Employee Invention; and the
provisions of this Section 6 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exlusive ownership of all Employee Inventions.

6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:

(a) Confidentiality.

(i) During and for a period of two (2) years following
the Employment Period, the Executive will hold in confidence the Confidential
Information and will

<PAGE>

not disclose it to any person except with the specific prior written consent
of the Employer or except as otherwise expressly permitted by the terms of this
Agreement.

(ii) Any trade secrets of any Affiliate will be entitled
to all of the protections and benefits under the common law of the State of
Texas and any other applicable law. If any information that the Employer
deems to be a trade secret is found by a court of competent jurisdiction not
to be a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Executive hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret or post a bond or
other security.

(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates either (x) was known by Executive prior to the date of his
employment by the Employer, (y) was or became generally available to the
public other than as a result of a disclosure by the Executive, or (z) was
made known to Executive on a nonconfidential basis from a source other than
Employer or its representatives or agents, provided that such source is not
bound by a confidentiality agreement with, or other oblilgation of secrecy
to, Employer or another party.

(iv) The Executive will not remove from the premises of
the Employer or any Affiliate (except to the extent such removal is for
purposes of the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by the Employer or
such Affiliate) any document, record, notebook, plan, model, component,
device, or computer software or code, whether embodied in a disk or in any
other form (collectively, the "Proprietary Items"). The Executive recognizes
that, as between the Employer or any Affiliate and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer or the Affiliates. Upon termination of
this Agreement by either party, or upon the request of the Employer or any
Affiliate during the Employment Period, the Executive will return to the
Employer or the Affiliates all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive shall not
retain any copies, abstracts, sketches, or other physical embodiment of any
of the Proprietary Items.

(b) EMPLOYEE INVENTIONS. Each Executive Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writing, works of authorship, specially commissioned works, and
other Employee Inventions are works made for hire and the property of the
Employer, including any copyrights, patents, or other intellectual property
rights pertaining thereto. If it is determined than any such works are not
works made for hire, the Executive hereby assigns to the Employer all of the
Executive's right, title, and interest, including all rights of copyright,
patent, and other intellectual property tights, to or in such Employee
Inventions. The Executive covenants that he will promptly:

<PAGE>

(i) disclose to the Employer in writing any Employee
Invention,

(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional compensation,
all of the Executive's right to the Employee Invention for the United States
and all foreign jurisdictions,

(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may request in
order to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign jurisdictions;

(iv) sign all other papers necessary to carry out the above
obligations, and

(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee Invention.

6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should
a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain
all such information in secrecy, except as may be limited by them in writing,

Section 7. NON-COMPETITION AND NON-INTERFERENCE.

7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges and
agrees that the limitations set forth in this Section 7 are a necessary part
of and ancillary to the Executive's agreement not to disclose Confidential
Information, reasonable and do not impose a greater restraint on the
activities of the Executive than is necessary to protect the business
interest of the Employer, In the event that any such territorial, scope, or
time limitation are deemed to be unreasonable by a court of competent
jurisdiction, the Executive agrees to the reduction of the territorial, scope
or time limitation to the area, scope or time which such court shall have
deemed reasonable.

7.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer in the event
this Agreement is terminated pursuant to Section 5.4(a), 5.4(d) or 5.4(e)(i),
the Executive covenants that he will not, directly or indirectly:

(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period (as defined
below), engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control
of, be employed by, associated with, or in any manner connected with, lend
the Executive's name or any similar name to, lend Executive's credit to or
render services or advice to, any business whose products or activities
compete in whole

<PAGE>

or in part with the products or activities of the Employer or any Affiliate
of Employer anywhere within the geographic areas in which the Employer or any
such Affiliate now or hereafter conducts its business, provided, however,
that the Executive may purchase or otherwise acquire up to (but not more
than) one percent of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934;

(b) whether for the Executive's own account or for the account
of any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type being
carried on by the Employer or any Affiliate of Employer, from any person
known by the Executive to be a customer of the Employer or any such
Affiliate, whether or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the Employer;

(c) whether for the Executive's own account or the account of
any other person at any time during the Employment Period and the
Post-Employment Period, (i) solicit, employ, or otherwise engage as an
employee, independent contractor, or otherwise, any person who is or was an
employee of the Employer or any Affiliate of Employer at any time during the
Employment Period or in any manner induce or attempt to induce any employee
of the Employer and any such Affiliate to terminate his employment with the
Employer; or (ii) interfere with the Employer's or any Affiliate's
relationship with any person, including any person who at any time during the
Employment Period was an employee, contractor, supplier, or customer of the
Employer or any such Affiliate; or

(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers, employees, or
agents.

For purposes of this Section 7.2, the term "POST-EMPLOYMENT PERIOD"
means the two-year period beginning on the date of termination of the
Executive's employment with the Employer.

If any covenant in this Section 7.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.

The Executive will, while the covenant under this Section 7.2 is in
effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's new employer. The
Employer may notify such new employer that the Executive is bound by this
Agreement.

Notwithstanding the foregoing to the contrary, the Executive will not
be subject to any covenant under this Section 7.2 in the event:

<PAGE>

(i) the term of the Executive's employment under this Agreement
is not renewed pursuant to Section 2.2; or

(ii) Employer voluntarily files a bankruptcy or insolvency
proceeding (or an involuntary bankruptcy or insolvency proceeding is filed
against Employer, which proceeding has not been dismissed within ninety (90)
days from the filing thereof).

Section 8. GENERAL PROVISIONS.

8.1 The Executive acknowledges that the injury that would be
suffered by the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 6 and 7) would be irreparable
and that an award of monetary damages to the Employer for such a breach would
be an inadequate remedy. Consequently, the Employer will have the right, in
addition to any other rights it may have, to obtain injunctive relief to
restrain any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement, and the Employer will not be obligated to post
bond or other security in seeking such relief Any such remedy shall be in
addition to any damages which the Employer may be legally entitled to recover
as a result of any breach by the Employee of any provision of this Agreement.
The Employer may pursue any of the remedies described in this Section 8
concurrently or consecutively and in any order as to such breach or
violation, and the pursuit of any one of such remedies at any time will not
be deemed an election of remedies or a waiver of the right to pursue any
other available remedy.

8.2 ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the
Executive in Sections 6 and 7 are essential elements of this Agreement
supported by the payment of $10.00 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by Executive,
and without the Executive's agreement to comply with such covenants, the
Employer would not have entered into this Agreement or employed or continued
the employment of the Executive. The Employer and the Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.

8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive
represents and warrants to the Employer that the execution and delivery by
the Executive of this Agreement do not, and the performance by the Executive
of the Executive's obligations hereunder will not, with or without the giving of
notice or the passage of time, or both: violate any judgment, writ, injunction,
or order of any court, arbitrator, or governmental agency applicable to the
Executive; or conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound. The
Executive further represents and warrants to the Employer that no agreements or
understandings, whether written or oral, are currently in force and effect
between the Executive and the Employer, or any other Person concerning the
subject matter of this Agreement.

8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of the
Executive's obligations hereunder.

<PAGE>

8.5 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such tight, power, or privilege or
the exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, no claim or right arising out of this Agreement
can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
party; no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.

8.6 NOTICES. All notices pertaining to this Agreement must be in
writing, must be sent to the addressee at the address set forth in this
Section, or at such other address as the addressee has designated by a notice
given in the manner set forth in this Section, and must be sent by telegram,
telex, facsimile, electronic mail, courier, or prepaid, certified U.S. Mail.
Notices will be deemed given when received, if sent by telegram, telex,
electronic mail or facsimile and if received between the hours of 8:00 a.m.
and 5:00 p.m., local time of the destination address, on a business day (with
confirmation of completed transmission sufficing as prima facie evidence of
receipt of a notice sent by telex, telecopy, electronic mail, or facsimile),
and when delivered and receipted for (or when attempted delivery is refused
at the address where sent) if sent by courier or by certified U.S. Mail.
Notices sent by telegram, telex, electronic mail, or facsimile and received
between 12:01 a.m. and 7:59 a.m., local time of the destination address, on a
business day will be deemed given at 8:00 a.m., on that same day. Notices
sent by telegram, telex, electronic mail, or facsimile and received at a time
other than between the hours of 12:01 a.m. and 5:00 p.m., local time of the
destination address, on a business day will be deemed given at 8:00 a.m. on
the next following business day after the day of receipt. The addresses for
notice are as follows:

If to Employer: CyNet, Inc.
12777 Jones Road, Suite 400 Houston, Texas 77070
Attention- General Counsel Facsimile No.: (281) 894-7952

With a copy to: Chamberlain, Hrdlicka, White, Williams & Martin
1200 Smith Street, Suite 1400 Houston, Texas 77002
Attention: Mr. James J. Spring, III
Facsimile No.: (713) 658-2553

and

If to the Executive: R. Greg Smith
6507 Pebble Beach
Houston, Texas 77069

8.7 BINDING EFFECT DELEGATION OF DUTIES PROHIBITED. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto
and their respective successors, assigns,

13
<PAGE>

heirs, and legal representatives, including any entity with which the
Employer may merge or consolidate or to which all or substantially all of its
assets may be transferred. The duties and covenants of the Executive under
this Agreement, being personal, may not be delegated.

8.8 INTERPRETATION. Whenever possible, each provision of this
Agreement shall be determination that any interpreted in such manner as to
be effective and valid under applicable law. A provision of this Agreement is
unenforceable or invalid shall not affect the enforceability or validity of
any other provision.

8.9 HEADINGS. The section headings appearing in this Agreement have
been inserted for convenience only and shall be given no substantive meaning
or significance whatever in construing the terms and provisions of this
Agreement.

8.10 ENTIRE AGREEMENT. This Agreement constitutes the final and
entire agreement and understanding between the parties to this Agreement
concerning the subject matter of this Agreement, and this Agreement
supersedes and replaces all prior agreements and understandings, whether
written or oral, between such parties concerning the subject matter of this
Agreement. No alleged representation, warranty, promise, inducement, or
statement of intention not expressly set forth in this Agreement is binding
on any party to this Agreement.

8.11 ACKNOWLEDGMENT AND RELEASE BY THE EXECUTIVE. By his execution of
this Agreement, the Executive acknowledges that this Agreement supersedes and
replaces all other agreements and understandings, whether written or oral,
between the Executive and any other Person concerning the subject matter of
this Agreement. In consideration for the rights and obligations arising
under this Agreement, the Executive hereby voluntarily, knowingly, fully,
finally, completely, and forever releases, relinquishes, and forever
discharges the Employer and its Affiliates, their officers, directors,
employees, and agents, from any and all claims, actions, demands, and causes
of action of whatever kind or character, whether known or unknown, joint or
several, which the Executive might have or might claim to have against the
Employer for any and all injuries, harm, damages, penalties, costs, losses,
expenses, attorneys' fees, liabilities, or other detriments, if any,
whatsoever and whenever incurred, suffered, or claimed by the Executive
arising from any prior agreement or understanding, whether written or oral,
between the Executive and the Employer, or any other Person concerning the
subject matter of this Agreement.

8.12 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.

8.13 JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Texas,
County of Harris, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Texas, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue
laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on either party anywhere in the world.

<PAGE>

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

EMPLOYER:

CYNET, INC.

By:
--------------------------------
Vincent W. Beale, Sr., President

EXECUTIVE:

-----------------------------------
R. Greg Smith

<PAGE>

FIRST AMENDMENT
TO
SUBSCRIPTION AGREEMENT

This First Amendment to Purchase and Sale Agreement ("First Amendment") is
made as July 31, 1999, by and between CyNet, Inc., a Texas corporation (the
"Company") and Cynet Holdings, LLC, a Texas limited liability company
("Subscriber").

WHEREAS, the undersigned parties have entered into that certain
Subscription Agreement dated as of July 22, 1998 (the "Subscription Agreement"),
providing, among other things, for the Subscriber's agreement to provide the
Company up to $10,000,000 of equity capital in exchange for shares of the
Company's Class A Common Stock; and

WHEREAS, the parties desire to amend the Subscription Agreement as set
forth below.

NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

1. Extension of Deadline for Installments. Section 1(a) is amended to provide
that the date on which all outstanding installments for the subscription
for the Shares are due and payable is December 31, 1999, in lieu of
December 31, 1998.

2. Issuance of Class B Common Stock. Section 1 is further amended by adding
the following new subsection (d), which reads as follows:

"(d) In the event the Company determines that there is an
insufficient number of shares of Class A Common Stock for issuance
under this Agreement, the Company shall issue shares of its Class B
Common Stock, no par value per share (the "Class B Common Stock") in
lieu of Class A Common Stock. As used herein, the terms "Shares" and
"Securities" as used throughout this Agreement are deemed to include
all shares of Class B Common Stock acquired by Subscriber pursuant
to this Section 1(d)."

3. Miscellaneous.

(a) This First Amendment is irrevocable, and may not be amended,
modified or supplemented except by written instrument executed by
the parties hereto.

(b) This First Amendment shall inure to the benefit of the parties
hereto, their respective successors and assigns.

(d) Any capitalized term not otherwise defined herein shall have the
meaning given to it in the Subscription Agreement.

<PAGE>

(e) Except as expressly amended by this Amendment, the terms, provisions
and conditions of the Subscription Agreement are unchanged, and the
Subscription Agreement, as so amended, shall remain in full force
and effect and is hereby confirmed and ratified.

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed effective as of the date first above written.

SUBSCRIBER:

CYNET HOLDINGS, LLC

By: /s/ Vincent C. Beale, Sr.
-----------------------------------
Vincent C. Beale, Sr., President

THE COMPANY:

CYNET, INC.

By: /s/ Samuel C. Beale
--------------------------------------
Samuel C. Beale, Vice President
and General Counsel
- -

-2-

<PAGE>

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this "Agreement") is made and entered
into this 31st day of July 1999 by and between Cynet Holdings, LLC., a Texas
limited liability company ("Seller") and CyNet, Inc., a Texas corporation
("Purchaser").

Introduction

Seller is the record and beneficial owner of 1,000 fully paid and
nonassessable membership units (the "Membership Units") of Cynet Interactive,
LLC., a Texas limited liability company (the "Company"), representing 100% of
the outstanding membership interests of the Company.

Article 1.
Purchase and Sale of Membership Units

1.1 Purchase and Sale. On the terms and conditions set forth in this
Agreement, and based on the covenants, warranties and representations of
Purchaser set forth herein, Seller hereby agrees to sell, assign, transfer and
deliver to Purchaser on the Closing Date, as herein defined, free and clear of
all liens and encumbrances, and Purchaser, on the terms and conditions set forth
herein and based on the covenants, warranties and representations of Seller set
forth herein, hereby agrees to purchase from Seller on the Closing Date, the
Membership Units.

1.2 Consideration for Sale. In full consideration and payment for the
sale, assignment, transfer and delivery of the Membership Units to Purchaser,
Purchaser shall forgive, release, acquit and forever discharge the Company and
Seller from any and all liabilities with respect to that certain $118,936
account receivable due Purchaser as of the date hereof as provided in Section
5.3 hereof.

Article 2.
Closing and Deliveries

2.1 Closing and Closing Date. The Closing of the sale and purchase of the
Membership Units (the "Closing") contemplated by this Agreement is occurring
simultaneous with the execution of this Agreement (the date of the Closing being
herein referred to as the "Closing Date"). By their execution hereof, the
parties acknowledge and agree that they have received all of the deliveries
required by Section 2.3.

2.2 Effective Date. The effective date of the conveyances contemplated
hereby (the "Effective Date") for all purposes under this Agreement shall be
July 31, 1999, regardless of the Closing Date.

2.3 Deliveries at the Closing. At the Closing on the Closing Date, the
following deliveries shall be made:

(a) Seller will deliver to Purchaser certificate(s) representing the
Membership Units, duly endorsed in blank by Seller or accompanied by a
duly executed stock power(s)

<PAGE>

in blank, in proper form for valid transfer to Purchaser in a manner
satisfactory to legal counsel for Purchaser.

(b) Seller and Purchaser will deliver any other certificates or
documents required by this Agreement or reasonably requested by the other
parties.

Article 3.
Representations and Warranties of Seller

Seller makes the following representations and warranties to Purchaser and
to the Company as of the date hereof:

3.1 Ownership of Membership Units. Seller is the record and beneficial
owner of the Membership Units. The Membership Units owned by Seller are duly
authorized, fully-paid and nonassessable, and validly issued and outstanding.
Seller owns and holds, and will on the Closing Date own, hold and transfer to
Purchaser, good and valid title to the Membership Units, free and clear of all
liens, encumbrances, pledges, options, proxies, voting trusts, voting
agreements, charges and assessments of any kind whatsoever. Seller has full
right and power to sell, assign, exchange, transfer and deliver the Membership
Units owned by Seller to Purchaser, as provided in this Agreement.

3.2 Due Organization and Good Standing of the Company. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Texas, and the Company has all necessary
corporate power and authority to own and operate its properties and conduct the
business in which it is now engaged. The Company is qualified to do business and
in good standing as a foreign corporation in each jurisdiction in which the
properties owned or leased, or the nature of the business conducted by the
Company, makes such qualification necessary, except where the failure to so
qualify does not and will not have a material adverse effect on the Company or
its business or operations.

3.3 Authorization, Capacity and Enforceability. Seller has all requisite
power, authority and capacity to enter into this Agreement. This Agreement has
been duly executed and delivered by Seller and constitutes a valid and binding
obligation of Seller enforceable in accordance with its terms, except as such
enforcement is subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or other law relating to or affecting creditors' rights.

3.4 Capitalization. The Membership Units are owned by Seller, represent
100% of the outstanding membership interests of the Company and are fully-paid
and nonassessable. There are no existing options, warrants, convertible
securities or similar rights granted by the Company or Seller, or any
commitments or agreements of any character to which the Company or Seller are a
party, relating to the authorized or issued membership interests of the Company.

3.5 Defaults or Other Violations. To the best of Seller' knowledge, the
Company is not, and Seller by the performance of this Agreement will not be and
will not cause the Company to be, in breach of any term or provision of or in
default under any outstanding debt, indenture, mortgage, material contract or
agreement to which the Company or Seller is a party, or to which any of them may
be subject, or under any provision of the Company's Articles of Organization or
Regulations

<PAGE>

which could have a materially adverse impact on the Company; and to the best of
Seller's knowledge, no event has occurred which with the lapse of time or action
by a third party could result in such breach or default.

3.6 Litigation. There are no actions, suits, claims, investigations or
proceedings, pending or, to the knowledge of Seller, threatened, against the
Company at law or in equity, or before any federal, state, municipal or other
governmental agency, domestic or foreign, which actions, suits, claims or
proceedings would materially adversely affect or may materially adversely affect
the business or financial condition of the Company or its right or ability to
carry on its business substantially as now conducted. The Company is not in
default with respect to any order or decree of any court or of any governmental
agency or instrumentality.

3.7 Ownership and Sufficiency of Assets. The Company owns all of the
properties and assets that it purports to own or reflected as owned in the books
and records of the Company, including all of the properties and assets described
on Schedule I of this Agreement, free and clear of all liens or encumbrances of
any kind. The properties and assets of the Company are in good operating
condition and repair, and are adequate for the uses to which they are being put,
and are sufficient for the continued conduct of the Company's business after the
Effective Date in substantially the same manner as conducted prior to the
Closing Date.

3.8 Taxes. All United States, foreign, state, county, local and other
taxes, including without limitation income taxes, corporate franchise taxes,
state sales taxes, and ad valorem taxes, due and payable by the Company on or
before the Effective Date have been paid or will be paid by Seller, and the
Company has filed all tax returns and reports required to be filed by it with
such taxing authorities. The Company has no outstanding or unsatisfied
deficiency assessments with respect to taxes.

3.9 No Undisclosed Liabilities. The Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected in the Company's books and records, all of which have been delivered
to Purchaser at or prior to the Closing.

3.10 Compliance with Laws and Regulations. The Company has complied in all
material respects with all laws, rules, regulations and orders applicable to its
business, including but not limited to laws, rules, regulations and orders
relating to hiring, wages, hours, employee benefit plans and programs and the
payment of withholding and social security taxes.

3.11 Permits, Consents. Seller has received all permits, authorizations,
regulatory approvals and third party consents necessary for the consummation of
the conveyances contemplated hereby.

3.12 Finder's Fee. All negotiations relative to this Agreement and
transactions contemplated thereby have been carried on by Seller directly with
Purchaser, without the intervention of any other person in such manner as to
give rise to any valid claim against any of the parties hereto for a brokerage
commission, finders fee or similar payment.

<PAGE>

3.13 Consents. No consent from, other approval of, or filing with any
governmental entity or any other person is necessary in connection with the
execution, delivery or performance of this Agreement, and all other agreements
or documents contemplated herein, by Seller.

Article 4.
Representations and Warranties of Purchaser

Purchaser makes the following representations and warranties to Seller as
of the date hereof:

4.1 Authorization, Capacity and Enforceability. Purchaser has all
requisite power, authority and capacity to enter into this Agreement. This
Agreement has been duly executed and delivered by Purchaser and constitutes a
valid and binding obligation of Purchaser enforceable in accordance with its
terms, except as such enforcement is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, or other law relating to or affecting
creditors' rights.

4.2 Due Organization and Good Standing of Purchaser. Purchaser is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Texas, and the Company has all necessary corporate power
and authority to own and operate its properties and conduct the business in
which it is now engaged. The Company is qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the properties
owned or leased, or the nature of the business conducted by the Company, makes
such qualification necessary, except where the failure to so qualify does not
and will not have a material adverse effect on the Company or its business or
operations.

4.3 Authorization, Capacity and Enforceability. Purchaser has all
requisite power, authority and capacity to enter into this Agreement. This
Agreement has been duly executed and delivered by Purchaser and constitutes a
valid and binding obligation of Purchaser enforceable in accordance with its
terms, except as such enforcement is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, or other law relating to or affecting
creditors' rights.

4.4 No Actions, Etc. There is no action, suit, proceeding or claim pending
or threatened against Purchaser wherein an unfavorable decision, ruling or
finding would render invalid or otherwise adversely effect the consummation of
the transactions contemplated by this Agreement.

4.5 Consents. No consent from, other approval of, or filing with any
governmental entity or any other person is necessary in connection with the
execution, delivery or performance of this Agreement, and all other agreements
or documents contemplated herein, by Purchaser.

4.6 Finder's Fee. All negotiations relative to this Agreement and
transactions contemplated thereby have been carried on by Purchaser directly
with Seller, without the intervention of any other person in such manner as to
give rise to any valid claim against any of the parties hereto for a brokerage
commission, finders fee or similar payment.

<PAGE>

4.7 Restricted Securities.

(a) Purchaser is acquiring the Membership Units for investment and
not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act. Purchaser will refrain from
transferring or otherwise disposing of any of the Membership Units, or any
interest therein, in such manner as to cause Seller to be in violation of
the registration requirements of the Securities Act or applicable state
securities or "blue sky" laws. Purchaser has such knowledge and experience
in financial and business matters that it is capable of evaluating the
merits and risks of acquiring and owning the Membership Units. Purchaser
is, as of the date hereof, an "accredited investor" as defined in Rule 501
of Regulation D promulgated pursuant to the Securities Act and will be an
accredited investor as of the Closing Date.

(b) Purchaser has received copies of the Company's books and records
covering the period from the Company's inception through the Closing Date
as delivered by Seller.

Article 5.
Additional Covenants

5.1 Further Actions. Seller agrees to execute any reasonably requested
consent actions attributable meetings of the members of the Company in order to
update and make complete the minute book of the Company for meetings of the
members held during the period of time that Seller was a member of the Company.

5.2 Seller Release of Claims. Effective as of the Closing Date, Seller
does hereby (i) release, acquit and forever discharge the Company from any and
all liabilities, obligations, indebtedness, claims, demands, actions or causes
of action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to Closing Date, including, without
limitation, any claim for indemnity or contribution from the Company in
connection with the obligations or liabilities of the Seller hereunder; (ii)
waives all breaches, defaults or violations of each agreement, if any,
applicable to the Membership Units and agrees that any and all such agreements
are terminated as of the Closing Date and (iii) waives any and all preemptive or
other rights to acquire any membership interests of the Company and releases any
and all claims arising in connection with any prior default, violation or
failure to comply with or satisfy any such preemptive or other rights.

5.3 Purchaser Release of Account Receivable. Effective as of the Closing
Date, Purchaser does hereby release, acquit and forever discharge Seller from
any and all liabilities, obligations, indebtedness, claims, demands, actions or
causes of action arising from or relating to that certain $118,936 account
receivable due Purchaser as of the date hereof.

<PAGE>

Article 6.
Indemnification

6.1 Indemnification by Seller. Seller shall indemnify, defend and hold
Purchaser and the Company harmless from and against any and all losses,
liabilities, damages, obligations, costs and expenses (including without
limitation legal and other similar expenses) (collectively, "Damages") from,
resulting by reason of or arising in connection with any inaccuracy in or breach
or nonperformance of the agreements, covenants, representations or warranties
made or to be performed by Seller pursuant to this Agreement.

6.2 Indemnification by Purchaser. Purchaser shall indemnify, defend and
hold Seller harmless from and against any and all Damages from, resulting by
reason of or arising in connection with any inaccuracy, breach or nonperformance
of the agreements, covenants, representations or warranties made or to be
performed by Purchaser pursuant to this Agreement.

6.3 Notice and Resolution of Claim. An indemnified party hereunder shall
promptly give notice to the indemnifying party after obtaining knowledge of any
claim against the indemnified party as to which recovery may be sought against
the indemnifying party because of the indemnity set forth above, and, if such
indemnity shall arise from the claim of a third party, shall permit the
indemnifying party to assume the defense of any such claim or any litigation
resulting from such claim. Failure by the indemnifying party to notify the
indemnified party of its election to defend any such claim or action by a third
party within thirty (30) days after notice thereof shall have been given to the
indemnifying party shall be deemed a waiver by the indemnifying party of its
right to defend such claim or action. If the indemnifying party assumes the
defense of such claim or litigation resulting therefrom, the obligations of the
indemnifying party hereunder as to such claim shall include taking all
reasonable steps necessary in the defense or settlement of such claim or
litigation resulting therefrom and defending and holding the indemnified party
harmless from and against any and all losses, damages and liabilities caused by
or arising out of any settlement approved by the indemnifying party or any
judgment in connection with such claim or litigation resulting therefrom. The
indemnifying party shall not, in the defense of such claim or any litigation
resulting therefrom, consent to the entry of any judgment (except with the
written consent of the indemnified party), or enter into any settlement (except
with the written consent of the indemnified party), which does not include, as
to the indemnified party and as an unconditional term thereof, a release by the
third party from any and all liability in respect of such claim or litigation.
The indemnified party will cooperate reasonably in the defense of the action or
claim.

6.4 Defense of Third Party Claim. If the indemnifying party does not
assume the defense of any claim by a third party or litigation resulting
therefrom, the indemnified party may, but shall have no obligation to, defend
against such claim or litigation in any matter that it may deem appropriate and,
unless the indemnifying party shall deposit with the indemnified party a sum
equivalent to the total amount demanded in such claim or litigation plus the
indemnified party's estimate of the cost of defending the same, the indemnified
party may settle such claim or litigation on such terms as it may deem
appropriate and the indemnifying party shall promptly reimburse the indemnified
party for the amount of such settlement and for all losses or expenses, legal or
otherwise, incurred by the indemnified party in connection with the defense
against or settlement of such claim or litigation.

<PAGE>

6.5 Payment. The indemnifying party shall promptly reimburse the
indemnified party for the amount of any judgment rendered with respect to any
claim by a third party in such litigation and for all reasonable expenses
incurred directly by the indemnified party in connection with the defense
against such claim or litigation, and for any other loss suffered or incurred
with respect to the falsity or the breach of any representation, warranty,
covenant or agreement (whether or not arising out of the claim of a third
party).

Article 7.
Miscellaneous

7.1 Further Assurances. The parties hereto shall execute and deliver all
other appropriate supplemental agreements and other instruments, and take any
other action necessary, to make this Agreement fully and legally effective,
binding and enforceable as between them and as against third parties.

7.2 Notices. All notices or requests or consents provided for or permitted
to be given pursuant to this Agreement must be in writing and may be given by
depositing same in the United States mail, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, or by delivering such notice in person to such party (with signed
receipt of such obtained). Notices given or served pursuant hereto shall be
effective three (3) business days after such deposit or upon receipt by the
party to be notified, whichever is earlier. All notices to be sent to the
parties hereto shall be sent to or made at the addresses specified for the
parties set forth opposite their names below. Each party may change its address
for notice by the giving of notice thereof to the other party in the manner
hereinabove stated.

7.3 Amendment. This Agreement may be amended, modified or supplemented
only by the written agreement of the parties hereto.

7.4 Binding Effect. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns.

7.5 Headings. The headings in this Agreement are inserted for convenience
and identification only and are not intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof.

7.6 Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof.

7.7 Governing Law. The validity of this Agreement and any of its terms and
provisions, as well as the rights and duties of the parties hereunder, shall be
governed by the laws of the State of Texas (without regard to its conflicts of
law doctrines) and the venue for any action to enforce or interpret this
Agreement shall be in a court of competent jurisdiction located in Harris
County, Texas.

<PAGE>

7.8 Severability and Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term hereof, such provision shall be fully
severable; and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provisions there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable
and that shall not be more restrictive than the one severed herefrom.

7.9 Survival of Representations and Warranties. All statements contained
in any certificate, instrument, or other document delivered by any party
pursuant to the provisions hereof shall be deemed representations and warranties
by such party and the parties agree that all of their respective representations
and warranties contained herein or in any certificate, instrument or other
document shall survive the consummation of the transactions contemplated hereby
and shall survive any investigation made by the parties with respect thereto.

7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

[Remainder of page intentionally left blank.]

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above-written.

SELLER:

CYNET HOLDINGS, LLC

By: /s/ Vincent W. Beale, Sr.
----------------------------------
Vincent W. Beale, Sr., President

Address for Purposes of Notice:

12777 Jones Road, Suite 375
Houston, Texas 77070

PURCHASER:

CYNET, INC.

By: /s/ Wayne Schroeder
----------------------------------
Wayne Schroeder, Director

Address for Purposes of Notice:

12777 Jones Road, Suite 400
Houston, Texas 77070

<PAGE>

SCHEDULE I

List of Assets

<PAGE>

SUBSIDIARIES OF THE REGISTRANT

Subsidiary State of Organization
---------- ---------------------
Worldwide Marketing Services, Inc. Texas
Cynet Interactive, LLC Texas

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

CyNet, Inc.
Houston, Texas

We hereby consent to the use in the Prospectus constituting a
part of this Registration Statement of our report dated April 23, 1999,
except for footnote 15, which is as of August 6, 1999, relating to the
consolidated financial statements of CyNet, Inc., which is contained in that
Prospectus. Our report contains an explanatory paragraph regarding the
Company's ability to continue as a going concern.

We also consent to the reference to us under the caption "Experts"
in the Prospectus.

BDO Seidman, LLP

Houston, Texas
August 12, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1997 MAR-31-1999 MAR-31-1998
<CASH> 55,007 0 519,457 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 562,137 0 628,910 0
<ALLOWANCES> 99,104 0 120,085 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 2,650,708 0 2,328,845 0
<PP&E> 3,690,091 0 3,670,817 0
<DEPRECIATION> 1,061,634 0 1,341,972 0
<TOTAL-ASSETS> 5,297,713 0 5,507,640 0
<CURRENT-LIABILITIES> 3,535,776 0 3,384,121 0
<BONDS> 13,980,009 0 13,980,009 0
0 0 0 0
0 0 0 0
<COMMON> 4,816,703 0 5,926,703 0
<OTHER-SE> (16,717,008) 0 (17,465,426) 0
<TOTAL-LIABILITY-AND-EQUITY> 5,297,132 0 5,507,640 0
<SALES> 8,947,732 4,960,355 2,153,832 1,926,892
<TOTAL-REVENUES> 8,947,732 4,960,355 2,153,832 1,926,892
<CGS> 6,069,184 4,490,505 1,166,656 1,493,004
<TOTAL-COSTS> 6,759,583 8,183,082 1,616,817 1,232,190
<OTHER-EXPENSES> 22,427 (58,821) 38,258 (2,360)
<LOSS-PROVISION> 349,327 245,638 29,579 21,201
<INTEREST-EXPENSE> 103,851 2,000 38,064 0
<INCOME-PRETAX> (4,356,640) (7,762,863) (735,542) (817,143)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (4,356,640) (7,762,863) (735,542) (817,413)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4,356,640) (7,762,863) (735,542) (817,413)
<EPS-BASIC> (.19) (.60) (.03) (.04)
<EPS-DILUTED> (.19) (.60) (.03) (.04)

</TABLE>