PAPNET OF OHIO INC, S-4/A, 1996-11-04

PAPNET OF OHIO INC
S-4/A, 1996-11-04
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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<PAGE>

As filed with the Securities and Exchange Commission on November 4, 1996

Registration No. 333-8199
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

PRE-EFFECTIVE
AMENDMENT NO. 3

TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

PAPNET OF OHIO, INC.
(Exact name of Registrant as specified in its charter)

Ohio 5047 31-1282391
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
-------------------------

425 Metro Place North, Ste. 140
Dublin, Ohio 43017
(614) 793-9356
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

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

David J. Richards
President
Papnet of Ohio, Inc.
425 Metro Place North, Ste. 140
Dublin, Ohio 43017
(614) 793-9356
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

Copies of Correspondence to:
William J. Kelly, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
(614)227-2136

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

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

If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]

CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered Per Share* Price* Fee*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, without par value.......... 4,850,033 $1.03 $5,013,750 $1,729.00
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

* Estimated solely for the purpose of calculating the registration fee based
on the book value of the securities to be acquired by the Registrant,
pursuant to Regulation 457 (f) (2) of the Securities Act of 1933, as
amended. The stockholders equity of ER Group, Inc. being $2,131,911, the
combined stockholders equity of Carolina Cytology, Inc. and CCWP Partners,
Inc. being $1,895,790, the stockholders equity of Indiana Cytology Review
Company being $330,693 and the stockholders equity of Cytology Indiana,
Inc. being $655,356.

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>
CROSS REFERENCE SHEET

Form S-4 Item Prospectus Caption
------------- ------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus. . . . . . . . . . . . . Facing Page of Registration Statement; Cross Reference Sheet;
Cover Page of Prospectus.

2. Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . . . . . Available Information; Table of Contents.

3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information . . . . . . . . . . . . . Introduction; Summary; Risk Factors.

4. Terms of the Transaction. . . . . . . . . . . . . . . . The Merger; The Company; Reasons for the Merger;
Recommendation of the Boards of Directors of the Company and
the Predecessor Companies; Comparison of Certain Rights of the
Company and the Predecessor Companies.

5. Pro Forma Financial Information . . . . . . . . . . . . Summary; Unaudited Pro Forma Condensed Combined Financial
Information; Notes to Unaudited Pro Forma Condensed Combined
Financial Information.

6. Material Contracts with the Company Being
Acquired . . . . . . . . . . . . . . . . . . . . . . . The Merger; Certain Related Transactions.

7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters. . . . . . . . . . . . . . . . . . . Not Applicable.

8. Interests of Named Experts and Counsel. . . . . . . . . Not Applicable.

9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . . . . . Not Applicable.

10. Information with Respect to S-3 Registrants . . . . . . Not Applicable.

11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . . . . Not applicable.

12. Information with Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . . . . . . . . . Not Applicable.

13. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . . . . Not Applicable.

14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants . . . . . . . . . . . Summary; The Merger ; The Company; Financial Statements of
the Company.

<PAGE>

Form S-4 Item Prospectus Caption
------------- ------------------
<S> <C>

15. Information with Respect to S-3 Companies . . . . . . . Not Applicable.

16. Information with Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . . . . . . . . . Not Applicable.

17. Information with Respect to Companies
Other than S-3 or S-2 Companies . . . . . . . . . . . . Summary; The Predecessor Companies; The Merger .

18. Information if Proxies, Consents or
Authorizations are to be Solicited. . . . . . . . . . . Introduction; Summary; The Merger; Certain Related
Transactions; Executive Officers and Directors; Executive
Compensation .

19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer. . . . . . . . . . . . . . . . . . Not Applicable.

</TABLE>
<PAGE>

PAPNET OF OHIO, INC.
425 Metro Place North, Ste 140
Dublin, Ohio 43017

, 1996

Dear Shareholders:

You are cordially invited to attend the Special Meeting of Shareholders
(the "Papnet Special Meeting") of Papnet of Ohio, Inc. ("Papnet"), which will be
held on , September , 1996, at , local time. The Papnet
Special Meeting will be held at .

At the Papnet Special Meeting, shareholders of Papnet will be asked to
consider and vote on the Agreement and Plan of Merger, dated as of July 5, 1996
(the "Merger Agreement"). Under the terms of the Merger Agreement, Cytology
Indiana, Inc. ("CIN"), Indiana Cytology Review Company ("INC"), ER Group, Inc.
("ERG"), CCWP Partners, Inc. ("CCWP") and Carolina Cytology, Inc. ("CCI")
(individually a "Predecessor Company" and collectively "Predecessor Companies")
will be merged with and into Papnet (the "Merger"). In the Merger, the
shareholders of the Predecessor Companies will receive whole shares of Papnet
common stock in exchange for each share of Predecessor Company common stock
held by them. The actual number of shares of Papnet stock to be exchanged is
based on a ratio of one Predecessor Company share for the following number of
shares of Papnet common stock: CIN (1,121.6652); INC (4,491.7064); ERG
(3,237.2643); CCWP (37.3971); and CCI (1,487.6186). As a result of the Merger,
the shareholders of each of the Predecessor Companies will own, in the
aggregate, the following percentage of the issued and outstanding stock of
Papnet: CIN (7.70%); INC (4.11%); ERG (17.13%); CCWP (3.13%); and CCI (12.32%).

Each of the Predecessor Companies, except CCWP, was organized to acquire
and exercise the right to market the PAPNET-Registered Trademark- SYSTEM and
PAPNET-Registered Trademark- SERVICE within their respective licensed
territories. However, until November 8, 1995, when the United States Food and
Drug Administration finally approved the marketing of the PAPNET-Registered
Trademark- technology, the technology could be used in the United States only
for investigational purposes in connection with the FDA approval process.
Consequently, the Predecessor Companies had only minor business activities prior
to November, 1995, and had no employees.

Additional information regarding the Merger; interests of directors and
officers of Papnet and the Predecessor Companies in the Merger; advantages and
disadvantages associated with the Merger; and material risks associated with the
Merger is set forth in the attached Prospectus, which also serves as the Proxy
Statement for the shareholder meeting. Please read these materials and
carefully consider the information contained in them.

In addition to the vote on the Merger Agreement, the shareholders of Papnet
will be asked to consider and vote on the Amended and Restated Articles of
Incorporation and the Amended and Restated Regulations of Papnet. The proposed
form of the Amended and Restated Articles of Incorporation and the Amended and
Restated Regulations are provided in the Proxy Statement attached hereto. The
consummation of the Merger is conditioned upon shareholder approval of the
Amended and Restated Articles of Incorporation and the Amended and Restated
Regulations. Also at the Special Meeting, you will be asked to consider and
take action upon the election of seven (7) directors, to be divided into two
classes as provided in the Prospectus. Those directors in Class I will hold
office until the next annual meeting of shareholders and until their successors
are duly elected and qualified. Those directors in Class II will hold office
until the second annual meeting of shareholders held after their election and
until their successors are duly elected and qualified. The nomination and
subsequent possible election of two of the nominees, Mr. Kinsey and Mr. Blue,
are conditioned upon the approval of the Merger. If the Merger is not approved,
then Mr. Kinsey and Mr. Blue will not serve as directors and there will be only
one class of directors.

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AS BEING IN THE
BEST INTEREST OF PAPNET SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER. IN CONNECTION WITH THE
APPROVAL OF THE MERGER, THE BOARD OF DIRECTORS OF PAPNET HAS UNANIMOUSLY
APPROVED THE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND THE AMENDED AND
RESTATED REGULATIONS AND RECOMMENDS THAT YOU VOTE IN FAVOR OF BOTH THE AMENDED
AND RESTATED ARTICLES OF INCORPORATION AND THE AMENDED AND
<PAGE>
RESTATED REGULATIONS. THE BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU VOTE IN
FAVOR OF EACH PERSON NOMINATED TO SERVE ON THE BOARD OF DIRECTORS.

The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Papnet Common Stock is required to approve the Merger and
the Amended and Restated Articles of Incorporation and Amended and Restated
Regulations. The approval of the Merger is conditioned on the approval of the
Amended and Restated Articles of Incorporation and the Amended and Restated
Regulations. The affirmative vote of the holders of a majority of the
outstanding shares of Papnet Common Stock is required to elect a director.
Accordingly, your vote is important no matter how large or how small your
holdings may be. Whether or not you plan to attend the Papnet Special Meeting,
you are urged to complete, sign, and promptly return the enclosed proxy card to
assure that your shares will be voted at the Papnet Special Meeting. If you
attend the Papnet Special Meeting, you may vote in person if you wish and your
proxy will not be used.

Very truly yours,

David J. Richards
PRESIDENT
<PAGE>

PAPNET OF OHIO, INC.
425 Metro Place North, Ste 140
Dublin, Ohio 43017

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1996

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

Notice is hereby given that a Special Meeting of Shareholders (the
"Papnet Special Meeting") of Papnet of Ohio, Inc. ("Papnet") has been called by
the Board of Directors and will be held at , on ,
, 1996, at ., local time, for the following purposes:

1. To consider and vote upon the approval of a certain Agreement and Plan
of Merger, dated as of July 5, 1996 (the "Merger Agreement"), and the
consummation of the merger contemplated therein. Pursuant to the
Merger Agreement, Cytology Indiana, Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP Partners, Inc. and Carolina Cytology,
Inc. (collectively the "Predecessor Companies"), will be merged with
and into Papnet, and the shareholders of the Predecessor Companies
will receive whole shares of Papnet common stock in exchange for their
shares of Predecessor Company common stock, as more fully described
in the accompanying Prospectus, which also serves as the Proxy
Statement for the Papnet Special Meeting.

2. To consider and vote upon the approval of the Amended and Restated
Articles of Incorporation of Papnet. The form of the Amended and
Restated Articles of Incorporation can be found in the Prospectus.
Because the Amended and Restated Articles of Incorporation provide for
the elimination of cumulative voting, the effect will be:

(i) TO PERMIT A MAJORITY OF A QUORUM OF THE VOTING POWER IN THE
ELECTION OR REMOVAL OF DIRECTORS TO ELECT OR REMOVE EVERY DIRECTOR;

(ii) TO PRECLUDE A MINORITY OF A QUORUM OF THE VOTING POWER IN THE
ELECTION OR REMOVAL OF DIRECTORS FROM ELECTING OR PREVENTING THE
REMOVAL OF ANY DIRECTOR.

3. To consider and vote upon the approval of the Amended and Restated
Regulations of Papnet. The form of the Amended and Restated
Regulations can be found in the Prospectus.

4. To consider and vote upon the election of the seven (7) directors.
David J. Richards, Trevor M. Ferger, Cecil J. Petitti and Michael S.
Blue have been nominated to serve as Class I directors for a term
expiring at the 1997 annual meeting of the shareholders. Bryan
Whipp, John P. Kennedy and Rodney M. Kinsey have been nominated as
Class II directors for a term expiring at the 1998 annual meeting of
shareholders. If the Merger is not approved, then Mr. Kinsey and Mr.
Blue will not be considered nominated to serve on the board of
directors and there will therefore be only one class of directors.
The names of the nominees can be found on the form of proxy.

5. To transact any other business which may properly come before the
meeting or any adjournment or adjournments thereof. (The Board of
Directors is not currently aware of any other business to come before
the Papnet Special Meeting.)

Only holders of Papnet common stock of record at the close of business
on , 1996, the record date for the Papnet Special Meeting, are entitled
to notice of and to vote at the Papnet Special Meeting and any adjournments
thereof. A holder of Papnet common stock who dissents from the Merger Agreement
and who complies with the provisions of section 1701.85 of the Ohio Revised Code
(a copy of which is included as Appendix B to the Prospectus), relating to
dissenters' rights will be entitled to receive payment in cash of the appraised
value of only those shares held by the shareholder (a) which are voted against
the approval of the Merger Agreement at the Papnet Special Meeting, or (b) with
respect to which the holder thereof has given written notice to Papnet, at or
prior to the Papnet Special Meeting, that the shareholder intends to dissent
from the Merger Agreement and which are not voted in favor of approval of the
Merger Agreement. You should carefully review the description of dissenters'
rights included in the Prospectus.
<PAGE>
THE BOARD OF DIRECTORS OF PAPNET UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND VOTE "FOR" APPROVAL OF BOTH THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION AND THE AMENDED AND RESTATED REGULATIONS. THE BOARD
OF DIRECTORS ALSO RECOMMENDS THAT EACH SHAREHOLDER VOTE "FOR" ALL THE NOMINEES
TO SERVE ON THE BOARD OF DIRECTORS.

We urge you to execute and return the enclosed proxy as soon as possible in
order to ensure that your shares will be represented at the Papnet Special
Meeting. Your proxy may be revoked in the manner described on the proxy and in
the accompanying Prospectus at any time before it has been voted at the Papnet
Special Meeting. If you attend the Papnet Special Meeting, you may vote in
person, and your proxy will not be used.

Dated: , 1996 By Order of the Board of Directors
---------------

David J. Richards
PRESIDENT

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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
---------------------------------------------------------------------

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

FORM OF LETTER TO ALL PREDECESSOR COMPANY SHAREHOLDERS
[PREDECESSOR COMPANY LETTERHEAD]

_________ , 1996

Dear Shareholder:

On July 5, 1996, Papnet of Ohio, Inc. ("Papnet") entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Cytology Indiana, Inc.
("CIN"), Indiana Cytology Review Company ("INC"), ER Group, Inc. ("ERG"), CCWP
Partners, Inc. ("CCWP"), and Carolina Cytology, Inc. ("CCI") (individually
"Predecessor Company" collectively "Predecessor Companies"), pursuant to which
the Predecessor Companies will merge (the "Merger") with and into Papnet. As a
result of the Merger, all shareholders of a Predecessor Company will be entitled
to receive shares of Papnet common stock in exchange for the shares of
Predecessor Company stock held by them (the "Merger Consideration"). In order
to coordinate the activities of the parties to the Merger in taking all actions
necessary or advisable to effect the Merger, the boards of directors of Papnet
and the Predecessor Companies each selected representatives to serve on an
advisory board (the "Advisory Board"). The Members of the Advisory Board are:
David J. Richards, S. Trevor Ferger, Cecil J. Petitti, Thomas J. Kelley, Michael
Blue, M.D. Rodney M. Kinsey and John P. Kennedy.

The number of shares of Papnet common stock that will comprise the Merger
Consideration is based on a ratio of one Predecessor Company share for the
following number of shares of Papnet common stock: CIN (1,121.6652); INC
(4,491.7064); ERG (3,237.2643); CCWP (37.3971); and CCI (1,487.6186). As a
result of the Merger, the shareholders of each of the Predecessor Companies will
own, in the aggregate, the following percentage of the issued and outstanding
stock of Papnet: CIN (7.70%); INC (4.11%); ERG (17.13%); CCWP (3.13%); and CCI
(12.32%).

THE BOARDS OF DIRECTORS OF PAPNET AND THE PREDECESSOR COMPANIES HAVE
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVE THAT THE MERGER IS IN THE
BEST INTERESTS OF ALL SHAREHOLDERS OF THE PREDECESSOR COMPANIES. THE BOARD OF
DIRECTORS OF EACH PREDECESSOR COMPANY BELIEVES THAT THIS STRATEGIC COMBINATION
WITH PAPNET WILL CREATE AN EFFICIENT AND EFFECTIVE ENTITY.

Approval of the Merger and the Merger Agreement and the transactions
contemplated thereby requires the affirmative vote of the holders of common
stock of each ERG, CCWP, and CCI entitling them to exercise a majority of the
voting power of the respective corporations. Approval of the Merger and the
Merger Agreement and the transactions contemplated thereby requires the
affirmative vote of the holders of shares entitling them to exercise at least
two-thirds of the voting power of CIN and INC. In accordance with the General
Corporation Law of the State of Ohio, the Merger and the Merger Agreement may be
approved without a meeting of shareholders of the Predecessor Companies with the
affirmative vote, in a writing or writings, signed by all the shareholders who
would be entitled to notice of a meeting of the shareholders held for such
purpose. Your written consent will be solicited after you receive this letter
and the accompanying Prospectus, but before the Special Meeting of the
Shareholders scheduled for the Predecessor Company in which you own shares. It
is expected that all the shareholders of each Predecessor Company will
unanimously consent in writing to the Merger. However, if a Predecessor Company
cannot obtain unanimous written consent, the Special Meeting of the Shareholders
of the Predecessor Company will be held. You will find attached hereto a notice
of the Special Meeting of Shareholders.

<PAGE>

Shareholders who do not consent to the Merger Agreement are entitled to
dissenter's rights as described in the Prospectus. TO EXERCISE DISSENTER'S
RIGHTS, SHAREHOLDERS MUST TAKE CERTAIN ACTIONS WITHIN THE TIME LIMITS PRESCRIBED
BY OHIO LAW. The Prospectus describes the actions shareholders must take and
other relevant considerations to the exercise of such rights.

Very truly yours,

----------------------------------------
President, Predecessor Company

<PAGE>

FORM OF NOTICE

[PREDECESSOR COMPANY]
ADDRESS

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1996

Notice is hereby given that a Special Meeting of Shareholders (the
" Special Meeting") of , Inc. ("Predecessor Company")
has been called by the Board of Directors and will be held at , on
, , 1996, at ., local time, for the following
purposes:

1. To consider and vote upon the approval of a certain Agreement and Plan of
Merger, dated as of July 5, 1996 (the "Merger Agreement"), and the
consummation of the merger contemplated therein. Pursuant to the Merger
Agreement, Cytology Indiana, Inc., Indiana Cytology Review Company, ER
Group, Inc., CCWP Partners, Inc. and Carolina Cytology, Inc. (collectively
the "Predecessor Companies"), will be merged with and into Papnet of Ohio,
Inc. ("Papnet"), and the shareholders of the Predecessor Companies will
receive whole shares of Papnet common stock in exchange for their shares of
Predecessor Company common stock, as more fully described in the
accompanying Prospectus.

2. To transact any other business which may properly come before the meeting
or any adjournment or adjournments thereof. (The Board of Directors is not
currently aware of any other business to come before the
Special Meeting.)

Only holders of common stock of record at the close of
business on , 1996, the record date for the Special
Meeting, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. In addition, your unanimous written
consents are being solicited, and if is successful in obtaining
unanimous written consent, this special meeting of shareholders will not be
held.

A holder of common stock who dissents from the Merger
Agreement and who complies with the provisions of section 1701.85 of the Ohio
Revised Code (a copy of which is included as Appendix B to the Prospectus),
relating to dissenters' rights will be entitled to receive payment in cash of
the appraised value of only those shares held by the shareholder (a) which are
voted against the approval of the Merger Agreement at the Predecessor Company
Special Meeting, or (b) with respect to which the holder thereof has given
written notice to Predecessor Company at or prior to the Special
Meeting, that the shareholder intends to dissent from the Merger Agreement and
which are not voted in favor of approval of the Merger Agreement. You should
carefully review the description of dissenters' rights included in the
Prospectus.

THE BOARD OF DIRECTORS OF UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.

We urge you to execute and return the enclosed proxy as soon as possible in
order to ensure that your shares will be represented at the
Special Meeting. Your proxy may be revoked in the manner described in the
accompanying Prospectus at any time before it has been voted at the
Special Meeting. If

<PAGE>

you attend the Special Meeting, you may vote in person, and your
proxy will not be used.

Dated: , 1996 By Order of the Board of Directors
---------------

----------------------------------
PRESIDENT

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

PROSPECTUS

PAPNET OF OHIO, INC.

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

COMMON STOCK, WITHOUT PAR VALUE

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

This Prospectus is being furnished to the shareholders of Cytology
Indiana, Inc., an Ohio corporation ("CIN"), Indiana Cytology Review Company,
an Ohio corporation ("INC"), ER Group, Inc., an Ohio corporation ("ERG"),
CCWP Partners, Inc., an Ohio corporation ("CCWP"), and Carolina Cytology,
Inc., an Ohio corporation ("CCI"), in connection with the merger (the
"Merger") of the foregoing companies (individually, a "Predecessor Company"
and collectively the "Predecessor Companies") with and into Papnet of Ohio,
Inc., an Ohio corporation (the "Company"). This Prospectus is also being
distributed to shareholders of the Company in connection with the
solicitation of proxies for the approval of the Merger and certain amendments
to the Company's Articles of Incorporation (the "Company Articles") and
Regulations (the "Company Regulations") and in connection with the election
of seven directors. For purposes of this Prospectus, any reference to the
"Company" shall also include NetMed, Inc., which will be the Company's name
upon consummation of the Merger. The Merger will be effected pursuant to the
terms and conditions of an Agreement and Plan of Merger, dated as of July 5,
1996, among the Company and the Predecessor Companies (the "Merger
Agreement").

Proxies for use at the Company's Special Meeting of Shareholders to be held
on December 5, 1996 (the "Meeting") are being solicited by the Board of
Directors of the Company. Holders of the common stock of the Company of record
at the close of business on November 4, 1996 will be entitled notice of and to
vote at the meeting. Any shareholder giving a proxy has the power to revoke it
at any time before it is exercised by filing a written notice with the Secretary
of the Company prior to the meeting. Shareholders of the Company who attend the
meeting may vote in person and their proxies will not be used. The Company
has retained Corporate Investor Communications, Inc. to assist in the
solicitation of proxies and will pay a fee of approximately $3,000, plus
expenses.

Upon consummation of the Merger (the "Effective Time"), and without any
action on the part of the Company, the Predecessor Companies, or the holder of
any of the securities of the Predecessor Companies, each issued and outstanding
share of capital stock of each of the Predecessor Companies shall be converted
into the right to receive the number of fully paid and nonassessable shares of
the common stock, without par value, of the Company (the "Company Shares") as
set forth below:

Number of Company Shares
for each Predecessor
Predecessor Company Company Share
------------------- -------------
CIN 1,121.6652
INC 4,491.7064
ERG 3,237.2643
CCWP 37.3971
CCI 1,487.6186

As a result of the Merger, the shareholders of each of the Predecessor
Companies will own, in the aggregate, the following percentage of the issued
and outstanding stock of Papnet: CIN (7.70%); INC (4.11%); ERG (17.13%);
CCWP (3.13%); and CCI (12.32%)

Under the Articles of Incorporation of ERG, CCWP, and CCI, the affirmative
vote of the holders of common shares of each of ERG, CCWP, and CCI entitling
them to exercise a majority of the voting power of the respective corporations
is required to approve the Merger. Ohio law

<PAGE>

provides that the Merger must be approved by the affirmative vote of the holders
of common shares of each of CIN and INC entitling them to exercise at least
two-thirds of the voting power of the respective corporations.

The Company's shareholders must vote to approve the Merger and the
amendments to the Company Articles and Company Regulations, which will be
effective upon consummation of the Merger. Under the General Corporation Law
of Ohio, holders of record of the Company's common stock who follow the
procedures under Section 1701.85 will be entitled to exercise dissenter's rights
with respect to their shares and receive the "fair cash value" of such shares.

In addition, Section 1701.85 provides the holders of record of shares of
the Predecessor Companies' common stock, who properly exercise and perfect
dissenting shareholder rights with respect to the Merger, the right to obtain a
cash payment for the "fair cash value" of their shares (excluding any element of
value arising from the accomplishment or expectation of the Merger). In order
to exercise such rights, holders must comply with the procedural requirements of
the General Corporation Law of Ohio, a description of which is provided under
"THE MERGER - Dissenters' Rights" and the full text of which is attached to this
Prospectus as Appendix B. Failure to take any of the steps required under the
General Corporation Law of Ohio on a timely basis may result in the loss of
dissenters' rights. See "THE MERGER - Dissenters' Rights."
THE COMPANY SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" AT PAGE 14.
----------------------------

THESE 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.

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

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN 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 OF
THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION OR TO ANY PERSON
TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

----------------------------
The date of this Prospectus is ________ __ , 1996.

<PAGE>

AVAILABLE INFORMATION

While the Company is not now subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), it anticipates that it will be subject to these
rules and regulations following consummation of the Merger and, in accordance
therewith, will file reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such reports,
proxy statements, and other information, when filed by the Company, can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or at the public reference facilities
of the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material
will also be available by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
the fees prescribed by the rules and regulations of the Commission. The
Commission also maintains a site on the world wide web that contains the same
information. The address is (http://www.sec.gov).
The Company has filed with the Commission under the Securities Act of 1933,
as amended, and the rules and regulations thereunder (the "Securities Act"), a
Registration Statement on Form S-4 (as it may be amended, the "Registration
Statement") with respect to the Company Shares issuable in connection with the
Merger. This Prospectus does not contain all of the information contained in
the Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission and to which reference is hereby
made. Any statements contained herein or in any document incorporated by
reference herein concerning the provisions of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or other document, each such statement being qualified in its entirety
by such reference. The Registration Statement (and exhibits thereto) should be
available for inspection at the offices of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549, and copies thereof may be obtained from the
Commission at prescribed rates. The Registration Statement is also available
on the Commission's site on the world wide web.
All information contained herein with respect to the Company was supplied
by the Company and all information contained herein with respect to the
Predecessor Companies was supplied by the Predecessor Companies. The Company
cannot warrant the accuracy or completeness of information relating to the
Predecessor Companies. No Predecessor Company can warrant the accuracy or
completeness of the information relating to the Company or any other
Predecessor Company.

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<PAGE>

TABLE OF CONTENTS

PAGE
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Predecessor Companies . . . . . . . . . . . . . . . . . . . . . . 5
The Merger; General Terms . . . . . . . . . . . . . . . . . . . . . . 7
Reasons for the Merger; Recommendation of the
Boards of Directors of the Company and
Predecessor Companies. . . . . . . . . . . . . . . . . . . . . . . . 10
Restrictions on Transfer of the Company Shares. . . . . . . . . . . . 11
Certain Related Transactions. . . . . . . . . . . . . . . . . . . . . 11
Interest of Certain Persons In Matters To Be acted upon.. . . . . . . 12
Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Comparative Per Share Information . . . . . . . . . . . . . . . . . . 12
Market Price Data . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend History. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other matters To Be Considered At The Meeting . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SELECTED HISTORICAL FINANCIAL
DATA OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . 19
Reasons for the Merger; Recommendation of the Company's
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . .. 19
Reasons for the Merger; Recommendation of the
Predecessor Companies' Boards of Directors. . . . . . . . . . . . . 19
Merger Consideration Generally. . . . . . . . . . . . . . . . . . . . 20
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 20
Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . 23
Amendment to Articles of Incorporation. . . . . . . . . . . . . . . . 23
Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 23
UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . . 25
Resales by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 28
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The PAPNET System . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The PAPNET Service. . . . . . . . . . . . . . . . . . . . . . . . . . 31
The License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Properties and Facilities . . . . . . . . . . . . . . . . . . . . . . 32
Future Expansion. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Officers and Directors. . . . . . . . . . . . . . . . . . . 32
Committees of the Board of Directors. . . . . . . . . . . . . . . . . 34
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . 34
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . 35
1995 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . 35
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . . . 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company
and the Predecessor Companies. . . . . . . . . . . . . . . . . . . . 37
THE PREDECESSOR COMPANIES. . . . . . . . . . . . . . . . . . . . . . . . . 42
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
COMPARISON OF CERTAIN RIGHTS OF THE COMPANY
AND THE PREDECESSOR COMPANIES SHAREHOLDERS. . . . . . . . . . . . . . . . 45
Articles of Incorporation Provisions. . . . . . . . . . . . . . . . . 45
Other Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Amended Company Articles. . . . . . . . . . . . . . . . . . . . . . . 47
Description of Company Capital Stock. . . . . . . . . . . . . . . . . 47
Regulation Provisions . . . . . . . . . . . . . . . . . . . . . . . . 47
Amended Company Regulations . . . . . . . . . . . . . . . . . . . . . 48
Ohio General Corporation Law. . . . . . . . . . . . . . . . . . . . . 50
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . F-1

<PAGE>

APPENDICES
Appendix A - Agreement and Plan of Merger
Appendix B - Section 1701.85 of the Ohio Revised Code - rights of
Dissenting Shareholders
Appendix C - Form of Proxy
-4-
<PAGE>

SUMMARY

THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION WITH RESPECT TO THE
MERGER. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED HEREIN AND IN THE EXHIBITS
HERETO.

THE COMPANY
The Company is an Ohio corporation formed on October 25, 1989 for the
purpose of acquiring from Neuromedical Systems, Inc. ("NSI") the rights to
market the PAPNET-Registered Trademark- System and the PAPNET-Registered
Trademark- Service in the State of Ohio. The Company later assigned its
rights to Papnet Limited Partnership, an Ohio limited partnership ("PLP").
In January 1993, the Company acquired all of the issued and outstanding units
of limited partnership interest in both PLP and Papnet Midwest Limited
Partnership, an Ohio limited partnership ("PMLP"). PMLP owned the rights to
market the PAPNET-Registered Trademark- System and PAPNET-Registered
Trademark- Service in Kentucky and the Standard Metropolitan Area of Chicago,
Illinois. As a result of these acquisitions the Company has the marketing
rights to the PAPNET-Registered Trademark- System and the PAPNET-Registered
Trademark- Service in Ohio, Kentucky and the Standard Metropolitan Area of
Chicago.
The PAPNET-Registered Trademark- System is a semi-automated cancer
detection system for the review of cell, tissue or body fluid specimens,
including but not limited to, cervical cytology specimens ("Slides"). The
PAPNET-Registered Trademark- Service permits laboratories to submit Slides to
one of NSI's central facilities for image processing employing NSI's patented
neural network technology. NSI returns the Slides and digital tape containing
processed images for evaluation by NSI-trained cytotechnologists.

The Company's offices are located at 425 Metro Place North, Ste 140,
Dublin, Ohio 43017 and its telephone number is (614) 793-9356.

THE PREDECESSOR COMPANIES

GENERAL
Each of the Predecessor Companies, other than CCWP, was organized to
acquire and exercise the right to market the PAPNET-Registered Trademark- System
and PAPNET-Registered Trademark- Service within its licensed territory.
However, until November 8, 1995, when the United States Food and Drug
Administration ("FDA") finally approved the marketing of the PAPNET-Registered
Trademark- technology, the technology could be used in the United States only
for investigational purposes in connection with the FDA approval process. CCWP
is an affiliate of CCI, and was organized for the purpose of holding certain
warrants for the purchase of NSI common stock. Consequently, the Predecessor
Companies had only limited operations prior to November 1995.

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<PAGE>

CYTOLOGY INDIANA, INC.

CIN is an Ohio corporation formed on September 7, 1990 to serve as the
general partner of Papnet Indiana Limited Partnership, an Ohio limited
partnership, which was formed for the purpose of acquiring the rights to market
the PAPNET-Registered Trademark- System and the PAPNET-Registered
Trademark-Service in Indiana. Papnet Indiana Limited Partnership subsequently
exchanged its rights for the State of Indiana for the right to market the
PAPNET-Registered Trademark-System and the PAPNET-Registered Trademark- Service
in Missouri. In 1995, Papnet Indiana Limited Partnership distributed its assets
to its general and limited partners. CIN owns an approximate 65% interest in
the rights to market the PAPNET-Registered Trademark- System and
PAPNET-Registered Trademark- Service in Missouri. The former limited partners
of Papnet Indiana Limited Partnership are now shareholders of INC, which owns an
approximate 35% interest in the rights to market the PAPNET-Registered
Trademark- System and PAPNET-Registered Trademark- Service in Missouri.

CIN's offices are located at 425 Metro Place North, Ste 140, Dublin,
Ohio 43017 and its telephone number is (614) 793-9356.

INDIANA CYTOLOGY REVIEW COMPANY

INC is an Ohio corporation formed on December 1, 1995 by the former limited
partners of Papnet Indiana Limited Partnership for the purpose of owning an
approximate 35% interest in the rights to market the PAPNET-Registered
Trademark- System and the PAPNET-Registered Trademark- Service in Missouri.

INC's offices are located at 425 Metro Place North, Ste. 140, Dublin,
Ohio 43017 and its telephone number is (614) 793-9356.

ER GROUP, INC.

ERG is an Ohio corporation formed on May 13, 1991 for the purpose of
acquiring the rights to market the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in Georgia.

ERG's offices are located at 8595 Milmichael Court, Dublin,
Ohio 43017 and its telephone number is (614) 764-2501.

CCWP PARTNERS, INC.

CCWP is an Ohio corporation formed on December 1, 1995. Carolina Cytology
Partnership, an Ohio limited partnership, owned warrants for the purchase of NSI
common stock. In December 1995, immediately after the formation of CCWP, CCWP
acquired all of the outstanding units of limited partnership interest in
Carolina Cytology Partnership in exchange for stock in CCWP. CCWP now owns the
common stock issued upon exercise of the NSI warrant.

CCWP's offices are located at 8651 Gairloch Court, Dublin, Ohio 43017 and
its telephone number is (614) 889-1052.

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<PAGE>

CAROLINA CYTOLOGY, INC.

CCI is an Ohio corporation formed on December 10, 1992 for the purpose of
acquiring the rights to market the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in North Carolina.

CCI's offices are located at 8651 Gairloch Court, Dublin, Ohio 43017 and
its telephone number is (614) 889-1052.

THE MERGER; GENERAL TERMS
At the Effective Time of the Merger, the Predecessor Companies will be
merged with and into the Company, with the Company being the surviving
corporation. In connection with the Merger, and without further action by the
shareholders of the Company or the Predecessor Companies, the Company will amend
its Articles of Incorporation to, among other things, change its name to NetMed,
Inc. It is currently anticipated that, assuming all conditions to the Merger
have been satisfied or waived, the Effective Time will occur in December, 1996.
See "THE MERGER."

MERGER CONSIDERATION. In the Merger, all outstanding shares of the
Predecessor Companies' common stock, including shares of the Predecessor
Companies issuable upon the exercise of outstanding warrants and options,
shall be converted into the right to receive fully paid and nonassessable
Company Shares (the "Merger Consideration"). Shares of outstanding common
stock of the Predecessor Companies (other than Dissenting Shares) will be
converted into Company Shares based on a ratio of one Predecessor Company
share for the following number of shares of the Company: CIN (1,121.6652);
INC (4,491.7064); ERG (3,237.2643); CCWP (37.3971); and CCI (1,487.6186). As
a result of the Merger, the shareholders of the Predecessor Companies will
own, in aggregate, the followiing percentage of the issued and outstanding stock
of Papnet: CIN (7.70%); INC (4.11%); ERG (17.13%); CCWP (3.13%); and CCI
(12.32%). See "THE MERGER - The Merger Agreement (Merger Consideration
Generally)."

The Merger Consideration was determined through the application of certain
objective criteria, including the population of each licensed territory and the
number of NSI shares owned by the Company and each of the Predecessor Companies.
In addition, the fact that the Company has had a more significant history of
operations was given some weight in determining the Merger Consideration.
VOTE REQUIRED. Approval of the Merger and the Merger Agreement and the
transactions contemplated thereby requires the affirmative vote of the holders
of common shares of each of ERG, CCWP, and CCI entitling them to exercise a
majority of the voting power of the respective corporations and the affirmative
vote of holders of shares entitling them to exercise at least two-thirds of the
voting power of the Company, CIN, and INC. In addition to the approval of the
Merger, the adoption of amendments to the Company's Articles of Incorporation
must be approved by the holders of at least two thirds of the outstanding stock
of the Company entitled to vote thereon. In the event that the shareholders of
the Company and each of the Predecessor Companies approve and adopt the Merger
and the Merger Agreement as required by their respective Articles of
Incorporation and the General Corporation Law of Ohio, and upon satisfaction or
waiver of all other conditions to the Merger, the Merger will be consummated
without any further vote of the shareholders of the Company or the Predecessor
Companies. See "THE MERGER - Required Vote."
As of June 30, 1996, the Company had 6,040,116 shares of its common stock
issued and outstanding. Officers, directors and affiliates of the Company own,
in the aggregate, 1,984,838 shares of the Company's issued and outstanding
common stock, which represents 33% of the issued and outstanding common shares.
See "THE COMPANY - Principal Shareholders." The Company's Board of Directors
has recommended approval of the Merger to the shareholders and each of the
Company's directors intend to vote in favor of the Merger. These directors own
26.5% of the issued and outstanding common stock of the Company.
CONDITIONS TO THE MERGER; TERMINATION. The respective obligations of the
Company and the Predecessor Companies to consummate the Merger are subject to
certain conditions, including among others the adoption of the Merger and the
Merger Agreement by the holders of the requisite number of shares of the Company
and Predecessor Companies' common stock; the compliance by

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<PAGE>

each of the parties to the Merger Agreement with its material obligations
thereunder and the truth of the representations and warranties made by each
of the parties on the date of the Merger Agreement and at the Effective Time;
the Registration Statement shall have become effective under the Securities
Act; the Company shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the Company Shares
pursuant to the Merger and the Merger Agreement; the Company Shares shall
have been admitted for quotation on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation system ("NASDAQ
NMS"); at the time of the consummation of the transactions contemplated by
the Merger Agreement (the "Closing"), the shareholders of the Company or any
Predecessor Company entitled to assert dissenter's rights shall own in the
aggregate less than 10% of the outstanding shares of the Company or the
Predecessor Company; and the Company and the Predecessor Companies having
received an opinion of Porter, Wright, Morris & Arthur, counsel to the
Company, to the effect that, among other things, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
and each Predecessor Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code and that the holding period for the
Company Shares received in exchange for the Predecessor Company shares will
include the period for which the Predecessor Company shares were held,
provided that the Predecessor Company shares were held as a capital asset.
The NASD has advised the Company that it appears that the Company's common
shares will not be eligible for listing on NASDAQ/NMS. Based upon
discussions among the parties to the Merger Agreement, the Company expects
that this condition of the Merger will be waived. See "THE MERGER - The
Merger Agreement (Conditions to Consummation of the
Merger)."

The Merger Agreement may be terminated by mutual consent of all of the
parties; by any of the parties if the Merger shall not have been consummated
before September 30, 1996 (unless the failure to consummate the Merger by
such date shall be due to the action or failure to act of the party seeking
to terminate the Merger Agreement); by any party if any permanent injunction
or other order of a court or other competent authority shall have become
final and non-appealable; or by any party if any required approval of the
shareholders of such party or any other party shall not have been obtained.
The Merger Agreement may also be terminated by a vote of the majority of a
seven member interim advisory board (the "Advisory Board") appointed by the
parties. The Company currently expects that due to delays in the originally
anticipated effective date of the Registration Statement and compliance with
legal requirements relating to the time period of notice of the shareholder
meetings, the Merger will not be effective by September 30, 1996. However,
based upon discussions among the parties to the Merger Agreement, the Company
expects that this condition will be waived and that the Merger will become
effective in December, 1996.

In the event that the Merger Agreement is terminated, the Merger Agreement
shall be void and have no effect, without any liability on the part of any party
or its affiliates, directors, officers, or shareholders. Notwithstanding the
foregoing, the parties to the Merger Agreement will continue to be bound by the
provisions of the Merger Agreement that relate to: (i) their respective
obligations as to confidentiality and the payment of any broker's or finder's
fees; (ii) a party's obligation to pay liquidated damages in the amount of
$500,000 to the other parties if the termination arises out of that party's
failure to obtain the required approval of the Merger and the Merger Agreement
or that party's breach of the Merger Agreement; and (iii) a party's obligation
to pay its share of all costs and expenses incurred by the parties in connection
with the Merger and the transactions contemplated by the Merger Agreement. A
party's share of any liquidated damages paid as a result of a termination of the
Merger or its share of costs and expenses required to be paid by it under the
Merger Agreement shall be in proportion to the number of Company Shares that are
or would have been owned by the party's shareholders immediately after the
Effective Time. See "THE MERGER - The Merger Agreement (Termination)."

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<PAGE>

ADVISORY BOARD. As provided in the Merger Agreement, the Advisory Board
consists of David J. Richards, S. Trevor Ferger, Cecil J. Petitti, Thomas J.
Kelley, Michael S. Blue, Rodney M. Kinsey and John P. Kennedy. Mr. Richards is
a director and officer of the Company. Mr. Ferger is a director of the Company,
a director and officer of CIN, and a director of INC. Mr. Petitti is a director
of the Company, an officer and director of INC, and a director of CIN. Mr.
Kelley is a director and officer of ERG. Mr. Blue is a director and officer for
both CCWP and CCI. Mr. Kinsey is a director and officer of both CCWP and CCI.
Mr. Kennedy is an officer and director of the Company.

The Advisory Board consists of at least one member of the board of
directors and at least one officer of each of the Company and the Predecessor
Companies. The board of directors of each respective company nominated these
individuals to serve on the Advisory Board. The Advisory Board's purpose is to
facilitate the Merger by dealing with procedural issues relating to the
consummation of the Merger and to provide an efficient means of getting
information back to the Boards of Directors of the parties to the Merger. Its
focus is also prospective in that it is intended to identify and plan for
resolution of issues that will face the combined entity in the event the Merger
is consummated.

Due to the number of entities involved in this transaction, the Boards of
Directors of the Company and each Predecessor Company determined that creating
an Advisory Board for this transaction was prudent and in the best interests of
their respective shareholders. Serving on the Advisory Board does not alter
the fiduciary duties owed to each corporation by the members of the Advisory
Board as directors. In serving as a member of the Advisory Board, each member
still owes a duty of care and loyalty to their respective corporations, as
required under the Ohio General Corporation law.
ACCOUNTING TREATMENT. The merger will be effected by an exchange of the
Company's common stock for the outstanding common shares of the Predecessor
Companies. The merger of the Company and the Predecessor Companies will be
accounted for at historical cost. For accounting purposes, the Company will be
the predecessor of the merged entity and its historical financial statements
will be those of the new entity NetMed, Inc. The results of operations of the
Predecessor Companies will be combined with those of the Company commencing on
the Effective Date. See "THE MERGER - Anticipated Accounting Treatment."

FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a general
summary subject to the qualifications described below, of the material federal
income tax consequences of the Merger to individual United States
shareholders of the Predecessor Companies who hold their shares as capital
assets. The discussion is based on laws, regulations, rulings and decisions
currently in effect. It is for general information only, and is not intended
to be tax advice to any particular shareholder of the Company or a
Predecessor Company. The discussion does not take into account rules that
are applicable to shareholders of the Predecessor Companies that are subject
to special treatment under the Code, including without limitation, insurance
companies, dealers in securities, financial institutions, tax-exempt
investors, foreign investors, shareholders who do not hold their stock as a
capital asset and shareholders who acquired shares pursuant to the exercise
of an employee stock option, employee stock purchase plan or otherwise as
compensation. The discussion also does not address state, local or foreign
tax consequences of the Merger. No rulings have been or will be requested
from the Internal Revenue Service with respect to the tax consequences of the
Merger.

Assuming the Merger is consummated in the manner set forth in the Merger
Agreement and qualifies as a reorganization under Section 368 of the Code, the
material federal income tax consequences of the Merger under present federal
income tax law will be as described below.

(a) No gain or loss will be recognized by the Company or the Predecessor
Companies as a result of the Merger;

(b) No gain or loss will be recognized by the holders of Predecessor
Company shares upon the exchange of their shares of Predecessor
Company shares for Company Shares pursuant to the Merger (except for
any gain or loss attributable to cash received by a holder of
Predecessor Company stock in payment of appraisal or dissenters'
rights of appraisal or for fractional share interests to which they
may be entitled );

(c) The federal income tax basis of the Company Shares received by the
shareholders of the Predecessor Companies (including fractional share
interests to which they may be entitled) for their Predecessor Company
shares will be the same as the federal income tax basis of the
Predecessor Company shares surrendered in exchange therefor, increased
by any gain recognized; and

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<PAGE>

provided that the exchanged Predecessor Company shares were held as a
capital asset by such shareholder on the date of the exchange.

It is a condition to the closing that the Company and the Predecessor
Companies shall have received an opinion of Porter, Wright, Morris & Arthur
which will be based upon certain certificates, representations and assumptions,
substantially to the effect that, for federal income tax purposes the Merger
will constitute a reorganization within the meaning of section 368(a) of the
Code and will result in the tax consequences described above.

No opinion will be expressed with respect to any other tax consequences of
the exchange, including, without limitation, the tax consequences with respect
to any shares of Predecessor Company stock that were acquired in contemplation
of the Merger, were held by shareholders subject to special treatment under the
Code, were not held as capital assets or were acquired by the holder thereof
pursuant to any employee stock option, employee stock purchase plan or otherwise
as compensation or pursuant to the exercise of any warrants to purchase shares
of Predecessor Company stock. Further, no opinion will be expressed concerning
the effect of state, local and foreign tax laws. An opinion of counsel is not
binding upon the IRS, and there can be no assurance that the IRS will not take a
position contrary to the positions reflected in such opinion or that such
opinion will be upheld by the courts if challenged by the IRS.
THE SPECIFIC TAX TREATMENT OF EACH SHAREHOLDER WILL DEPEND ON THE
SHAREHOLDERS PARTICULAR FACTS AND CIRCUMSTANCES. EACH HOLDER OF COMPANY
SHARES AND PREDECESSOR COMPANY SHARES IS ADVISED TO CONSULT WITH SUCH
SHAREHOLDER'S OWN TAX ADVISER CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER, AS WELL AS THE APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES. See "THE MERGER - Certain Federal Income Tax Consequences."

REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S AND THE PREDECESSOR
COMPANIES' BOARDS OF DIRECTORS
The Boards of Directors of the Company and the Predecessor Companies,
have unanimously determined that the Merger Agreement and the Merger are
advisable and fair and in the best interests of the Shareholders of the
Company and the Predecessor Companies and unanimously recommend their
respective shareholders approve the Merger Agreement and the Merger.

The discussions that lead to the execution of the Merger Agreement were
narrow in focus and centered around the ability of the Predecessor Companies
to successfully market the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in their respective licensed territories
following FDA approval; the funds necessary for the Predecessor Companies to
finance the commercial launch of the PAPNET-Registered Trademark- System and
the PAPNET-Registered Trademark- Service; the fact that the combination would
offer shareholders of the Predecessor Companies opportunity to take advantage
of the substantial amount of time and resources the Company had devoted to
the commercial launch of the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service; the efficiencies created by the
combination; and the method for valuing the Predecessor Companies for
purposes of the Merger.

The Boards of Directors of the Company and the Predecessor Companies
believe that the Merger will: (i) create operating efficiencies in the
combined entity that will permit the combined entity to better reach and
penetrate the potential market; (ii) create greater resources in the combined
entity, which will provide the opportunity to pursue and acquire other
technologies thereby enhancing shareholder value; (iii) increase the value of
the Company for its shareholders and afford the shareholders of the
Predecessor Companies the opportunity to acquire an equity participation in a
larger enterprise with larger equity value than any one of the Predecessor
Companies; and (iv) offer the potential for greater liquidity for the
shareholders of the Company and Predecessor Companies. See "THE MERGER -
Background of the Merger," "-

-10-
<PAGE>

Reasons for the Merger" "- Recommendation of the Company's Board of
Directors" and "- Recommendation of the Predecessor Companies' Boards of
Directors."

RESTRICTIONS ON TRANSFER OF THE COMPANY SHARES

Certain persons who may be deemed "affiliates" of the Company or any of the
Predecessor Companies for purposes of Rule 145 under the Securities Act ("Rule
145") will not be permitted to transfer their Company Shares issued in the
Merger except (i) pursuant to an effective registration statement; (ii) in
compliance with Rule 145; or (iii) pursuant to an exemption from the
registration requirements of the Securities Act. This Prospectus does not cover
resales of Company Shares by affiliates of the Company or the Predecessor
Companies. In addition certain affiliates of the Company and the Predecessor
Companies have agreed not to sell their Company Shares for a specified period of
time. See "THE MERGER - Resales by Affiliates."
Under the terms of the Merger Agreement, certain additional restrictions
on the transfer of shares of the Company will be imposed. Except with
respect to certain privately negotiated sales, the Predecessor Company
shareholders will be prohibited from selling more than an aggregate of
625,000 Company Shares during the one year period commencing on the closing
date of the Merger. The number of Company Shares that each Predecessor
Company shareholder will be entitled to sell is equal to the product of (A)
the ratio of Company Shares received with respect to the conversion of the
shareholder's shares in a Predecessor Company to the number of Company Shares
so received by all shareholders of such Predecessor Company, times (B) the
number of shares allocated to such Predecessor Company in the Merger
Agreement for the relevant time period.
In connection with the Merger, David J. Richards, John P. Kennedy and
Carl K. Genberg ("Key Company Shareholders") have agreed that, except with
respect to certain privately negotiated sales and certain transactions
involving the pledge of their shares, they will not sell the Company Shares
owned immediately after the effectiveness of Merger (including any Company
shares received in the Merger) for a period of one year commencing on the
closing of the Merger. See "Merger Agreement - Appendix A."
CERTAIN RELATED TRANSACTIONS

Each of the other Predecessor Companies and the Company entered into a Loan
Agreement, dated July 5, 1996 (the "Loan Agreement"), whereby the Company has
agreed to advance to the other Predecessor Companies the expenses incurred by
each in connection with the Merger. In addition, the Company will advance
funds necessary to pay reasonable expenses of ordinary business operations for
the Predecessor Companies pending consummation of the Merger (collectively, the
"Advances"). Advances made to the Predecessor Companies in connection with the
merger that was abandoned in June 1996 (the "Initial Advances") will be added to
the Advances. The Initial Advances and the Advances will be evidenced by a
promissory note bearing interest at an annual rate of 7%, payable 180 days after
the earlier of the consummation of the Merger or the termination of the Merger
Agreement. Promissory notes delivered by the Predecessor Companies will be
secured by their shares of NSI common stock.

-11-
<PAGE>

The Loan Agreement was negotiated as part of the Merger Agreement. The
Boards of Directors of the Company and the Predecessor Companies considered it
to be in the best interests of their respective shareholders to use the cash
that the Company had available to cover the Merger expenses and operating
expenses prior to liquidating any of the NSI stock held by each. As of July
4, 1996 the Company had advanced the following amounts to the Predecessor
Companies under the Loan Agreement: CCI ($50,304); CIN ($50,713); ERG
($70,890); IMC ($27,307); and CCWP ($27,994).

The Loan Agreement has been modified by a side-letter agreement among the
Company, ERG, CCI and CCWP, dated July 16, 1996, which provides, among other
things, terms relating to notice and cure periods for any defaults and credits
for certain expenses that are paid directly by these Predecessor Companies.
The Company entered into a loan agreement, dated March 14, 1996 with
Cytology West, Inc. ("CWI") and Papnet Utah, Inc. ("PUI"). CWI is licensed
to sell the PAPNET-Registered Trademark- System and the PAPNET-Registered
Trademark- Service in Arizona, Nevada and San Diego County California. PUI
is licensed to sell PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in Utah. Carl Genberg, President of
CWI, owns 383,616 shares of the Company's common stock and may be deemed to
be an affiliate of the Company. CWI and PUI were originally to have been a
parties to a merger with the Company and the Predecessor Companies, but that
transaction was abandoned by the parties. CWI and PUI abandoned the
transaction in order to pursue other technologies that the Company and the
Predecessor Companies were not ready to pursue without assurances of the
ability to obtain the financing necessary to commercialize them. The loan
agreement provides for advances to CWI of up to $585,000 to cover certain
operating expenses, expenses associated with the abandoned merger, and the
acquisition of new technology. No specific amount was established for
advances to PUI. The advances will bear interest at the rate of 7% per
annum. As of June 15, 1996, the Company had advanced approximately $146,320
to CWI and $14,315 to PUI under the terms of the loan agreement, and no
further advances will be made.
The Company, the Predecessor Companies and certain individual shareholders
of these companies entered into a Voting Agreement, dated July 5, 1996, pursuant
to which the individual shareholders appointed John P. Kennedy and Cecil J.
Petitti as their proxies and attorneys-in-fact for the purpose of voting their
shares in the Company or Predecessor Company, as the case may be, in favor of
the Merger, the Merger Agreement and the transactions contemplated thereby.
The following eight individuals, all of whom are officers, directors and/or
affiliates of one or more of the merging entities, are the only shareholders
whose shares are subject to the Voting Agreement: David J. Richards, John P.
Kennedy, Rodney M. Kinsey, Michael S. Blue, David Smith, David Allen, James
Derck, and Alan Weisenberg.
Mr. Richards and Mr. Kennedy together own 1,441,222 shares of common
stock of the Company. Therefore, approximately 23.9% of the Company's
outstanding shares are subject to the Voting Agreement. There are
approximately 400 shareholders of the Company who are not parties to the
Voting Agreement.
Mr. Kinsey, Mr. Blue and Mr. Allen together own 4,575 shares of CCWP. CCWP
has 9,150 shares of common stock outstanding and therefore 50% of CCWP's
outstanding stock is subject to the Voting Agreement. There are eight
shareholders of CCWP who are not parties to the Voting Agreement.
Mr. Kinsey, Mr. Blue, Mr. Smith, and Mr. Allen together own 384 of the 905
outstanding shares of CCI. This represents 42.4% of the outstanding shares of
CCI. There are 22 shareholders of CCI who are not parties to the Voting
Agreement.
Mr. Kinsey, Mr. Smith, Mr. Derck and Mr. Weisenberg together own 340 of the
578 outstanding shares of ERG. This represents 58.8% of ERG's total outstanding
shares. There are 16 shareholders of ERG who are not parties to the Voting
Agreement.
Mr. Smith owns 7.72 shares of the 100 outstanding shares of common stock
of INC. This represents 7.72% of the total outstanding shares of INC. There
are 14 shareholders of INC who are not parties to the Voting Agreement.
The Company has been managing the business operations of CIN, INC, ERG, and
CCI since December 1995 and will continue to do so pending consummation of the
Merger. The operations of these Predecessor Companies, like the operations of
the Company, primarily involve the marketing of the PAPNET-Registered Trademark-
technology. Because NSI did not obtain FDA approval for the PAPNET-Registered
Trademark- technology until December 1995, the Predecessor Companies did not
have significant operations prior to that time. The Company, however, had been
actively involved, to the extent permitted by the FDA, in promoting the
PAPNET-Registered Trademark- technology in its licensed territories. In
addition to other general and administrative functions performed on behalf of
the Predecessor Companies, the Company has been hiring and training sales
personnel for their respective licensed territories.
In August 1995, in connection with the sale by Mr. Richards of 30,000
shares of the Company's common stock, the Company granted Mr. Richards purchaser
"piggyback" and one-time demand registration rights with respect to the shares
purchased. The Company will bear all costs associated with the registration of
the shares (excluding underwriter discount) in excess of $7,500. The demand
registration rights expire in August 1997.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
On October 14, 1994, the Company loaned David J. Richards $50,000. The
loan bears interest at the prime commercial rate plus .5%. The loan was
originally due in January, 1996, but has been indefinitely extended pending
consummation of the Merger and will be deemed a bonus and converted into
compensation (incentive compensation for successfully negotiating the Merger) in
the event that the Merger is consummated.

DISSENTER'S RIGHTS

Under Ohio General Corporation Law, holders of record of shares of the
Company and the Predecessor Companies who properly exercise and perfect
dissenter's rights with respect to the Merger will have the right to receive the
"fair cash value" of their shares (excluding any appreciation or depreciation in
market value resulting from the Merger). In order to exercise such rights,
holders must comply with the procedural requirements of Section 1701.85 of the
Ohio Revised Code, a description of which is provided under "THE MERGER -
Dissenter's Rights" and the full text of which is attached to this Prospectus as
Appendix B. Failure to take any of the steps required under Section 1701.85 on
a timely basis may result in the loss of dissenter's rights. See "THE MERGER -
Dissenter's Rights."

COMPARATIVE PER SHARE INFORMATION
The following displays comparative historical and pro forma per share data
for the Company and the Predecessor Companies. The pro forma per share data for
the Predecessor Companies is calculated based on the number of the Company
shares that will be exchanged for the Predecessor Companies common shares
outstanding if the Merger is consummated. The pro forma per share data for
Combined NetMed is calculated based on the weighted average number of the
Company shares that were outstanding during the period plus common stock
equivalents (if dilutive) and the number of the Company shares that will be
exchanged for the Predecessor Companies' common shares outstanding if the
Merger is consummated.
<TABLE>
<CAPTION>
PAPNET OF OHIO, INC.
------------------------------------------------
DECEMBER 31 JUNE 30
1993 1994 1995 1995 1996
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) for the period ended $(.05) $(.05) $ .21 $(.03) $(.04)
Dividends - - - - -
Book value .16 .13 1.03 .10 .79
</TABLE>
PREDECESSOR COMPANIES - PRO FORMA
--------------------------------------
PRO FORMA
CCI & COMBINED
ERG CCWP INC CIN NETMED
------------------------------------------------
Earnings for the year ended
December 31, 1995 $ .27 $.25 $.13 $.19 $ .22
Dividends - - - - -
Book value at December 31, 1995 1.08 .96 .70 .76 .99

Earnings (loss) for the six
months ended June 30, 1996 $(.06) $(.02) $(.03) $(.06) $(.04)
Dividends - - - - -
Book value at June 30, 1996 .80 .72 .49 .52 .74

-12-

<PAGE>

MARKET PRICE DATA
Currently, there is no public market for the common stock of any
Predecessor Company. There has been a limited over the counter public market
for the shares of the Company, which are quoted on the NASDAQ Bulletin Board.
The ask and bid prices for the Company's common stock on the date immediately
preceding the public announcement of the Merger were $11.00 and $10.75,
respectively. The following are the high and low quarterly closing bid and
asked prices per Company share for 1994, 1995 and the first half of 1996,
which have been adjusted to reflect 2-for-1 stock splits in May 1994, May
1995 and December 1995. The prices shown represent quotations between
dealers, without adjustments for retail markups, markdowns or commissions and
may not represent actual transactions:
1994 High Low
---- ---- ---

2nd Qtr. $ 7.50 3.75
3rd Qtr. 6.875 3.625
4th Qtr. 4.25 3.50

1995
----

1st Qtr. 5.398 3.75
2nd Qtr. 8.094 7.875
3rd Qtr. 17.688 10.75
4th Qtr. 15.688 13.375

1996
----

1st Qtr. 13.00 9.375
2nd Qtr. 10.75 8.375

As of June 30, 1996, the Company had 387 shareholders of record and
6,040,116 shares issued and outstanding.

DIVIDEND HISTORY

The Company has paid no cash dividends since its formation. The Company
presently anticipates that all of its future earnings will be retained for the
development of its business and does not anticipate paying cash dividends on the
Company common stock in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
be based on the Company's future earnings, financial condition, capital
requirements and other relevant factors.
OTHER MATTERS TO BE CONSIDERED AT THE MEETING
In addition to the Merger, shareholders of the Company will be asked to
approve amendments to the Company Articles and the Company Regulations and to
elect four Class I directors and three Class II directors. Approval of the
Merger is conditioned on the approval of the amended Company Articles and
Company Regulations, which requires the affirmative vote of holders of shares
entitling them to exercise at least two-thirds of the voting power of the
Company. As of June 30, 1996, the Company had 6,040,116 shares of common stock
issued and outstanding and entitled to vote at the Meeting. Each share of
common stock outstanding on the record date entitles the holder to one vote on
the approval of the Merger, the amended Company Articles and the amended Company
Regulations. Shareholders of the Company are entitled to cumulate their votes
in the election of directors, which permits a shareholder to give one nominee as
many votes as the number of directors to be elected multiplied by the number of
shares held by the shareholder, or to distribute the votes on the same principle
among two or more of the nominees. In order to exercise this right, a
shareholder must notify the president, vice president or secretary of the
Company in writing not less than 48-hours in advance of the Meeting. The
adoption of the Company Articles will eliminate the right to cumulate votes in
the election of directors after the Merger is effective. See "COMPARISON OF
CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR COMPANY SHAREHOLDERS -
Amendment of Company Articles and Company Regulations"
The election of each director nominee requires the favorable vote of a
plurality of all votes cast by the holders of common stock of the Company at a
meeting at which a quorum is present. Proxies that are marked "Withhold
Authority" and broker non-votes will not be counted toward such nominee's
achievement of a plurality and thus will have no effect. For purposes of
determining the number of shares of common stock of the Company voting on any
other matter, abstentions will be counted and will have the effect of a negative
vote; broker non-votes will not be counted and thus will have no effect.

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, SHAREHOLDERS OF
THE COMPANY AND THE PREDECESSOR COMPANIES SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING A
DECISION REGARDING THEIR VOTE ON THE MERGER.

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. The Company was
formed on October 25, 1989. Because the Company is in the early stage of its
operations it is subject to all the risks incident to the creation and
development of a new business, including the absence of earnings and minimal
net worth. The Company has to date had no appreciable income from
operations, and as of June 30, 1996 has an accumulated deficit of $444,057.
See INDEX TO FINANCIAL STATEMENTS and "THE COMPANY-General".

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<PAGE>

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. While the
Company cannot accurately predict the extent of its future capital needs, the
Company anticipates that expenditures will increase significantly during the
period from 1996 through 1998 due to the cost of the commercial launch of the
PAPNET-Registered Trademark- System, expenses associated with the Merger, and
the execution of the Company's business plan to acquire complementary
technologies. A significant amount of the Company's assets are represented
by its investment in NSI Common Stock, which the Company expects to liquidate
to finance its business activities. There can be no assurance regarding the
market value of the NSI common stock and any decrease in its market value
will adversely impact the Company's total assets and its ability to fund its
business plan. In addition, there can be no assurance that other funds
will be available on terms favorable to the Company, or at all. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the then current shareholders of the Company may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's common stock.

LACK OF PROSPECTIVE DIVIDENDS. The Company does not contemplate the
payment of dividends on the Company Shares for the foreseeable future. The
Company has accumulated substantial losses since its inception and there can be
no assurance that the Company's operations will result in sufficient revenues to
enable the Company to operate at profitable levels or to generate positive cash
flow. Any earnings generated from the operations of the Company will be used to
finance the business and growth of the Company. See "Description of Company
Capital Stock - Dividends."
DEPENDENCE ON MANAGEMENT. The success of the Company's operations is
highly dependent upon David J. Richards who has devoted much effort in marketing
the PAPNET-Registered Trademark-System. The loss of Mr. Richards as an
employee could have an adverse effect on the business of the Company. The
Company has no employment agreement with Mr. Richards and does not own any
insurance policies on his life.
CONTROL BY DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS. Upon completion
of the Merger, the directors, executive officers and principal shareholders (5%
or greater) of the Company will collectively own approximately 26.9% of the
outstanding Company common stock. As a result, these shareholders will be able
to exercise significant influence over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying
or preventing a change in control of the Company. See "THE COMPANY - Principal
Shareholders."
LIMITED PUBLIC MARKET. To date, the Company's common stock has traded
on a limited over the counter market. Although the Company expects that a
public market will develop for its common stock upon consummation of the
Merger, there can be no assurance of that market. Also, there can be no
assurance that, if a market develops, that it will be an active, liquid or
continuous trading market. The stock market has experienced extreme price
and volume fluctuations and volatility that has particularly affected the
market prices of many technology, emerging growth and developmental stage
companies. Such fluctuations and volatility have often been unrelated or
disproportionate to the operating performance of such companies. Factors
such as announcements of the introduction of new or enhanced services or
related products by the Company or its competitors may have a significant
impact on the market price of the Company's common stock. See "Summary -
Market Price Data."

SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE.
Upon completion of the Merger, the Company will have 10,890,149 shares of common
stock outstanding. Of these shares, 5,390,556 shares will be held by
nonaffiliates of the Company or the Predecessor Companies and will be, subject
only to the restrictions on transfer imposed by or in connection with the Merger
Agreement, freely tradeable without restriction or further registration under
the Securities Act. The remaining 5,499,593 shares are or will be held by
affiliates of the Company or the Predecessor Companies, who will be entitled to
resell them, subject to the restrictions on transfer imposed by or in connection
with the Merger Agreement, only pursuant to a registration statement under the
Securities Act or an applicable exemption from registration thereunder such as
an exemption provided by Rule 144 under the Securities Act, or, in the case of
shares acquired in connection with the Merger by affiliates of the Predecessor
Companies, in compliance with the provisions of Rule 145 under the Securities
Act.
Sales of substantial amounts of the Company common stock in the public
market or the prospect of such sales after the Merger could adversely affect the
market price of the Company common stock.

NO OWNERSHIP OF THE PAPNET-Registered Trademark- SYSTEM AND
PAPNET-Registered Trademark- SERVICE; DEPENDENCE ON LICENSE AGREEMENT. NSI
has granted the Company rights with respect to the marketing of the
PAPNET-Registered Trademark- System and PAPNET-Registered Trademark- Service;
the Company has no ownership rights in the underlying technology. The
Company's marketing rights and the revenues generated by these activities,
are governed by the terms of a License Agreement with NSI (the "License
Agreement"). While the Company has exclusive rights to market the
PAPNET-Registered Trademark- System and PAPNET-Registered Trademark- Service
in the "Territory," as defined in the License Agreement, the License
Agreement does not prohibit NSI from conducting sales activities in the
Territory directly through its national sales force.

The License Agreement imposes significant territorial and other
restrictions on the Company's marketing rights, and places certain limitations
on the amounts of royalty revenues which the Company can generate through the
marketing of the PAPNET-Registered Trademark- System and PAPNET-Registered
Trademark- Service.
The License has a limited term - expiring on December 31, 2025, but the
Company has an option to renew the License Agreement upon payment of a fee based
on the present value of future royalty revenues. The License Agreement is
otherwise noncancellable. See "THE COMPANY - The License."

INABILITY TO CONTROL CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS;
RELIANCE ON NSI. The business of the Company is dependent upon a number of
factors, many of which are controlled by NSI. These factors include
maintaining the PAPNET-Registered Trademark- System's compliance with FDA and
other regulatory requirements, maintenance of the technological advantages of
the PAPNET-Registered Trademark- System, maintenance of product liability
insurance, the ability to manufacture and deliver the equipment required to
operate the PAPNET-Registered Trademark- System, and the ability to build and
operate the Scanning Station portion of the PAPNET-Registered Trademark-
System. Further, NSI is in a stage of development that may require
additional funding for its internal operations. In the event that NSI should
fail to perform in any of these areas, or in any others which could affect
its licensees, such failure could have an adverse effect on the Company and
its business. The Company is dependent and relies upon NSI for product
information, support and marketing and other pertinent information. See "The
COMPANY - NSI".

Further, NSI does not manufacture all of the equipment used in the
PAPNET-Registered Trademark- System, and is therefore dependent upon others to
do so. The failure of NSI's suppliers to perform could have an adverse effect
on the Company's business.

POTENTIAL ADVERSE IMPACT OF GOVERNMENT REGULATION ON THE COMPANY'S
BUSINESS. NSI's services, products and manufacturing activities are subject to
extensive and rigorous government regulation, including the provisions of the
Medical Device Amendment to the Federal Food, Drug and Cosmetic Act. Commercial
distribution in certain foreign countries is also subject to government
regulations. The process of obtaining required regulatory approvals can be
lengthy, expensive and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. The FDA actively enforces regulations prohibiting marketing
without compliance with the premarket approval provisions of products and
conducts periodic inspections to determine compliance with Good Manufacturing
Practice regulations.

The FDA recently warned the Company that certain promotional materials
relating to the PAPNET-Registered Trademark- System appearing on the Company's
World Wide Web site failed to comply with certain FDA premarket approval
regulations. The FDA cited specific claims made in these materials and advised
the Company that it should review these and other promotional materials to
ensure compliance with the regulations. While the Company believes that the
materials comply in all respects with applicable regulations, it has suspended
access to these materials on its Web site pending final resolution of the FDA's
comments as contained in the warning letter.

Failure to comply with applicable regulatory requirements can result in,
among other things, fines, suspensions of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions. Furthermore,
changes in existing regulations or adoption of new regulations could prevent NSI
from obtaining, or affect the timing of, future regulatory approvals. The
effect of governmental regulation may be to delay for a considerable period of
time or to prevent the marketing and/or full commercialization of future
products or services that NSI or the Company may develop and/or impose costly
requirements on NSI or the Company. There can be no assurance that NSI or the
Company will be able to obtain regulatory approvals of any products on a timely
basis or at all. Delays in receipt of or failure to receive such approvals or
loss of previously received approvals would adversely affect the marketing of
NSI's and the Company's proposed products. There can also be no assurance that
additional regulations will not be adopted or current regulations amended in
such a manner as will materially adversely effect NSI or the Company.

NO ASSURANCE FOR MARKET ACCEPTANCE OF THE PAPNET-Registered Trademark-
SYSTEM. The Company's future performance will depend to a substantial degree
upon market acceptance of the PAPNET-Registered Trademark- System. The
extent of, and rate at which, market acceptance and penetration are achieved
by the PAPNET-Registered Trademark- System are functions of many variables
including, but not limited to, price, effectiveness, acceptance by patients,
physicians and laboratories (including the ability of laboratories to hire
additional cytotechnologists), manufacturing, slide processing and training
capacity, reimbursement practice and marketing and sales efforts. There can
be no assurance that the PAPNET-Registered Trademark- System will achieve or
maintain acceptance in its target markets. See "THE COMPANY - The Market."

RELIANCE ON A SINGLE PRODUCT. While the Company intends to develop or
acquire other technologies, it has concentrated its efforts primarily on the
marketing of the PAPNET-Registered Trademark- System and will be dependent upon
the successful development of that product to generate revenues. Accordingly,
for the foreseeable future, the Company's success will be dependent upon the
marketing of the PAPNET-Registered Trademark- System. See "THE COMPANY - The
Papnet-Registered Trademark- System and the Papnet-Registered Trademark-
Service.

DEPENDENCE ON NSI TO PROTECT PATENTS AND PROPRIETARY TECHNOLOGY. The
technology underlying the PAPNET-Registered Trademark- System is protected by
broad patent protection granted to NSI with respect to the use of neural
networks in automated and semi-automated cytology. There can be no assurance
that the NSI patents will afford protection from material infringement or
that such patents will not be challenged. NSI and the Company will also rely
on trade secrets and proprietary know-how, which they will seek to protect,
in part, through confidentiality agreements with employees, consultants and
other parties. There can be no assurance that these agreements will not be
breached, that there will be adequate remedies for any breach or that trade
secrets of NSI or the Company will not otherwise become known to, or
independently developed by, competitors.

-14-
<PAGE>

The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights.
Although patent and intellectual property disputes in the medical device area
have often been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and there can be no
assurance that necessary licenses would be available to NSI or the Company on
satisfactory terms or at all. Adverse determinations could limit the value
of NSI's or the Company's issued patents or result in invalidation of those
patents, subject NSI or the Company to significant liabilities to third
parties, require NSI or the Company to seek licenses from third parties or
prevent NSI from manufacturing its products or prevent NSI or the Company
from selling NSI's products, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "THE COMPANY - NSI".

FAILURE TO MAINTAIN A TECHNOLOGICAL ADVANTAGE. NSI, and consequently
the Company, are dependent upon the technological advantages of the
PAPNET-Registered Trademark- System and its patent protection. There can be
no assurance that NSI will be able to maintain such advantages, and the
failure to do so could have adverse consequences on the business of the
Company.

-15-
<PAGE>

COMPETITION. The Company is aware of several companies that either have
developed or are developing Pap smear classification systems that are
competitive with the PAPNET-Registered Trademark- System. Commercial
availability of such products could have a material adverse effect on the
Company's business, financial condition and results of operations. NSI's
competitors may have substantially greater financial, manufacturing, marketing
and technical resources than NSI and represent significant potential long-term
competition for NSI. NSI's competitors may succeed in developing products that
are more effective or less costly than any that may be developed by NSI. These
competitors may also prove to be more successful than NSI in production and
marketing. New developments are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and development
by others will not render NSI's current and contemplated products obsolete.
Competition may increase further as a result of advances that may be made in the
commercial applicability of technologies and greater availability of capital for
investment in these fields. Since the Company was organized, competitors have
made strides in developing automated or semi-automated system that could
successfully compete with the PAPNET-Registered Trademark- System. See "THE
COMPANY".

IMPACT OF MEDICARE, MEDICAID AND OTHER THIRD-PARTY REIMBURSEMENTS. In the
United States, many Pap smears are currently paid for by the patient, and the
level of reimbursement by third-party payers that do provide reimbursement
varied considerably. Third-party payers (Medicare/Medicaid, private health
insurance, health administration authorities in foreign countries and other
organizations) may affect the pricing or relative attractiveness of the NSI's
products and services by regulating the maximum amount of reimbursement for
PAPNET-Registered Trademark- testing provided by such payers or by not providing
any reimbursement at all. Restrictions on reimbursement may limit the price
which the Company can charge for its services or reduce the demand for
PAPNET-Registered Trademark- testing, or, if the level of such reimbursement to
laboratories charge patients to perform PAPNET-Registered Trademark- testing,
the size of the potential market available to the Company may be reduced. There
can be no assurance that costs associated with the PAPNET-Registered Trademark-
testing will become reimbursable or that the level of reimbursement to
laboratories for PAPNET-Registered Trademark- testing will achieve or be
maintained at levels necessary to permit the Company to generate substantial
revenues.

RISKS RELATING TO PRODUCT LIABILITY. The business of the Company
could expose it to the risks inherent in the production and distribution of
medical diagnostic equipment. Although NSI has attempted to reduce the
exposure to product liability risk by disclosing the demonstrated range of
accuracy of the PAPNET-Registered Trademark- System, there can be no
assurance that the Company will not be exposed to liability resulting from
the failure or inaccuracy of the PAPNET-Registered Trademark- System.
Neither the Company nor any Predecessor Company carries product liability
insurance. However, NSI is required, under the terms of the License
Agreement, to name the Company and each Predecessor Company as additional
insured on its product liability policy. There can be no assurance that NSI
will have the resources necessary to purchase and maintain the insurance;
that, if purchased, the insurance will be sufficient to cover the potential
claims; or, that NSI will have adequate resources to indemnify the Company
from any uninsured loss.

-16-
<PAGE>

POTENTIAL ANTI-TAKEOVER; AFFECT AND POTENTIAL ADVERSE IMPACT ON MARKET
PRICE OF CERTAIN PROVISIONS OF OHIO LAW; ARTICLES OF INCORPORATION AND
REGULATIONS. Certain provisions of Ohio law, the Company's Articles of
Incorporation and Regulations could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. The Company's Articles of
Incorporation provide for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms (unless there are
fewer than 9 Directors, in which case there will be two classes). Such
classification of the Board of Directors expands the time required to change
the composition of a majority of directors and may tend to discourage a proxy
contest or other takeover bid for the Company. See "COMPARISON OF CERTAIN
RIGHTS OF THE COMPANY AND THE PREDECESSOR COMPANY SHAREHOLDERS - Amended
Company Articles." Certain provisions of Ohio law and the Company's Articles
allow the Company to issue preferred stock (the "Preferred Stock") with
rights senior to those of the Company's common stock without any further vote
or action by the shareholders. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to the
holders of the Company's common stock or could adversely affect the rights
and powers, including voting rights, of the holders of the Company's common
stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Company's common stock. See "COMPARISON
OF CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR COMPANIES SHAREHOLDERS -
Amended Company Articles" and "Ohio General Corporation Law." Additionally,
upon completion of the Merger, the directors, executive officers and existing
principal shareholders of the

-17-
<PAGE>

Company and their affiliates will collectively own approximately 31% of the
outstanding common stock. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See "RISK
FACTORS - Control by Principal Shareholders" and "THE COMPANY - Principal
Shareholders."

[The remainder of this page intentionally left blank.]

-18-
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY

The selected financial data which follows have been derived from the
financial statements of the Company and the Predecessor Companies included
elsewhere in this Prospectus. The selected combined financial data set forth
below should be read in conjunction with "THE COMPANY - Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the Company" and the Financial Statements and Notes thereto included
elsewhere in this Prospectus. See "INDEX TO FINANCIAL STATEMENTS."

<TABLE>
<CAPTION>
CCI
AND PRO FORMA
PPNT ERG CCWP INC CIN COMBINED
----------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>

Royalty revenue $ 48,000 $ 12,000 $ 12,000 $ 4,200 $ 7,800 $ 84,000

Operating expenses 573,149 35,648 33,727 11,643 21,621 725,788

Operating loss (525,149) (23,648) (21,727) (7,443) (13,821) (641,788)

Other income 1,781,379 534,904 533,558 92,600 171,970 3,064,773

Net Income $1,324,945 $511,256 $462,193 $58,000 $158,149 $2,484,546

Pro forma earnings
per share $ .23
-----------
-----------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1996

CCI
AND PRO FORMA
PPNT ERG CCWP INC CIN COMBINED
----------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>

Royalty revenue $ 27,099 $ 7,137 $ 8,715 $ 2,577 $ 4,784 $ 50,312

Operating expenses 391,457 118,190 52,337 28,274 53,301 693,559

Operating loss (364,358) (111,053) (43,622) (25,697) (48,517) (643,247)

Net loss $(235,577) $(110,489) $(39,531) $(14,844) $(48,517) $(478,958)

Pro forma earnings
per share $ (.04)
-----------
-----------

</TABLE>

THE MERGER

BACKGROUND OF THE MERGER

Management of the Company and the Predecessor Companies began
discussing a possible business combination in early 1995. The discussions
were narrow in focus and centered around the ability of the Predecessor
Companies to successfully market the PAPNET-Registered Trademark- System and
the PAPNET-Registered Trademark- Service in their respective licensed
territories following FDA approval; the funds necessary for the Predecessor
Companies to finance the commercial launch of the PAPNET-Registered
Trademark-System and the PAPNET-Registered Trademark- Service; the fact that
the combination would offer shareholders of the Predecessor Companies
opportunity to take advantage of the substantial amount of time and resources
the Company had devoted to the commercial launch of the PAPNET-Registered
Trademark- System and the PAPNET-Registered Trademark- Service; the
efficiencies created by the combination; and the method for valuing the
Predecessor Companies for purposes of the Merger. While no agreement had
been reached on specific terms or a specific structure for the combination,
the discussions culminated in the signing of a letter of intent, dated
February 1, 1995, summarizing the discussions and understandings of the
parties regarding a proposed merger of the Company and the Predecessor
Companies (the "Letter of Intent"). The parties to the Letter of Intent had
to agree on the relative valuation of the combining entities and certain
other issues. NSI's pending initial public offering and disagreements with
NSI involving the Company's and the Predecessor Companies' rights under their
respective license agreements with NSI also contributed to the delay in
finalizing the Merger Agreement.

On December 5, 1995, the Company and the Predecessor Companies entered
into a Settlement Agreement with NSI, which settled all disputes with NSI as
of that date. The Settlement Agreement included the License Agreement for
the licensing of rights to the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service that the Company and each of the
Predecessor Companies approved. NSI also closed its initial public offering
on December 7, 1995.

Following finalization of the Settlement Agreement and FDA approval
of the Papnet-Registered Trademark- System, the Company and the Predecessor
Companies completed the negotiation of the structure of the combination and the
relative valuation of the Company and the Predecessor Companies. See "THE
MERGER - The Merger Agreement." In March 1996, the Company and the
Predecessor Companies agreed to a merger in which CWI and PUI were to have
been parties. CWI would have been the surviving corporation, but that
transaction was abandoned in June 1996, and the parties decided to proceed
without the participation of CWI and PUI. CWI and PUI abandoned the
transaction in order to pursue other technologies that the Company and the
Predecessor Companies were not ready to pursue without assurances of the
ability to obtain the financing necessary to commercialize them.

REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS

Since its inception, the Company has invested significant time and
resources in preparing for the commercial launch of the PAPNET-Registered
Trademark- System and the PAPNET-Registered Trademark- Service. The Company has
hired and trained sales representatives and has established relationships with
key physicians and laboratories throughout its territory. Since undertaking the
management of the Predecessor Companies' operations in December 1995 (see
"CERTAIN RELATED TRANSACTIONS"), the Company has extended these activities to
the territories licensed to each of the Predecessor Companies as well. This
experience became a key consideration of the directors of both the Company and
the Predecessor Companies in evaluating the business reasons for the Merger,
especially in light of the fact that none of the Predecessor Companies had such
experience and the time, effort and financing that would be required to
replicate it in each of their territories.

In evaluating the proposed Merger, the directors of the
Company, with the assistance of outside counsel and other advisors,
also considered the following material factors, which support its
determination to recommend the merger to the Shareholders of the Company:

(i) the ability, given that it was already managing operations and
marketing in the Predecessor Companies' territories, to increase its revenues
and profits through the acquisition of these territories in the Merger, with
only a marginal increase in overhead;

(ii) the prospects for enhancing shareholder liquidity through through
increased market awareness expected to result from the Company expanding its
territories, assets and revenues as a result of the Merger;

(iii) the information provided to the Company directors by the
officers of the Company with respect to the financial and other aspects of the
Merger;

(iv) the review of the material terms and conditions of the Merger as
reflected in the Merger Agreement, including the amount and form of
consideration to be paid in exchange for the Predecessor Company shares (See
"THE MERGER - MERGER CONSIDERATION GENERALLY");

(v) the dilution to the Company shareholders and the likelihood that the
Merger would produce greater shareholder value (See "THE MERGER - MERGER
CONSIDERATION GENERALLY"); and

(vi) the impact of the Merger on the long-term goals, interest,
prospects and objectives of the Company.

The foregoing discussion of the information and factors discussed by the
Board of Directors of the Company is not meant to be exhaustive, but is
believed to include all material factors considered by the Company Board.
There were no financial models or third party analyses prepared in connection
with the Merger. The Company Board did not quantify or attach any particular
weight to the various factors that it considered in reaching its determination
that the Merger is in the best interest of its shareholders.

REASONS FOR THE MERGER; RECOMMENDATION OF THE PREDECESSOR COMPANIES' BOARDS
OF DIRECTORS

None of the Predecessor Companies had conducted any significant
operations prior to December 1995, when the Company began managing all of
their operations and marketing. In approving the Merger and
recommending it to their respective shareholders, the directors of the
Predecessor Companies considered the foregoing and the following material
factors without assigning relative weights thereto:

(i) the significant management and marketing experience already developed
by the Company, and that substantial time, effort and financing required to
replicate it in each of their territories;

(ii) the delay in reaching the market and realizing the full potential of
the territory license while each Predecessor Company prepares business and
marketing plans for the commercial launch of the PAPNET-Registered Trademark-
System and the PAPNET-Registered Trademark- Service;

(iii) the time and expense involved for each Predecessor Company to
hire, train and retain individual management teams to implement the business and
marketing plans prepared by each Predecessor Company;

(iv) the impact the size of the individual territories may have on each
Predecessor Company's ability to hire and retain qualified management and sales
personnel;

(v) the fact that each Predecessor Company is closely-held with little
prospect for liquidity for their respective shareholders and the likelihood that
the consummation of the Merger eventually will provide the shareholders of the
Predecessor Companies with liquidity;

(vi) other information provided to the directors of the Predecessor
Companies by their respective officers with respect to the financial and other
aspects of the Merger;

(vii) the review of the material terms and conditions of the Merger as
reflected in the Merger Agreement, including the amount and form of
consideration (See "THE MERGER - MERGER CONSIDERATION GENERALLY");

(viii) the conditions precedent to the Merger;

(ix) the structure of the Merger, which the directors believed would permit
holders of the Predecessor Companies' shares to exchange all of their shares on
a tax-free basis;

(x) the marketing and competitive advantages gained; and

(xi) the opportunity to enhance shareholder value.

The foregoing discussion of the information and factors discussed by the
directors of the Predecessor Companies is not meant to be exhaustive, but is
believed to include all material factors considered. There were no financial
models or third party analyses prepared in connection with the merger. The
directors of the Predecessor Companies did not quantify or attach any particular
weight to the various factors considered in reaching a determination that the
Merger is in the best interest of their respective shareholders.
See "THE MERGER - Analysis of Individual Predecessor Company Boards."

-19-
<PAGE>

The directors of the Company and the Predecessor Companies have unanimously
determined that the Merger Agreement and the Merger are advisable and fair and
in the best interests of the Company and the Predecessor Companies and recommend
that their respective shareholders approve the Merger Agreement and the Merger.

MERGER CONSIDERATION GENERALLY. In the Merger, all outstanding shares of
the Predecessor Companies' common stock, including shares of Predecessor Company
common stock issuable upon

-20-
<PAGE>

the exercise of outstanding warrants and options, shall be converted into the
right to receive the Company Shares, based on the following conversion table:

Number of Company Shares
for each Predecessor
Predecessor Company Company Share
------------------- -------------
CIN 1,121.6652
INC 4,491.7064
ERG 3,237.2643
CCWP 37.3971
CCI 1,487.6186

As a result of the Merger, the shareholders of each of the
Predecessor Companies will own, in the aggregate, the following percentage of
the issued and outstanding stock of Papnet: CIN (7.70%); INC (4.11%); ERG
(17.13%); CCWP (3.13%); and CCI (12.32%).

The Merger Consideration was determined through negotiation between the
Company and the Predecessor Companies, but the parties developed a starting
point for the negotiations through the application of certain objective
criteria, including the population of each licensed territory and the
respective assets of the companies. In addition, the fact that the Company had
a history of operations was given some weight in determining the Merger
Consideration. The following table sets forth the percentage weighting of
ownership of shares of NetMed which will be held by shareholders of the Company
and each of the Predecessor Companies immediately following the Merger, in
comparison to the percentages of combined territory populations and assets
represented by each company.

[Remainder of this page intentionally left blank]

INITIAL INITIAL % OF
NAME OF COMPANY TERRITORY POPULATION % OF POP. ASSETS(1) % OF ASSETS NETMED
<S> <C> <C> <C> <C> <C> <C>
The Company OH, KY, 23,399,000 54.92% $5,114,835 54.04% 55.61%
IL(2)

CIN/INC MO 5,249,000 12.32% $839,922 8.87% 11.81%

ERG GA 6,968,000 16.35% $1,785,037 18.86% 17.13%

CCI/CCWP NC 6,993,000 16.41% $1,725,037 18.23% 15.45%

TOTALS 42,609,000 100.00% $9,464,831 100.00% 100.00%
</TABLE>

(1) This column represents total assets of each company as agreed by the
parties for purposes of calculating the Merger Consideration.

(2) The Company's territory includes only the Standard Metropolitan
Statistical Area of Chicago, Illinois.

(3) An adjustment to the final Merger Consideration for CCI/CCWP was made to
reflect the Company's ownership interest in the North Carolina territory.

ANALYSIS OF INDIVIDUAL PREDECESSOR COMPANY BOARDS

CIN AND INC

CIN owns approximately a 65% interest and INC owns approximately a 35%
interest in the rights to market the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in Missouri. Accordingly, the factors
considered by their respective directors were identical. There were no
financial models or third party analyses prepared in connection with the Merger.
The directors considered all the factors identified under "THE MERGER - REASONS
FOR THE MERGER; RECOMMENDATION OF THE PREDECESSOR COMPANIES' BOARDS OF
DIRECTORS" and the Merger Consideration to be received by their respective
shareholders. See "THE MERGER - MERGER CONSIDERATION GENERALLY." The
directors of CIN and INC determined, in their best judgment, that the Merger was
in the best interests of their respective shareholders.

ERG

ERG owns the rights to market the PAPNET-Registered Trademark- System and
the PAPNET-Registered Trademark- Service in Georgia. There were no financial
models or third party analyses prepared in connection with the Merger. The
directors considered all the factors identified under "REASONS FOR THE MERGER;
RECOMMENDATION OF THE PREDECESSOR COMPANIES' BOARDS OF DIRECTORS" and the Merger
Consideration to be received by their shareholders. See "THE MERGER - MERGER
CONSIDERATION GENERALLY." The directors determined, in their best judgment,
that the Merger was in the best interests of their shareholders.

CCI AND CCWP

CCI owns the rights to market the PAPNET-Registered Trademark- System and
the PAPNET-Registered Trademark- Service in North Carolina. CCWP owns NSI
common stock issued on the exercise of warrants received as part of the license
for the North Carolina territory. There were no financial models or third party
analyses prepared in connection with the Merger. The directors of each company
considered all the factors identified under "REASONS FOR THE MERGER;
RECOMMENDATION OF THE PREDECESSOR COMPANIES' BOARDS OF DIRECTORS" and the Merger
Consideration to be received by their respective

shareholders, which was adjusted to reflect the Company's ownership interest
in the North Carolina territory. The directors of CCI and CCWP determined,
in their best judgment, that the Merger was in the best interests of their
respective shareholders.

REQUIRED VOTE

ERG, CCWP, and CCI are all Ohio corporations and their respective articles
of incorporation provide that where Ohio General Corporation Law requires the
affirmative vote of greater than a majority of the shares entitled to vote on a
matter, that matter can be approved by a majority of the shares entitled to vote
on the matter. Accordingly, approval of the Merger, Merger Agreement and the
transactions contemplated thereby requires the affirmative vote of the holders
of the issued and outstanding shares of ERG, CCWP, and CCI common stock
entitling them to exercise a majority of the voting power of the respective
corporations.

The Company, CIN, and INC are also Ohio corporations, but their respective
articles of incorporation do not provide for majority approval of transactions
like those contemplated by the Merger and the Merger Agreement. Accordingly,
the Merger, the Merger Agreement and the transactions contemplated thereby must
be approved by the affirmative vote of the holders of the issued and outstanding
shares of the Company, CIN, and INC common stock entitling them to exercise at
least two-thirds of the voting power of the respective corporations.

As of June 30, 1996, the Company had 6,040,116 shares of its common stock
issued and outstanding. Officers, directors and affiliates of the Company own,
in the aggregate, 1,984,838 shares of the Company's issued and outstanding
common stock, which represents 33% of the issued and outstanding common shares.
See "THE COMPANY - Principal Shareholders." The Company's Board of Directors
has recommended approval of the Merger to the shareholders and each of the
Company's directors intend to vote in favor of the Merger. These directors own
26.5% of the issued and outstanding common stock of the Company.

THE MERGER AGREEMENT

The following is a brief summary of material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Prospectus and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement. Shareholders are urged to read the Merger
Agreement carefully. Exhibits to the Merger Agreement are not included in
Appendix A, but have been included in the exhibits filed with the Registration
Statement of which this Prospectus is a part.

The Merger Agreement provides that, as promptly as practicable following
the approval of the Merger by the shareholders of the Company and the
Predecessor Companies and the satisfaction or waiver of the other conditions to
the Merger, but in no event later than two days thereafter, the Predecessor
Companies will be merged with and into the Company, with the Company continuing
as the surviving corporation under the name "NetMed, Inc."

Upon the satisfaction or waiver of all conditions to the Merger, the Merger
will become effective upon the filing of a certificate of merger by the Company
and the Predecessor Companies with the Secretary of State of Ohio in accordance
with Ohio General Corporation Law. The anticipated Effective Time is not until
December, 1996.

FRACTIONAL SHARES. No fractional shares will be issued in the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER. The respective obligations
of the Company and the Predecessor Companies to consummate the Merger are
subject to certain conditions, including among others the adoption of the
Merger and the Merger Agreement by the holders of the requisite number of
shares of the Company and Predecessor Companies' common stock; the compliance
by each of the parties to the Merger Agreement with its material obligations
thereunder and the truth of the representations and warranties made by each
of the parties on the date of the Merger Agreement and at the Effective Time;
the Registration Statement shall have become effective under the Securities
Act; the Company shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the Company Shares
pursuant to the Merger and the Merger Agreement; the Company shares shall have
been admitted for quotation on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation system ("NASDAQ
NMS"); at the time of the consummation of the transactions contemplated by the
Merger Agreement (the "Closing"), the shareholders of the Company or any
Predecessor Company entitled to assert dissenter's rights shall own in the
aggregate less than 10% of the outstanding shares of the Company or the
Predecessor Company; and the Company and the Predecessor Companies having
received an opinion of Porter, Wright, Morris & Arthur, counsel to the
Company, to the effect that, among other things that, the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and each Predecessor Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code and that the
holding period for the Company Shares received in exchange for the
Predecessor Company shares will include the period for which the Predecessor
Company shares were held, provided that the Predecessor Company shares were
held as a capital asset. The NASD has advised the Company that it appears
that the Company's common shares will not be eligible for listing on
NASDAQ/NMS. Based upon discussions among the parties to the Merger
Agreement, the Company expects that this condition of the Merger will be
waived. See "THE MERGER - The Merger Agreement (Conditions to Consummation of
the Merger)."
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, each of the
Predecessor Companies and the Company has made certain representations and
warranties relating to, among other things: (i) its corporate organization and
qualification; (ii) its capitalization; (iii) its corporate power and authority
relative to the Merger Agreement; (iv) the absence of conflicts with its
constituent documents and material agreements; (v) filings required to be made
with and consents required to be obtained from governmental entities in
connection with the transactions contemplated by the Merger Agreement; (vi)
the accuracy of the information supplied for this prospectus and the
Registration Statement; and (vii) the absence of changes that would have a
material adverse effect on the properties, assets, financial condition,
operating results or business.

-21-
<PAGE>

CERTAIN AGREEMENTS AND COVENANTS. Pursuant to the Merger Agreement, each
of the Predecessor Companies and the Company agree that, without the consent of
the other parties, among other things: (i) each party will carry on its
respective businesses as usual, regular and ordinary course, consistent with
past practice; (ii) it will not amend its articles of incorporation or code of
regulations; (iii) it will not cause a split, combination, or re-classification
of any of its outstanding capital stock; (iv) it will not cause the declaration,
setting aside or payment of any dividend; (v) it will not cause the redemption,
purchase, acquisition, or offer to acquire, of any shares of capital stock; (vi)
it will not cause the issuance, sale, pledge, or disposition of, or agreement to
issue, sell, pledge, or dispose of, any stock of, or securities convertible or
exchangeable for, or any option, warrant or right of any kind to acquire any
shares of capital stock of any class of stock or other securities or equity
equivalents (other than pursuant to the exercise of currently outstanding
options or warrant); (vii) it will not incur or guarantee of any indebtedness
for borrowed money other than in the ordinary course of business consistent with
past practice; or (viii) no party shall change any of the accounting principles
or practices used by it (except as required by GAAP).
LOCK-UP AGREEMENT. Under the terms of the Merger Agreement, certain
additional restrictions on the transfer of shares of the Company will be
imposed. Except with respect to certain privately negotiated sales, the
Predecessor Company shareholders will be prohibited from selling more than an
aggregate of 625,000 Company Shares during the one year period commencing on
the closing date of the Merger. The number of Company Shares that each
Predecessor Company shareholder will be entitled to sell is equal to the
product of (A) the ratio of Company Shares received with respect to the
conversion of the shareholder's shares in a Predecessor Company to the number
of Company Shares so received by all shareholders of such Predecessor
Company, times (B) the number of shares allocated to such Predecessor Company
in the Merger Agreement for the relevant time period.
In connection with the Merger, David J. Richards, John P. Kennedy and
Carl A. Genberg ("Key Company Shareholders") have agreed that, except with
respect to certain privately negotiated sales and certain transactions
involving the pledge of their shares, they will not sell the Company Shares
owned immediately after the effectiveness of the Merger (including any
Company Shares received in the Merger) for a period of one year commencing on
the closing of the Merger. See "Merger Agreement - Appendix A."

TERMINATION. The Merger Agreement may be terminated by mutual consent of
all of the parties; by any of the parties if the Merger shall not have been
consummated before September 30, 1996 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate the Merger Agreement); by any party if any permanent
injunction or other order of a court or other competent authority shall have
become final and non-appealable; or by any party if any required approval of the
shareholders of such party or any other party shall not have been obtained.
The Merger Agreement may also be terminated by a vote of the majority of a
seven member interim advisory board (the "Advisory Board") appointed by the
parties. The Company currently expects that due to delays in the originally
anticipated effective date of the Registration Statement and compliance with
legal requirements relating to the time period of notice of the shareholder
meetings, the Merger will not be effective by September 30, 1996. However,
based upon discussions among the parties to the Merger Agreement, the Company
expects that this condition will be waived and that the Merger will become
effective by mid-November 1996.

-22-
<PAGE>

the Merger Agreement or that party's breach of the Merger Agreement; and
(iii) a party's obligation to pay its share of all costs and expenses
incurred by the parties in connection with the Merger and the transactions
contemplated by the Merger Agreement. A party's share of any liquidated
damages paid as a result of a termination of the Merger or its share of
costs and expenses required to be paid by it under the Merger Agreement shall
be in proportion to the number of the Company Shares that are or would have
been owned by the party's shareholders immediately after the Effective Time.
See "THE MERGER - Merger Agreement (Termination)."

EXCHANGE OF CERTIFICATES

The Huntington National Bank, N.A., the Company's transfer agent (the
"Exchange Agent"), will mail to each holder of record of Predecessor Company
shares a letter of transmittal and instructions for use in effecting the
surrender of the Predecessor Company certificates (the "Certificates") in
exchange for certificates representing the Company's common stock. Upon
surrender of a Certificate to the Exchange Agent, together with a letter of
transmittal, duly executed, the holder of the Certificate shall be entitled to
receive in exchange therefor the certificates representing the shares of common
stock of the Company in accordance with the provisions of the Merger Agreement.

AMENDMENT TO ARTICLES OF INCORPORATION
At the Effective Time and upon the filing of the Certificate of Merger with
the Ohio Secretary of State, the Company's Articles of Incorporation will be
amended. See "COMPARISON OF CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR
COMPANY SHAREHOLDERS - Articles of Incorporation."
DISSENTER'S RIGHTS

THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTING SHAREHOLDER RIGHTS UNDER THE OHIO GENERAL CORPORATION LAW AND IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 1701.85 WHICH IS REPRINTED
IN ITS ENTIRETY AS APPENDIX B TO THIS PROSPECTUS.

The Company, CIN, INC, ERG, CCWP, and CCI are all Ohio corporations.
Shareholders of any of the parties who (i) are shareholders of record on the
record date established for determining who is entitled to notice of the meeting
called for the purpose of approving the Merger, (ii) do not vote in favor of the
Merger, and (iii) who, within 10 days after the date of the vote on the Merger
is taken, deliver written demand in compliance with the provisions of Section
1701.85(A)(2) of the Ohio Revised Code, shall be entitled to receive the fair
cash value of the shares that were not voted in favor of the Merger (the
"Dissenting Shares"). The written demand must set forth the

-23-
<PAGE>

shareholder's address, the number and class of stocks as to which the
stockholder seeks relief and the amount the shareholder claims as the fair cash
value of the Dissenting Shares.

If a constituent corporation receives a written demand from a shareholder
seeking the fair cash value of Dissenting Shares, it may request the certificate
or certificates that represent the Dissenting Shares. The dissenting
shareholder must deliver the certificate or certificates representing the
Dissenting Shares to the corporation within 15 days of the date of its request
therefor or the shareholder's rights with respect to the Dissenting Shares will
terminate. If the certificate or certificates representing the Dissenting
Shares are delivered to constituent corporation, it must promptly endorse the
certificates with a legend to the effect that a demand for the fair cash value
for the Dissenting Shares has been made and return the certificates to the
dissenting shareholder.

If the Company and the dissenting shareholder cannot agree on the fair cash
value of the Dissenting Shares, then either may, within three months after the
date of the service of the demand for fair cash value was made by the dissenting
shareholder file a complaint in the court of common pleas of the county in which
the principal office of the corporation that issued the Dissenting Shares is
located or was located when the Merger proposal was adopted by the shareholders
of that corporation. The court will first make a determination if the
dissenting shareholder is entitled to receive the fair cash value for the
Dissenting Shares. If the court determines that the dissenting shareholder is
entitled to fair cash value for the Dissenting Shares, the court will appoint an
appraiser or appraisers to make a finding as to the fair cash value of the
Dissenting Shares.

The fair cash value will be determined based on what a willing seller who
is under no compulsion to sell would be willing to accept and that which a
willing buyer who is under no compulsion to purchase would be willing to pay for
the Dissenting Shares. In no event will the fair cash value exceed the amount
stated in the written demand by the dissenting shareholder. In computing the
fair cash value, any appreciation or depreciation in the market value resulting
from the Merger shall be excluded.

The fair cash value that is agreed upon between the parties or that is
determined by the court shall be paid within 30 days after the date of the
final determination of such value or the consummation of the Merger, whichever
occurs last. Payment shall be made only upon and simultaneously with the
surrender to the Ohio Corporation of the certificate or certificates
representing the Dissenting Shares.

The costs of the action, including reasonable compensation to the
appraisers, will be fixed by the court and will be assessed or apportioned as
the court considers equitable.

A shareholder's right to receive the fair cash value for the Dissenting
Shares terminates if (i) the dissenting shareholder does not strictly comply
with the requirements of Section 1701.85, (ii) the Merger is abandoned, (iii)
the dissenting shareholder withdraws the demand for fair cash value, or (iv) the
Company and the dissenting shareholder have not come to an agreement regarding
the fair cash value of the Dissenting Shares and neither has filed a complaint
with the court of common pleas within the time period described in Section
1701.85(B).

-24-
<PAGE>

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 1701.85 OF THE OHIO GENERAL
CORPORATION LAW FOR PERFECTING DISSENTING SHAREHOLDER RIGHTS MAY RESULT IN THE
LOSS OF SUCH RIGHTS (IN WHICH EVENT AN OHIO CORPORATION SHAREHOLDER WILL BE
ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH
SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT).
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION

The merger will be effected by an exchange of the Company's common stock
for the outstanding common shares of the Predecessor Companies. This
exchange transaction will occur in connection with the initial registration
of the Company's common stock with the Securities and Exchange Commission and
will result in the public trading of the common stock. The merger of the
Company and the Predecessor Companies will be accounted for at historical
cost. This accounting is in accordance with Staff Accounting Bulletins 48
and 97. For accounting purposes, the Company will be the predecessor of the
merged entity and its historical financial statements will be those of the
new entity NetMed, Inc. The results of operations of the Predecessor
Companies will be combined with those of the Company on a prospective basis
commencing at the date of merger.

Pro Forma Combining Balance Sheet

June 30, 1996

<TABLE>
<CAPTION>
CCI
AND PRO FORMA COMBINED
PPNT ERG CCWP INC CIN ADJUSTMENTS NETMED
------------------------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 220,159 $ 50,649 $ 26,397 $ - $ - $ - $ 297,205
Accounts receivable 171,631 5,059 8,340 2,083 3,868 - 190,981
Due from related entities 227,206 - - - - (227,206)(A) -
Note receivable from stockholder 50,000 - - - - (50,000)(C) -
Prepaid assets 1,021 - - - - - 1,021
------------------------------------------------------------------------------ -----------
Total current assets 670,017 55,708 34,737 2,083 3,868 (277,206) 489,207

Investment in partnerships 125,866 - - - - (125,866)(B) -
Notes receivable - NSI 21,443 - - - - - 21,443
Investment in NSI--available for sale 5,700,960 2,165,445 2,165,445 375,150 696,685 - 11,103,685
Furniture and equipment 14,316 - - - - - 14,316
Deferred taxes 190,716 - - 20,676 - 20,000 231,392
Deposits and other assets 1,330 69 2,065 - - - 3,464
------------------------------------------------------------------------------ -----------
Total assets $6,724,648 $2,221,222 $2,202,247 $397,909 $700,553 $(383,072) $11,863,507
------------------------------------------------------------------------------ -----------
------------------------------------------------------------------------------ -----------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable $ 209,672 $ - $ 3,558 $ - $ - $ - $ 213,230
Due to related entities - 70,887 80,143 26,392 49,784 (227,206)(A) -
Accrued expenses 17,214 3,557 - 36,976 - - 57,747
Other liabilities -- - 1,172 97 199 - 1,468
------------------------------------------------------------------------------ -----------
Total current liabilities 226,886 74,444 84,873 63,465 49,983 (227,206) 272,445

Deferred taxes 1,719,583 652,755 652,755 113,083 210,003 - 3,348,179
Minority interest - - 125,866 - - (125,866)(B) -

Stockholders' equity:
Common stock 1,779,465 610,000 465,000 196,735 365,365 - 3,416,565
Additional paid-in capital 783,077 - - - - - 783,077
Unrealized gains on available-for-sale
securities net of deferred taxes 2,659,694 979,132 898,814 169,624 315,005 - 5,022,269
Retained earnings (deficit) (444,057) (95,109) (25,061) (144,998) (239,803) (30,000) (979,028)
------------------------------------------------------------------------------ -----------
Total stockholders' equity 4,778,179 1,494,023 1,338,753 221,361 440,567 (30,000) 8,242,883
------------------------------------------------------------------------------ -----------
Total liabilities and owners' equity $6,724,648 $2,221,222 $2,202,247 $397,909 $ 700,553 $(383,072) $11,863,507
------------------------------------------------------------------------------ -----------
------------------------------------------------------------------------------ -----------
</TABLE>

(A) Reflects accounts receivable and accounts payable between the Company and
the Predecessor Companies that will be eliminated upon the merger.
(B) Reflects PPNT's minority interest in partnerships consolidated into CCI and
CCWP that will be eliminated upon the merger.
(C) Note receivable from stockholder will be forgiven upon the merger.

Remainder of page intentially left blank

<PAGE>
Combining Statement of Operations

Period ended June 30, 1996

Operating expenses:
Salaries and benefits 125,973 60,414 1,667 10,401 19,316 50,000 (B) 267,771
Sales and marketing 45,125 10,936 1,870 6,668 12,383 - 76,982
Professional 21,121 5,452 10,852 995 2,620 - 41,040
Payroll and franchise taxes 28,843 2,155 158 1,107 2,056 - 34,319
Depreciation and amortization 3,000 - - - - - 3,000
Office and other 32,945 1,549 - - - - 34,494
Merger 134,450 37,684 37,790 9,103 16,926 - 235,953
------------------------------------------------------------------------------- ------------
Total operating expense 391,457 118,190 52,337 28,274 53,301 50,000 693,559
------------------------------------------------------------------------------- ------------
Operating loss (364,358) (111,053) (43,622) (25,697) (48,517) (50,000) (643,247)

Other income (expense):
Interest income 10,871 564 - - - - 11,435
Equity income in partnerships (4,091) - - - - 4,091 (A) -
------------------------------------------------------------------------------- ------------
Total other income 6,780 564 - - - 4,091 11,435
Minority interest - - 4,091 - - (4,091) (A) -
------------------------------------------------------------------------------- ------------
Loss before income taxes (357,578) (110,489) (39,531) (25,697) (48,517) (50,000) (631,812)

Income tax benefit (122,001) - - (10,853) - (20,000) (152,854)
------------------------------------------------------------------------------- ------------
Net loss $(235,577) $(110,489) $(39,531) $(14,844) $(48,517) $(30,000) $(478,958)
------------------------------------------------------------------------------- ------------
------------------------------------------------------------------------------- ------------
Pro forma earnings per share $ (.04) (C)
------------
------------
</TABLE>

(A) Refects the elimination of PPNT's equity income in its minority interest in
partnerships consolidated into CCI and CCWP.

(B) Note receivable from stockholder will be forgiven upon the merger.

(C) Pro forma earnings per share calculated based upon 10,922,969 shares of
common stock assumed to be outstanding upon completion of the merger.

<PAGE>

Combining Statement of Operations

Year ended December 31, 1995

<TABLE>
<CAPTION>
CCI
AND PRO FORMA COMBINED
PPNT ERG CCWP INC CIN ADJUSTMENTS NETMED
---------------------------------------------------------------------------- -------------

Royalty revenue $ 48,000 $ 12,000 $ 12,000 $ 4,200 $ 7,800 $ - $ 84,000

Operating expenses:
Salaries and benefits 284,041 - - - - 50,000 (B) 334,041
Sales and marketing 62,079 - - - - - 62,079
Professional 32,854 2,042 535 3,331 6,186 - 44,948
Payroll and franchise taxes 22,316 - - - - - 22,316
Depreciation and amortization 7,496 166 953 70 130 - 8,815
Office and other 57,948 1,337 44 487 904 - 60,720
Merger 106,415 32,103 32,195 7,755 14,401 - 192,869
-------------------------------------------------------------------------------------------
Total operating expense 573,149 35,648 33,727 11,643 21,621 50,000 725,788
-------------------------------------------------------------------------------------------

Operating loss (525,149) (23,648) (21,727) (7,443) (13,821) (50,000) (641,788)

Other income (expense):
Interest income 16,606 1,346 - 158 293 - 18,403
Interest expense (264) - - - - - (264)
Equity income in partnerships 49,638 - - - - (49,638) (A) (641,788)
NSI settlement and common
stock transactions 1,715,399 533,558 533,558 92,442 171,677 - 3,046,634
-------------------------------------------------------------------------------------------
Total other income 1,781,379 534,904 533,558 92,600 171,970 (49,638) 3,064,773
Minority interest - - (49,638) - - (49,638) (A) -
-------------------------------------------------------------------------------------------
Income (loss) before income
taxes 1,256,230 511,256 462,193 85,157 158,149 (50,000) 2,422,985

Income tax (benefit)
provision (68,715) - - 27,154 - (20,000) (B) (65,561)
-------------------------------------------------------------------------------------------
Net income (loss) $1,324,945 $ 511,256 $ 462,193 $ 58,000 $ 158,149 $ (30,000) $2,484,546
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Pro forma earnings per share $ .23 (C)
------------
------------

</TABLE>

(A) Reflects the elimination of PPNT's equity income in its minority
interest in partnerships consolidated into CCI and CCWP.
(B) Note receivable from stockholder will be forgiven upon the merger, tax
effected at 40%.
(C) Pro forma earnings per share calculated based upon 10,922,969 shares of
common stock assumed to be outstanding upon completion of the merger.

<PAGE>

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a general summary, subject to the
qualifications described below, of the material federal income tax
consequences of the Merger to individual United States holders of the
Predecessor Companies shares who hold their shares as capital assets. The
discussion is based on laws, regulations, rulings and decisions currently in
effect. It is for general information only, and is not intended to be tax
advice to any particular shareholder of the Company or a Predecessor Company.
The discussion does not take into account rules that are applicable to
shareholders of the Predecessor Companies that are subject to special
treatment under the Code, including without limitation, insurance companies,
dealers in securities, financial institutions, tax-exempt investors, foreign
investors, shareholders who do not hold their stock as a capital asset and
shareholders who acquired shares pursuant to the exercise of an employee
stock option, employee stock purchase plan or otherwise as compensation. The
discussion also does not address state, local or foreign tax consequences of
the Merger. No rulings have been or will be requested from the IRS with
respect to the tax consequences of the Merger.

-25-
<PAGE>

(a) No gain or loss will be recognized by the Company or the Predecessor
Companies as a result of the Merger;

(d) The holding period for the Company Shares received by shareholders of
the Predecessor Companies in exchange for their Predecessor Company
shares will include the period for which the Predecessor Company
exchanged therefor were held, provided that the exchanged Predecessor
Company shares were held as a capital asset by such shareholder on the
date of the exchange.

No opinion will be expressed with respect to any other tax consequences of
the exchange, including, without limitation, the tax consequences with respect
to any shares of Predecessor Company stock that were acquired in contemplation
of the Merger, were held by shareholders subject to special treatment under the
Code, were not held as capital assets or were acquired by the holder thereof
pursuant to any employee stock option, employee stock purchase plan or otherwise
as compensation or pursuant to the exercise of any warrants to purchase shares
of Predecessor Company stock. Further, no opinion is expressed concerning the
effect of state, local and foreign tax laws. An opinion of counsel is not
binding upon the IRS, and there can be no assurance that the IRS will not take a
position contrary to the positions reflected in such opinion or that such
opinion will be upheld by the courts if challenged by the IRS.
THE SPECIFIC TAX TREATMENT OF EACH SHAREHOLDER WILL DEPEND ON THE
SHAREHOLDER'S PARTICULAR FACTS AND CIRCUMSTANCES. EACH HOLDER OF COMPANY
SHARES AND PREDECESSOR COMPANY SHARES IS ADVISED TO CONSULT WITH SUCH
SHAREHOLDER'S OWN TAX ADVISER CONCERNING THE FEDERAL INCOME TAX

-26-
<PAGE>

CONSEQUENCES OF THE MERGER, AS WELL AS THE APPLICABLE STATE, LOCAL, FOREIGN OR
OTHER TAX CONSEQUENCES.

BACKUP WITHHOLDING. Under federal income tax law concerning "backup
withholding," the Company will be required to withhold, and will withhold, 31%
of any cash payments to which a shareholder is entitled pursuant to the Merger
unless the holder provides its taxpayer identification number ("TIN") and
certifies that such number is correct or otherwise establishes that the holder
is an exempt holder (such as a corporation or certain foreign individuals,
partnerships or trusts). In general, the TIN of an individual shareholder is
that shareholder's social security number. Each holder should sign the
Substitute Form W-9 included as part of the Transmittal Letter (or in the case
of a nonresident alien or foreign entity, a Form W-8) to prevent backup
withholding.

RESALES BY AFFILIATES

The Company Shares issuable in the Merger will have been registered under
the Securities Act but will not be freely transferable if held by persons,
including directors and executive officers of the Predecessor Companies, who may
be deemed to be "affiliates" of the Predecessor Companies for purposes of Rule
145. Affiliates may not offer to sell, sell or otherwise dispose of Company
Shares issued to them in connection with the Merger, except (i) pursuant to an
effective registration statement under the Securities Act covering those shares,
(ii) in compliance with Rule 145, or (iii) pursuant to an exemption from the
registration requirements of the Securities Act. The Company intends to obtain
customary agreements with all affiliates of the Predecessor Companies under
which those persons shall agree not to dispose of the Company Shares received by
them in the Merger, except in compliance with the Securities Act and the rules
and regulations promulgated thereunder. The Company shall be entitled to place
appropriate legends on the certificates evidencing the Company Shares to be
received by such affiliate pursuant to the terms of the Merger, and to issue
appropriate stock transfer instructions to the transfer agent for Company
Shares, to the effect that the shares received or to be received by such
affiliate pursuant to the Merger may only be sold, transferred or otherwise
conveyed, and the holder thereof may only reduce his interest in or risks
related to such shares, pursuant to an effective registration statement under
the Securities Act or in accordance with the provisions of paragraph (d) of Rule
145 or pursuant to an exemption from registration provided under the Securities
Act. The foregoing restrictions on the transferability of the Company Shares
shall apply to all purported sales, transfers and other conveyances of the
shares received or to be received by such affiliate pursuant to the Merger and
to all purported reductions in the interest in or risks relating to such shares,
whether or not such affiliate has exchanged the certificates previously
evidencing shares of the Predecessor Company common stock. This Prospectus
does not cover any resales of the Company Shares received by affiliates of the
Predecessor Companies.

Under the terms of the Merger Agreement, the Predecessor Company
shareholders have, with respect to the Company shares that each receives in the
Merger, and the Key Company Shareholders have, with respect to their shares
of the Company, agreed to certain additional restrictions on the transfer of
their respective shares of the Company. Except with respect to certain
privately negotiated sales, the Predecessor Company shareholders will be
prohibited from selling more than an aggregate of 625,000 Company Shares during
the one year period commencing on the closing date of the Merger. The number
of Company

-27-
<PAGE>

Shares that each Predecessor Company shareholder will be entitled to sell is
equal to the product of (A) the ratio of Company Shares received with respect to
the conversion of the shareholder's shares in a Predecessor Company to the
number of Company Shares so received by all shareholders of such Predecessor
Company, times (B) the number of shares allocated to such Predecessor Company in
the Merger Agreement for the relevant time period. Except with respect to
certain privately negotiated sales and certain transactions involving the pledge
of the shares held by the Key Company Shareholders, the Key Company Shareholders
have agreed not to sell the Company Shares they own immediately after the Merger
for a period of one year commencing on the closing of the Merger. See "Merger
Agreement - Appendix A."

CERTAIN RELATED TRANSACTIONS
THE COMPANY
Each of the other Predecessor Companies and the Company entered into a
Loan Agreement, dated July 5, 1996 (the "Loan Agreement"), whereby the
Company has agreed to advance to the other Predecessor Companies the expenses
incurred by each in connection with the Merger. In addition, the Company
will advance funds necessary to pay reasonable expenses of ordinary business
operations for the Predecessor Companies pending consummation of the Merger
(collectively the "Advancer"). The advances made to the Predecessor
Companies in connection with the merger that was abandoned in June 1996 (the
"Initial Advances") will be added to the Advances. The Initial Advances and
the Advances will be evidenced by a promissory note bearing interest at an
annual rate of 7%, payable 180 days after the earlier of the consummation of
the Merger or the termination of the Merger Agreement. Promissory notes
delivered by the Predecessor Companies will be secured by their shares of NSI
common stock.

The Loan Agreement was negotiated as part of the Merger Agreement. The
Boards of Directors of the Company and the Predecessor Companies considered it
to be in the best interests of their respective shareholders to use the cash
that the Company had available to cover the Merger expenses and operating
expenses prior to liquidating any of the NSI stock held by each. As of July
4, 1996, the Company has advanced the following amounts to the Predecessor
Companies under the Loan Agreement: CCI ($50,304); CIN ($50,713); ERG
($70,890); INC ($27,307); and CCWP ($27,994).

-28-
<PAGE>

the purpose of voting their shares in the Company or Predecessor Company, as the
case may be, in favor of the Merger, the Merger Agreement and the transactions
contemplated thereby.
The following eight individuals, all of whom are officers, directors and/or
affiliates of one or more of the merging entities, are the only shareholders
whose shares are subject to the Voting Agreement: David J. Richards, John P.
Kennedy, Rodney M. Kinsey, Michael S. Blue, David Smith, David Allen, James
Derck, and Alan Weisenberg.
Mr. Richards and Mr. Kennedy together own 1,441,222 shares of common
stock of the Company.Therefore, approximately 23.9% of the Company's
outstanding shares are subject to the Voting Agreement. There are
approximately 400 shareholders of the Company who are not parties to the
Voting Agreement.
Mr. Kinsey, Mr. Blue and Mr. Allen together own 4,575 shares of CCWP. CCWP
has 9,150 shares of common stock outstanding and therefore 50% of CCWP's
outstanding stock is subject to the Voting Agreement. There are eight
shareholders of CCWP who are not parties to the Voting Agreement.
Mr. Kinsey, Mr. Blue, Mr. Smith, and Mr. Allen together own 384 of the 905
outstanding shares of CCI. This represents 42.4% of the outstanding shares of
CCI. There are 22 shareholders of CCI who are not parties to the Voting
Agreement.
Mr. Kinsey, Mr. Smith, Mr. Derck and Mr. Weisenberg together own 340 of the
578 outstanding shares of ERG. This represents 58.8% of ERG's total outstanding
shares. There are 16 shareholders of ERG who are not parties to the Voting
Agreement.
Mr. Smith owns 7.72 shares of the 100 outstanding shares of common stock
of INC. This represents 7.72% of the total outstanding shares of INC. There
are 14 shareholders of INC who are not parties to the Voting Agreement.
The Company has been managing the business operations of CIN, INC, ERG,
and CCI since December 1995 and will continue to do so pending consummation of
the Merger. The operations of these Predecessor Companies, like the operations
of the Company, primarily involve the marketing of the PAPNET-Registered
Trademark- technology. Because NSI did not obtain FDA approval for the PAPNET-
Registered Trademark- technology until December 1995, the Predecessor Companies
did not have significant operations prior to that time. The Company, however,
had been actively involved, to the extent permitted by the FDA, in promoting
the PAPNET-Registered Trademark- technology in its licensed territories. In
addition to other general and administrative functions performed on behalf of
the Predecessor Companies, the Company has been hiring and training sales
personnel for their respective licensed territories.
In August 1995, in connection with the sale by Mr. Richards of 30,000
shares of the Company's common stock, the Company granted Mr. Richards purchaser
"piggyback" and one-time demand registration rights with respect to the shares
purchased. The Company will bear all costs associated with the registration of
the shares (excluding underwriter discount) in excess of $7,500. The demand
registration rights expire in August 1997
On October 14, 1994, the Company loaned David J. Richards $50,000. The
loan bears interest at the prime commercial rate plus .5%. The loan was
originally due in January, 1996, but has been indefinitely extended pending
consummation of the Merger and will be deemed a bonus and converted into
compensation (incentive compensation for successfully negotiating the Merger) in
the event that the Merger is consummated.

THE COMPANY

GENERAL

The Company is an Ohio corporation formed on October 25, 1989 for the
purpose of acquiring the exclusive rights to market certain proprietary products
of NSI in the State of Ohio. On December 29, 1989, Papnet Limited Partnership
("PLP") was formed with the Company as its general partner and the Company
assigned its marketing rights to the PAPNET-Registered Trademark- System to PLP.
Papnet Midwest Limited Partnership ("PMLP") was formed on April 6, 1990 with the
Company as its general partner and PMLP acquired the rights to market the
PAPNET-Registered Trademark- System in Kentucky and the Standard Metropolitan
Statistical Area of Chicago, Illinois. In January 1993, the Company acquired
all of the issued and outstanding units of limited partnership interest in both
PLP and PMLP and thereby acquired all of their respective rights to market the
PAPNET-Registered Trademark- System in Ohio, Kentucky and the Standard
Metropolitan Area of Chicago, Illinois.

NSI

Neuromedical Systems, Inc. ("NSI"), founded in 1988, is an emerging health
care service company focused on value-added diagnostic screening applications to
aid in the early detection of cancer of several body sites. NSI's first
product, the PAPNET-Registered Trademark- System, has been shown in a series of
controlled clinical trials to allow pathology laboratories to detect abnormal
cells on cervical Papanicolaou ("Pap") smears which were not detected by the
standard manual microscopic inspection. This improved detection can result in
more effective and less costly early treatment, reduced possibility of morbidity
and mortality for the patient, and reduced possibility of malpractice litigation
for the patient's doctor and laboratory. On September 21, 1994 NSI submitted an
application to the U.S. Food and Drug Administration ("FDA") to market the
PAPNET-Registered Trademark- System in the United States for routine clinical
use, supported by clinical trial data indicating that PAPNET-Registered
Trademark- System would have resulted in earlier detection of disease for many
patients (see below). The PAPNET-Registered Trademark- System can achieve these
improvements without requiring a modification of the standard Pap smear sample
due to its patented use of a combination of algorithmic and neural network
pattern recognition technology. By June 1996, PAPNET-Registered Trademark-
System was already in routine clinical use in 21 countries worldwide. Because
the PAPNET-Registered Trademark- System has now been approved by the FDA, NSI
intends to increase the scale of its operations to commercial levels. NSI is
required to register with the FDA and to submit device listing information for
products in commercial distribution, and is subject to periodic reinspection by
the FDA for compliance with Good Manufacturing Practice regulations.

-29-

<PAGE>

THE PAPNET-Registered Trademark- SYSTEM

The PAPNET-Registered Trademark- System is a computer-based system which
allows the cytotechnologist at the referring laboratory to review a slide by
viewing a small number of computer selected cells on a high resolution, color
video monitor. The PAPNET-Registered Trademark- System consists of a scanning
system (the "Scanner"), which processes slides and stores digital images of
certain portions of the slides on a digital tape, and a proprietary review
station (the "Review Station"), which, among other things, permits a
cytotechnologist trained by NSI to review the images stored on the digital tape.

The PAPNET-Registered Trademark- System is used as a supplement to
current practice and does not alter the clinician's or pathology laboratory's
existing smear preparation or manual screening procedures in any way. It
provides an additional and complementary level of screening for the purpose of
decreasing false negative Pap smear diagnosis.

-30-
<PAGE>

The PAPNET-Registered Trademark- System provides a semi-automated search
for abnormal cells which may have been missed on initial, manual screening. It
addresses those aspects of the cervical smear screening process which most
affect the false negative rate: the psychological habituation and fatigue
associated with the "needle in a haystack," repetitive search for a small number
of abnormal cells distributed among hundreds of thousands of normal cells. The
PAPNET-Registered Trademark- System is only used to aid in the rescreening of
slides which are diagnosed by manual inspection to be "negative" and which would
otherwise be sent to the laboratory's archive without further examination. The
system is semi-automated in that it does not attempt to provide a diagnosis, but
only points out potentially abnormal cells to the cytotechnologist, thus
retaining and enhancing the ability of trained cytotechnologists to evaluate and
interpret cytological evidence.

The Scanner operates continuously and virtually unattended, selecting 128
cells from each slide which appear most suspect to the system. The Review
Station is installed in the cytotechnologist's work area of the referring
laboratory. The Scanner includes an automated microscope, a primary high speed
image classifier, and a secondary neural network based classifier. The Review
Station includes a high resolution color video monitor, video display cards, and
an Intel compatible computer. NSI was granted a patent for technology used in
the PAPNET-Registered Trademark- System, which enables automated analysis of the
conventionally prepared smear. NSI and the Company enroll and train
laboratories to use the PAPNET-Registered Trademark- System as a rescreening
device in NSI's clinical investigation. The PAPNET-Registered Trademark- System
is in use in numerous foreign countries, where the scope of use permitted by
regulatory authorities is generally much broader than is currently the case in
the United States.

THE PAPNET-Registered Trademark- SERVICE

NSI markets and sells PAPNET-Registered Trademark- Testing as a service, by
which end-user laboratories submit slides to one of NSI's central facilities for
processing on a Scanner and NSI returns such slides and the related digital tape
containing the images to the laboratories so that NSI-trained cytotechnologists
employed by the laboratories may review the slides and images using the Review
Station. The Company is licensed to market the PAPNET-Registered Trademark-
Service.

THE LICENSE
On December 5, 1995 the Company, the Predecessor Companies and CWI and
PUI who are not parties to the Merger, entered into a Settlement Agreement
with NSI (the "Settlement Agreement"). The purpose of the Settlement
Agreement was to resolve and clarify certain issues relating to the license
agreements which NSI had with its regional licensees (relating to, among
other things, calculation of royalties, control of marketing and sales
activities, use of NSI's trademarks, and rights to market other technologies
developed by NSI), and issues relating to warrants to purchase shares of NSI
common stock which were held by the Company and certain of the Predecessor
Companies. Pursuant to the Settlement Agreement, NSI and the regional
licensees (including the Company and all of the Predecessor Companies except
CCWP) agreed to the form of a license agreement to be executed upon the
merger of some or all of the regional licensees (the "License Agreement"),
under which the Company and the other regional licensees will continue to
have the rights to market the PAPNET-Registered Trademark- System and
PAPNET-Registered Trademark- Service, as well as certain other medical
technologies which may be developed by NSI ("NSI Technology"). In the event
that the Merger is not consummated as anticipated, NSI will enter into
separate license agreements which each of the regional licensees on
substantially the same terms as the License Agreement. NSI and the regional
licensees have agreed to operate under the terms of the License Agreement
until such agreement or agreements are executed following consummation of the
Merger.

Upon consummation of the Merger, the Company will have the right and
license of sell the PAPNET-Registered Trademark- System, PAPNET-Registered
Trademark- Service and NSI Technology in the states of Ohio, Georgia,
Kentucky, Missouri, North Carolina and in the Standard Metropolitan
Statistical Area of Chicago, Illinois. The Company rights are exclusive
within the described territories, subject to the right of NSI to conduct
marketing and sales activities within the territory. However, because the
royalties paid to the Company under the License Agreement are based on
"Territory Gross Revenues", recognized by WSI from activities (including any
sales by WSI) in the licensed territory, any sales activities in the
Company's territory by NSI will inure to the benefit of the Company.

The License Agreement provides that the regional licensees will be paid
royalties as follows: (a) monthly royalties equal to 50% of the amount by which
NSI's gross revenues from sales in the licensed territories exceed the cost of
processing slides originating in the licensed territories (for purposes of which
calculation costs per slide may not exceed $1.00 per slide) and the cost of
transporting such slides, with the maximum amount of such monthly royalties in
any fiscal year capped at an amount derived by applying the royalty formula to
12,175,000 slides; (b) annual royalties equal to the difference, if any, by
which aggregate monthly royalties in any fiscal year are less than 4.15% of
NSI's worldwide gross revenues for such fiscal year, with the maximum annual
royalty amount in any fiscal year capped at $23,000,000, less the amount of
monthly royalties paid in such fiscal year calculated as described in clause
(a). For the purposes of calculating the numbers of slides attributable

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<PAGE>

to the licensed territories which are submitted by certain large laboratories
operating in multiple states ("Multistate National Laboratories"), there will be
attributed to each territory a proportionate number of slides submitted to NSI
for processing from all Multistate National Laboratories equal to the ratio that
the population of such territory bears to the population of the United States
(determined according to official U.S. Census data). These provisions may,
in some circumstances, have the effect of limiting the potential revenues
which the Company can realize from its sales activities.
The royalty calculations described in the foregoing paragraph are
aggregate calculations for all of the territorial licensees. Following
consummation of the Merger, the amounts allocable to the Company will be
determined according to the population of the geographic areas exclusively
licensed to the Company. The applicable number of slides for the slide
royalty cap described in clause (a) in the foregoing paragraph, the worldwide
revenue percentage described in clause (b) in the foregoing paragraph, and
the $23,000,000 amount described in the same clause, will be adjusted based
upon the census data available at the time of the Merger.
The License Agreement has an initial term that expires on December 31,
2025. The Company has the right to extend the License Agreement for an
additional 20 year term upon written notice to NSI within six months preceding
the expiration of the initial term and upon payment of a renewal fee, which is
based on the net present value at the time of such notice of 20 years of
royalties at the average monthly rate payable in the 12 months preceding the
date of notice.
The License Agreement may not be terminated or cancelled except upon
expiration of its initial or renewal term or by written agreement of the
parties.
THE MARKET
Pap smears are widely used in North America, Europe and other developed
areas to aid in the early detection of cervical cancer with over 50 million
tests performed annually in the U.S. alone. Pap smears can reveal early changes
in cervical cells that precede or indicate the development of cancer, thereby
facilitating timely medical intervention. When cervical cancer or precancerous
conditions are detected early on a Pap smear, the disease is almost always
completely curable using a simple outpatient procedure. However, if abnormal
cells on the Pap smear are not noticed by the laboratory, the patient may be
falsely told that her Pap smear is negative (a "false negative"), with
significant morbidity or mortality occurring as a result. Failure to diagnose
cervical cancer is a significant and rapidly growing source of malpractice
litigation against laboratories and clinicians in both the U.S. and abroad.
Manual searching of routine Pap smears to spot abnormal cells is an
unavoidably tedious and error-prone task. This is primarily because a seriously
abnormal Pap smear can contain fewer than a dozen abnormal cells scattered among
hundreds of thousands of normal cells and other objects. The cytotechnologist's
job is thus very similar to proofreading a very long document to try to detect a
few misspelled words. Regardless of how conscientious and careful the laboratory
is, many of these "needles in a haystack" may be missed, and the patient falsely
informed that her Pap smear was negative. Manual screening false-negative rates
ranging from 10% to 40% have been reported in numerous published studies. The
PAPNET-Registered Trademark- System has been shown in several domestic and
international clinical studies published in peer-reviewed journals to detect
abnormal cells on Pap smears that were falsely diagnosed as "negative" by
conventional manual inspection. Indeed, in a number of such cases
PAPNET-Registered Trademark- System detected abnormal cells on archived,
supposedly "negative" Pap smears of women who were ultimately diagnosed with
advanced cervical cancer. A published review of six such studies which in the
aggregate evaluated 513 Pap smears known to contain precancerous or cancerous
abnormality reported a pooled average PAPNET-Registered Trademark- false
negative rate of 3%. These results compare extremely favorably to manual
screening's false negative rate, typically reported to be many times higher (10%
to 40%).
The foregoing information and the information relating to NSI was obtained
directly from NSI or NSI's December 1995 prospectus, NSI's promotional
literature, scientific studies conducted by NSI and various filings that NSI has
made with the Securities and Exchange Commission.

PROPERTIES AND FACILITIES
The Company's headquarters is located in Dublin, Ohio and is leased from
the L&B SERBO Fund under a lease agreement that expires on August 14, 2001.
The Company leases 1,947 square feet at an annual rental rate ranging from
approximately $20,400 to $22,400 during the term of the lease.

FUTURE EXPANSION
While the Company's primary focus has been, and will continue to be,
exploiting its rights under the License Agreement, the Company will also
consider the acquisition of compatible business technologies in the future.
Consistent with that plan, the Company has entered into a nonbinding
preliminary letter of intent for an investment of approximately $4,000,000 in
common stock of HUBLink, Inc., a healthcare software development and
marketing company, which will represent approximately 20% of the issued and
outstanding equity securities of HUBLink on a fully diluted basis. In
addition to being nonbinding, the letter of intent is subject to the
satisfaction of a number of conditions, including the negotiation of a
definitive investment agreement. The Company cannot predict whether this
transaction will be consummated.

EXECUTIVE OFFICERS AND DIRECTORS
The proposed amended and restated Company Regulations provide for a
classified board of directors with two classes. Each class of directors
consists, as nearly as practical, of one-half of the total number of directors.
Conditioned on the approval of the Merger, amended and restated Company Articles
and amended and restated Company Regulations, the Board of Directors has fixed
the total number of directors at seven. The Board of Directors proposes the
election of all five incumbent directors and has nominated two additional
directors - Michael S. Blue and Rodney M. Kinsey. David J. Richards, Trevor M.
Ferger, Cecil J. Petitti and Michael S. Blue are nominated as Class I directors.
John P. Kennedy, Rodney M. Kinsey and Bryan Whipp are nominated as Class II
directors.
The executive officers, current and prospective directors of the Company
are as follows:
CLASS I DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 1997)

NAME AGE POSITION
- ---- --- --------

David J. Richards 45 (1)(2)

Trevor M. Ferger 42 (2)(3)

Cecil J. Petitti 42 (2)(3)

Michael S. Blue, M.D. 41 (2)(4)

CLASS II DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 1998)

Bryan Whipp 40 (2)(3)

John P. Kennedy 42 (2)(3)

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<PAGE>

Rodney M. Kinsey 47 (2)(4)
____________________

(1) Current President and director of the Company and nominee for Chairman,
President and director of the Company after consummation of the Merger.

(2) Members of the Advisory Board and nominees for directors of the Company
after consummation of the Merger.

(3) Messrs. Kennedy, Petitti, Ferger and Whipp are current members of the board
of directors of the Company.

(4) Messrs. Blue and Kinsey are members of the board of directors of CCI.

David J. Richards, one of the founders of the Company, has served as
President and director of the Company since its inception. From 1981 until
commencing employment with the Company, Mr. Richards was a practicing
attorney and, from 1983, a partner, in the law firm of Crabbe, Brown, Jones,
Potts & Schmidt in Columbus, Ohio. From 1985 through 1994, Mr. Richards was
engaged in real estate development as President of Sunset Development, a
multi-family housing developer.
Mr. Richards has an accounting degree from Wright State University, and
earned his Juris Doctor degree from The Ohio State University College of Law in
1977.

KENNETH B. LEACHMAN was elected as Vice President of Finance in October
1996. Mr. Leachman has held various financial management positions with several
technology based companies, including Corporate Controller for Goal Systems
International from 1989 to 1991 and as Chief Financial Officer of Sarcom from
1992 to 1994.
Mr. Leachman has a Bachelor or Science degree in accounting from The Ohio
State University in 1975 and earned his CPA certificate from the State of Ohio
in 1977.

John P. Kennedy is also a founder of the Company and has served as an
officer and director since its inception. Mr. Kennedy is currently of
counsel with the law firm of Crabbe, Brown, Jones, Potts & Schmidt in
Columbus, Ohio, where he was a partner from 1986 to 1994. In addition to
practicing law, Mr. Kennedy has been a Columbus, Ohio City Councilman since
1988, where he currently serves as President.
Mr. Kennedy has a Bachelor of Arts in Finance from the University at
Bridgeport, Bridgeport, Connecticut and earned his Juris Doctor from The Ohio
Northern University College of Law in 1978.

S. Trevor Ferger is President of Ferger & Associates, a food brokerage
specializing in the sales and marketing of consumer goods to grocery stores.
Mr. Ferger has been active with Ferger & Associates since 1979. Prior to that
time he was a sales manager with Procter & Gamble. Mr. Ferger has a Bachelor of
Arts degree from Wake Forest University and a M.B.A. degree from Xavier
University. Mr. Ferger has been a director of the Company since June, 1994.

Cecil J. Petitti has been co-owner of Chaney & Petitti Insurance Agency
located in Dublin, Ohio since 1984. Chaney & Petitti specialize in multiple
insurance products, including medical insurance. Prior to merging with the
Chaney Group, Mr. Petitti was associated with the Burke, Kendall & Petitti
Insurance Agency. Mr. Petitti is also President of NetWalk, Inc., a Columbus-

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based Internet service provider. Mr. Petitti earned a Bachelor of Arts degree
in Education from The Ohio State University. Mr. Petitti has been a director of
the Company since June, 1994.

Bryan Whipp is President and owner of The Breakfast Club Cafe, an upstart
three unit restaurant chain based in Dayton, Ohio. Mr. Whipp was formerly a
manager of S.J. Associates, an electronics and computer manufacturer's
representative. Mr. Whipp is the brother-in-law of Mr. Richards. Mr. Whipp
earned a Bachelor of Science degree in Accounting from Park College. Mr. Whipp
has been a director of the Company since June, 1994.

Michael S. Blue, M.D. has been a practicing physician since 1980.

Dr. Blue graduated from Miami University (Oxford, Ohio) in 1976 with a
Bachelor of Science in Zoology and graduated from The Ohio State University
with a Doctor of Medicine in 1979. Dr. Blue has been President of Phoenix
Group International, Ltd. and North American International Trade Group, Inc.
since 1994 and 1992, respectively. He has also been Secretary/Treasurer and
member of the Board of Directors of Columbus Oilfield Exploration, Inc. since
1987. Dr. Blue has also been Vice President and member of the Board of
Directors of CCI since 1991.

Rodney M. Kinsey graduated from the University of South Carolina in 1971
with a degree in marketing and has been a self-employed manufacturers
representative since 1971. Mr. Kinsey is President, Treasurer and a member of
the Board of Directors of CCWP and CCI.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors has not established committees. It is
anticipated that after the consummation of the Merger, the Board of Directors
will establish a stock option committee, an audit committee and a compensation
committee.

DIRECTOR COMPENSATION

Directors of the Company have received stock options and have been entitled
to reimbursement of reasonable expenses incurred in connection with their
attendance at board meetings. No cash compensation has been paid to directors.
The Company anticipates that, following consummation of the Merger, it will be
necessary to pay directors for their service in order to attract and retain the
services of qualified directors, but the amount of such compensation has not
been established.

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<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

Long-Term
Annual Compensation Compensation
---------------------- ------------
Awards
------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)(1)
- --------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
DAVID J. RICHARDS 1995 125,000 50,000 0 12,228
President and Secretary 1994 108,333 0 0 11,959
1993 82,913 0 0 8,900
</TABLE>

____________________

(1) Includes matching contribution to the Company's 401(k) Plan and a 1994 and
1995 automobile allowance of approximately $270 per month.

The following table provides certain information regarding the number and
value of stock options held by the Company's President at December 31, 1995.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)

Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at Fiscal
at Fiscal Year-End (#) Year-End ($)(2)
------------------------------ ------------------------------
Shares
Acquired
on Value
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J.
Richards 66,080 $1,983,357.50 287,020 -0- $3,535,914.90 -0-
</TABLE>

____________________

(1) Adjusted to reflect 2-for-1 stock splits in May 1994, May 1995 and
December 1995.

(2) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year end
($13.38 on December 29, 1995). An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.

1995 STOCK OPTION PLAN

The Company's Amended 1995 Stock Option Plan (the "1995 Plan") has been
approved by the Company's Board of Directors and adopted by the shareholders
in September 1995. The 1995 Plan provides for the grant of options to key
associates, officers, directors, consultants and advisers who render services

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<PAGE>

to the Company for the purchase of up to 150,000 Company Shares. The options
may be either Incentive Options or Nonqualified Options.

The 1995 Plan is to be administered by the Board of Directors of the
Company, which may, to the fullest extent permitted by law, delegate all or any
of its powers under the 1995 Plan to a committee, consisting of not fewer than
two members of the Board of Directors (the "Committee"). If the Company Shares
are registered under Section 12 of the Exchange Act, all members of the
Committee will be "disinterested persons" as defined in Rule 16b-3(c)(2)(i)
promulgated under the Exchange Act, and "outside directors", as defined in
Section 162(m) of the Code. The Board of Directors or the Committee will be
authorized, subject to the provisions of the 1995 Plan, to determine to whom and
at what time the stock options may be granted, the designation of the option as
either an Incentive Option or Nonqualified Option, the per share exercise price,
the duration of each option, the number of shares subject to each option, any
restrictions on such shares, the rate and manner of exercise, and the timing and
form of payment.

Under the 1995 Plan, an Incentive Option may not have an exercise price
less than fair market value of the Company Shares on the date of grant or an
exercise period that exceeds ten years from the date of grant and is subject to
certain other limitations which allow the optionholder to qualify for favorable
tax treatment. None of these restrictions will apply to the grant of
Nonqualified Options, which may have an exercise price less than the fair market
value of the underlying Company Shares on the date of grant and may be
exercisable for an indeterminate period of time.

The exercise price of an option under the 1995 Plan may be paid in cash or,
with the consent of the Board of Directors or the Committee, (i) by tendering
previously acquired Company Shares valued at their fair market value on the date
they are tendered, (ii) by delivery of a full recourse promissory note for the
portion of the exercise price in excess of the par value of the shares subject
to the option, the terms and conditions of which will be determined by the Board
of Directors or the Committee, and in cash for the par value of the shares,
(iii) by any combination of the foregoing methods, or (iv) by delivery of
written instructions to forward the notice of exercise to a broker or dealer and
to deliver to a specified account a certificate for the shares purchased upon
exercise of the option and a copy of irrevocable instructions to the broker or
dealer to deliver the purchase price of the shares to the Company.

Under the 1995 Plan, an option is not transferable except by will or by the
laws of descent and distribution and may be exercised, during the lifetime of
the optionee, only by the optionee or by the optionee's guardian or legal
representative.

Any option granted under the 1995 Plan will terminate automatically (i) 30
days after the employee's termination of employment with the Company (other than
by reason of death or disability or for cause), (ii) one year after the
employee's death or termination of employment by reason of disability unless the
option expires earlier by its terms and (iii) on the effective date of a
termination for cause. Options not exercisable as of the date of a change in
control of the Company will become

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<PAGE>

exercisable immediately as of such date. The 1995 Plan will terminate on the
tenth anniversary of its effective date, unless earlier terminated by the Board
of Directors.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of June 30, 1996
regarding beneficial ownership of the Company's common stock by: (i) each person
known by the Company to own beneficially 5% or more of outstanding shares of the
Company's common stock; (ii) each director of the Company; (iii) the proposed
executive officers and directors; and (iv) all current directors and executive
officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BEFORE MERGER AFTER MERGER (1)(2)
-------------------------------------------------------
STOCKHOLDER NUMBER PERCENT NUMBER PERCENT
- ---------------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
David J. Richards 1,077,052 17.7 1,077,052 9.5

John P. Kennedy 675,190 11.1 675,190 5.9

Kenneth B. Leachman 0 * 0 *

Cecil J. Petitti 76,000 * 167,676 1.5

S. Trevor Ferger 100,000 * 348,062 3.1

Michael S. Blue, M.D. 0 * 365,833 3.2

Rodney M. Kinsey 0 * 565,391 5.0

Bryan Whipp 4,000 * 67,374 .6

Carl A. Genberg(3) 383,616 6.0 446,990 4.1

</TABLE>

____________________

* Represents beneficial ownership of less than 5% of the outstanding the
Company common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those shares.

(2) Includes shares purchasable within 60 days of the date of this
Propsectus pursuant to the exercise of options covering 287,020 shares
for Mr. Richards, 24,000 shares for Mr. Kennedy, 8,000 shares for Mr.
Petitti, and 8,000 shares for Mr. Ferger.

(3) Mr. Genberg's share ownership is based on the Company's June 30, 1996
certified shareholder list and may not include other shares to which
Mr. Genberg would be deemed beneficial owner.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY AND THE PREDECESSOR COMPANIES

OVERVIEW

The Company is an Ohio corporation formed on October 25, 1989 for the
purpose of acquiring the rights to market certain proprietary products of
Neuromedical Systems, Inc., a Delaware corporation ("NSI"), including the
right to sell the PAPNET-Registered Trademark- System and PAPNET-Registered
Trademark- Service in the State

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<PAGE>

of Ohio. The Company later assigned its rights to Papnet Limited Partnership,
an Ohio limited partnership ("PLP"). In January 1993, the Company acquired all
of the issued and outstanding units of limited partnership interest in both PLP
and Papnet Midwest Limited Partnership, an Ohio limited partnership ("PMLP").
PMLP owned the rights to market the PAPNET-Registered Trademark- System and
PAPNET-Registered Trademark- Service in Kentucky and the Standard Metropolitan
Statistical Area of Chicago, Illinois. As a result of these acquisitions the
Company has the rights to the PAPNET-Registered Trademark- System and
PAPNET-Registered Trademark- Service in Ohio, Kentucky and the Standard
Metropolitan Statistical Area of Chicago.

The PAPNET-Registered Trademark- System was approved by the FDA for
commercial use in the United States on November 8, 1995. Prior to that time,
the PAPNET-Registered Trademark- System was permitted to be utilized in the
United States on an investigational basis only, and NSI was permitted to derive
revenue with respect thereto only to recover certain of its costs. NSI,
however, has sold PAPNET testing services for commercial use outside of the
United States. As a result, prior to FDA approval, the Company was able to earn
revenues based upon the worldwide revenue calculation as described below.

On December 5, 1995 the Company, the Predecessor Companies and CWI and PUI
who are not parties to the Merger, entered into a Settlement Agreement with NSI
(the "Settlement Agreement"). The purpose of the Settlement Agreement was to
resolve and clarify certain issues relating to the license agreements which NSI
had with its regional licensees, and issues relating to warrants to purchase
shares of NSI common stock which were held by the Company and certain of the
Predecessor Companies. Pursuant to the Settlement Agreement, NSI and the
regional licensees (including the Company and all of the Predecessor Companies
except CCWP) agreed to the form of a license agreement to be executed upon the
merger of some or all of the regional licensees (the "License Agreement"), under
which the Company and the other regional licensees will continue to have the
rights to market the PAPNET-Registered Trademark- System and PAPNET-Registered
Trademark- Service, as well as certain other medical technologies which may be
developed by NSI ("NSI Technology"). In the event that the Merger is not
consummated as anticipated, NSI will enter into separate license agreements
which each of the regional licensees on substantially the same terms as the
License Agreement. NSI and the regional licensees have agreed to operate under
the terms of the License Agreement until such agreement or agreements are
executed following consummation of the Merger.

Upon consummation of the Merger, the Company will have the exclusive right
and license of sell the PAPNET-Registered Trademark- System, PAPNET-Registered
Trademark- Service and NSI Technology in the states of Ohio, Georgia, Kentucky,
Missouri, North Carolina and in the Standard Metropolitan Statistical Area of
Chicago, Illinois.

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<PAGE>

The royalty calculations described in the foregoing paragraph are
aggregate calculations for all of the territorial licensees. Following
consummation of the Merger, the amounts allocable to the Company will be
determined according to the population of the geographic areas exclusively
licensed to the Company. The applicable number of slides for the slide
royalty cap described in clause (a) in the foregoing paragraph, the worldwide
revenue percentage described in clause (b) in the foregoing paragraph, and
the $23,000,000 amount described in the same clause, will be adjusted based
upon the census data available at the time of the Merger.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Royalty revenue for the six months ended June 30, 1996 was $27,099
compared to $21,340 for the same period in 1995. The increase is a result of
increased worldwide sales at NSI due to NSI receiving FDA approval for the
PAPNET-Registered Trademark- System in November 1995. Revenue for the six
months ended June 30, 1996 has been recorded based upon the number of slides
processed in the Company's territory. Revenue for the six months ended
June 30, 1995 was besed upon the world wide revenue of NSI for the comparable
period in 1995. Based on current information management anticipates that
revenue from slide volume from the Company's territory will exceed the revenue
from the worldwide revenue calculation for the 1996 calendar year.
Slide volume for the six months ended June 30, 1996 was 4,216 slides
processed compared to 328 slides processed in the six months ended June 30,
1995. The increase in slide volume is the result of the FDA approval received
in November 1995 and increasing the number of laboratories offering the
PAPNET-Registered Trademark- testing. NSI has spent the first half of 1996
developing a laboratory distribution network for the PAPNET-Registered
Trademark- test so that it would be available for a consumer product launch
sometime during the third quarter of 1996.
Total operating expense was $391,457 for the six months ended June 30,
1996 compared to $187,512 for the same period the prior year. The increase is
primarily the result of higher expenses for (i) the addition of sales staff (in
certain territories) and (ii) merger expenses incurred during the six months
ended June 30, 1996.
The increase in the total operating expenses contributed directly to the
increase in the loss before income taxes from $154,971 to $357,578 for the
six months ended June 30, 1995 and 1996, repectively. The net loss for the
six months ended June 30, 1996 of $235,577 reflects a tax benefit of
$122,001, while no benefit was recognized in the corresponding period of the
prior year.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

Royalty revenue for the year ended December 31, 1995 was $48,000 compared
to $24,765 for 1994. The increase is a result of increased worldwide revenue
for NSI as NSI established new marketing operations in Europe, Hong Kong, Canada
and Mexico. The 1994 royalty revenue was $24,765

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<PAGE>

compared to $4,322 for 1993. This increase was due to NSI expansion of sales to
European laboratories.

Total operating expense was $573,149 for the year ended December 31, 1995
compared to $327,361 for 1994. The increase is primarily the result of higher
expense for (i) the additional sales staff in certain territories in
anticipation of FDA approval of the PAPNET-Registered Trademark- System and (ii)
merger expenses incurred during 1995. Total operating expense was $327,361 in
1994 compared to $289,913 in 1993. This increase was primarily the result of
increases in sales and marketing and office expenses as the Company increased
the sales and marketing efforts for the PAPNET-Registered Trademark- System.
The equity in income of Partnerships is the Company's percentage of the
income in Carolina Cytology Licensing Company and Carolina Cytology Warrant
Partnership.
Interest income was $16,606 for the year ended December 31, 1995 compared
to $19,059 for 1994. Interest income totaled $19,059 for 1994 compared to
$9,037 in 1993. These fluctuations were due primarily to corresponding
fluctuations in cash and cash equivalents resulting from the issuance of equity
securities in such periods.
Other income was $1,715,399 for the year ended December 31, 1995. This
resulted from the exercise of warrants in NSI utilizing a cashless exercise
provision, the settlement of certain claims with NSI from which the Company
received 53,939 shares of NSI stock and the purchase and subsequent sale of
55,000 shares of NSI stock. See Note 3 to the Company's Financial Statements
for additional information.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily by the issuance of
equity securities. The Company's combined cash and cash equivalents totaled
$220,159 at June 30, 1996, a decrease of $591,201 from December 31, 1995.
The decrease was primarily the result of (i) funding the year to date pretax
loss of $235,577 and (ii) an increase in receivables of $322,844. In addition
the Company owns 380,064 shares of NSI which the Company expects to liquidate
in an orderly fashion to fund future operations. The market price of the
market price of the NSI was 5,700,960 at June 30, 1996. These shares are
currently unrestricted.
The Company anticipates that its cash requirements will be
substantial for the foreseeable future. In particular, the Company
anticipates that expenditures will increase significantly in the years 1996
through 1998 due to the cost of the commercial launch of the
PAPNET-Registered Trademark- System, expenses associated with the Merger and
the execution of the Company's business plan to acquire similar
technologies. The costs of the commercial launch will include the sales and
marketing expense incurred in order to promote the PAPNET-Registered
Trademark- System in anticipation of increased slide revenue. The Company
cannot be assured that these efforts will result in increased slide revenue.

The foregoing statements include forward-looking statements which
involve risks and uncertainties. The Company's actual experience may differ
materially from that discussed above. Factors that might cause such a
difference include, but are not limited to, those discussed in "RISK FACTORS"
as well as future events that have the effect of reducing the Company's
available cash balances, such as unexpected operating losses or capital
expenditures or cash expenditures related to possible future acquisitions.
PREDECESSOR COMPANIES
Each of the Predecessor Companies, except for CCWP, was organized to
acquire and exercise the right to market the PAPNET-Registered Trademark- System
and PAPNET-Registered Trademark- Service within their respective licensed
territories. However, until November 6, 1995, when the FDA finally approved the
marketing of the PAPNET-Registered Trademark- technology, the technology could
be used in the United States only for investigational

-40-
<PAGE>

purposes in connection with the FDA approval process. Consequently, the
Predecessor Companies had only minor levels of operations prior to
November 1995. Minimal amounts of royalty revenue were earned prior to November
1995 from NSI under license arrangements identical to those described previously
for the Company. Beginning in late 1995, the Company began managing the
activities of the Predecessor Companies, including the hiring of employees,
pending the completion of the Merger.
As a result of the settlement with NSI each of the Predecessor Companies
received shares of NSI stock which resulted in income recorded on each of the
Predecessor Companies' books. See Note 3 to the Financial Statements of each of
the Predecessor Companies. Management of the Predecessor Companies believe that
the margins experienced to date are not likely to be indicative of the margins
post-merger. This is due to the (i) increase in sales volume from slide
processing and (2) the one time nature of the Merger expenses. In the event the
merger is not consummated, the Predecessor Companies will need to develop their
own infrastructure to market the PAPNET-Registered Trademark- System and PAPNET-
Registered Trademark- Service in their respective territories or engage a third
party to do so.

-41-
<PAGE>

TRANSFER AGENT

The transfer agent and registrar for the Company common stock is Huntington
National Bank N.A., Columbus, Ohio.

THE PREDECESSOR COMPANIES

CYTOLOGY INDIANA, INC.

-42-
<PAGE>

the PAPNET-Registered Trademark-System and the PAPNET-Registered
Trademark-Service in Missouri. In 1995, Papnet Indiana Limited Partnership
distributed its assets to its general and limited partners. CIN owns an
approximate 65% interest in the rights to market the PAPNET-Registered
Trademark- System and Service in Missouri. The former limited partners of
Papnet Indiana Limited Partnership are now shareholders of INC, which owns an
approximate 35% interest in the rights to market the PAPNET-Registered
Trademark-System and Service in Missouri.
As of June 30, 1996, CIN had 10 shareholders.
INDIANA CYTOLOGY REVIEW CORPORATION

ERG is an Ohio corporation formed on May 13, 1991 for the purpose of
acquiring the rights to market the PAPNET-Registered Trademark- System and the
PAPNET-Registered Trademark- Service in Georgia.
As of June 30, 1996, ERG had 20 shareholders.
CCWP PARTNERS, INC.

As of June 30, 1996, CCI had 26 shareholders.

-43-
<PAGE>

DIVIDENDS

The Predecessor Companies have not paid dividends on their common stock.

-44-

<PAGE>

COMPARISON OF CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR
COMPANY SHAREHOLDERS
ARTICLES OF INCORPORATION PROVISIONS
The following chart (the "Chart") provides a comparison of certain
provisions of the Company's and the Predecessor Companies' Articles of
Incorporation as are currently in effect, and compares certain other rights
the shareholders of the Company and the Predecessor Companies may have.
The Company Articles will be amended and restated upon the Effective Time of
the Merger.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Auth/Out Auth/Out
State of Common Preferred Majority Cumulative Preemptive
Entity Organization Shares(1) Shares(2) Vote Voting Rights
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The 8,000,000/
Company(3) Ohio 6,040,116 N/A no yes(4) no
- ---------------------------------------------------------------------------------------------------------
CIN Ohio 750/750 N/A no yes yes
- ---------------------------------------------------------------------------------------------------------
INC Ohio 100/100 N/A no(5) yes no
- ---------------------------------------------------------------------------------------------------------
ERG Ohio 750/578 N/A yes yes yes
- ---------------------------------------------------------------------------------------------------------
CCWP Ohio 10,000/9,150 N/A yes yes no
- ---------------------------------------------------------------------------------------------------------
CCI Ohio 1,500/905 N/A yes yes no
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) This column represents authorized and outstanding common shares prior
to the Effective Time of the Merger. The Company's Articles of
Incorporation will be amended as described under "COMPARISON OF
CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR COMPANY
SHAREHOLDERS - Amended Company Articles."
(2) This column represents authorized and outstanding preferred shares
prior to the Effective Time of the Merger.
(3) The Company Articles will be amended as described under "COMPARISON
OF CERTAIN RIGHTS OF THE COMPANY AND THE PREDECESSOR COMPANY
SHAREHOLDERS - "Amended Company Articles."
(4) Upon consummation of the Merger, the Company's Articles will be
amended to eliminate shareholders right to cumulative voting in the
election of directors. See "COMPARISON OF CERTAIN RIGHTS OF THE
COMPANY AND THE PREDECESSOR COMPANY SHAREHOLDERS - "Amended Company
Articles."
(5) INC's Articles of Incorporation provide that if a merger is approved
by the directors of INC, it can be adopted by a vote of a majority of
the outstanding shares entitled to vote on the Merger. Otherwise the
approval of a merger would require the affirmative vote of two-thirds
of the outstanding shares entitled to vote the merger. The Merger has
been unanimously recommended by the directors of INC.
The rights of the shareholders of the Predecessor Companies are
currently governed and defined by the laws of the State of Ohio and by their
respective Articles of Incorporation and or Regulations. Upon consummation
of the Merger, the shareholders of the Predecessor Companies will become
shareholders of the Company and their rights will cease to be governed and
defined by Articles of Incorporation and Codes of Regulation of the
Predecessor Companies and will be defined and governed by the Ohio General
Corporation Law, the amended Company Articles and the amended Company
Regulations, as amended upon the effective date of the Merger. Certain
provisions of the amended Company Articles and the amended Company
Regulations provide different rights of shareholders from those that the
shareholders of the Predecessor Companies currently have. This summary is
not intended to be complete and is qualified in its entirety by reference to
applicable provisions of the Ohio General Corporation Law and to the
respective corporate documents of the Company and the Predecessor Companies.
For information as to how such corporate documents may be obtained, see
"AVAILABLE INFORMATION."

-45-

<PAGE>
AMENDED COMPANY ARTICLES

At the Effective Time and upon filing the Certificate of Merger with the
Ohio Secretary of State, the Company's Articles of Incorporation will be
amended. First, the Company will change the name of the corporation to "NetMed,
Inc."
DESCRIPTION OF COMPANY CAPITAL STOCK
COMMON STOCK. The Ohio General Corporation Law requires a corporation's
Articles of Incorporation to set forth the total number of shares of all
classes of stock that the corporation has authority to issue, and, for each
class, the designations, powers, preferences, rights, qualifications,
limitations and restrictions thereof.
The Company Articles currently authorizes 8,000,000 shares of the Company
common stock of which 6,040,116 shares of the Company common stock were
issued and outstanding on June 30, 1996 and held of record by approximately
400 shareholders. All of the issued and outstanding shares of the Company
common stock are fully paid and nonassessable.
Effective upon consummation of the Merger, the amended Company Articles
will authorize an increase of shares from 8,000,000 to 20,500,000 shares,
consisting of 20,000,000 shares of common stock and 500,000 shares of preferred
stock. The amended Company Articles will authorize the Board of Directors to
issue up to 500,000 shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the shareholders of the Company. The Company will have 10,890,149 common shares
and no shares of Preferred Stock issued and outstanding immediately after the
Merger.
VOTING AND PREEMPTIVE RIGHTS. Holders of validly issued and outstanding
shares of common stock are entitled to one vote per share of record on all
matters to be voted upon by shareholders. At a meeting of shareholders at which
a quorum is present, a majority of the votes cast decides all questions, unless
the matter is one upon which a different vote is required by express provision
of law or the Company Articles or the Company Regulations. The amended
Company Articles will eliminate a shareholder's right to cumulate votes in the
election of directors.
Shareholders have no preemptive or other rights to subscribe for additional
shares nor any other rights to convert their Company common stock into any other
securities.
DIVIDENDS. Subject to the preferences that may be applicable to the
holders of any outstanding shares of Preferred Stock, holders of common stock
are entitled to such dividends as may be declared by the Board of Directors out
of funds legally available therefor. The payment by the Company of dividends,
if any, rests within the discretion of its Board of Directors and will depend
upon the Company's operating results, financial condition and capital
expenditure plans, as well as other factors considered relevant by the Board of
Directors. The Company may enter into bank credit agreements which include
financial covenants restricting the payment of dividends. See "SUMMARY - Market
Price Data."
Upon liquidation, dissolution or winding-up of the Company, the assets
legally available for distribution to shareholders are distributable ratably
among the holders of Company common stock at that time outstanding, subject to
prior distribution rights of creditors of the Company and preferential rights of
any outstanding shares of Preferred Stock.
PREFERRED STOCK. Upon effectiveness of the Merger the amended Company
Articles will authorize the Board of Directors to issue up to 500,000 shares of
Preferred Stock in one or more series and to establish such relative voting,
dividend, redemption, liquidation, conversion and other powers, preferences,
rights, qualifications, limitations and restrictions as the Board of Directors
may determine without further approval of the shareholders of the Company. The
issuance of Preferred Stock by the Board of Directors could be used, under
certain circumstances, as a method of delaying or preventing a change in control
of Company and could permit the Company Board of Directors, without any action
by holders of common stock, to issue Preferred Stock which could have a
detrimental effect on the rights of holders of common stock, including loss of
voting control. In certain circumstances, this could have the effect of
decreasing the market price of the Company's common stock.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Company Board of Directors, might
warrant the issuance of Preferred Stock. At the date of this Prospectus, there
are no plans, agreements or understandings relative to the issuance of any
shares of Preferred Stock.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Company's Board of Directors, might
warrant the issuance of Preferred Stock. At the date of this Prospectus, there
are no plans, agreements or understandings relative to the issuance of any
shares of Company Preferred Stock.
OTHER PROVISIONS
BOARD OF DIRECTORS. The amended Company Articles will establish standards
by which the Board of Directors must evaluate any proposal that would result in
a change of control of the Company. The Company's current Articles of
Incorporation do not contain a similar provision. The provisions of the amended
Company Articles relating to the powers, duties and liabilities of the directors
may only be amended by the affirmative vote of 80% of the outstanding shares
entitled to vote on the matter.
ELIMINATION OF CUMULATIVE VOTING. Although the Articles of
Incorporation of all the Predecessor Companies permit cumulative voting, the
amended Company Articles will provide for the elimination of cumulative
voting. Section 1701.69 of the Ohio General Corporation Law provides that
articles of incorporation may be amended to eliminate the right to vote
cumulatively in the election of directors upon approval by shareholders and
upon compliance with specific requirements. The shareholder action may not,
however, occur earlier than ninety days after the corporation was formed.
Furthermore, a written notice shall be given to the shareholders that states,
in solid capital letters, that an effect of the elimination of cumulative
voting will be to do both of the following:
(i) To permit a majority of a quorum of the voting power in the election
or removal of directors to elect or remove every director;
(ii) To preclude a minority of a quorum of the voting power in the
election or removal of directors from electing or preventing the removal of any
director.
The notice to the Company shareholders regarding the special meeting of
shareholders will contain the above stated language.
DIRECTORS' RESPONSE TO ACQUISITION PROPOSALS. The Company's amended
Articles will provide that the Company Board of Directors must base the
response of the Company to any "Acquisition Proposal" on the Company Board of
Directors' evaluation of what is in the best interest of the Company. In
evaluating what is in the best interest of the Company, the Company Board of
Directors must consider all relevant factors including, without limitation,
the best interest of the shareholders which, for this purpose, requires the
Company Board of Directors to consider, among other factors, not only the
consideration offered in the Acquisition Proposal in relation to the then
current market price of the Company's stock, but also in relation to the
current value of the Company in a freely negotiated transaction and in
relation to the Company Board of Directors' then estimate of the future value
of the Company as an independent entity or as the subject of a future
Acquisition Proposal; and such other factors as the Company Board of
Directors determines to be relevant, including, among other factors, the
long-term and short-term interests of the Company and its subsidiaries and
their businesses and properties and the social, legal and economic effects
upon the employees, suppliers, customers, creditors and other affected
persons, firms and corporations and on the communities and geographical areas
in which the Company and its subsidiaries operate or are located.
"Acquisition Proposal" is defined in the Company Articles as any proposal for
the consolidation or merger of the Company with another corporation, any
share exchange involving the Company's outstanding capital stock, any
liquidation or dissolution of the Company, any transfer of all or a material
portion of the assets of the Company and any tender offer or exchange offer
for any of the Company's outstanding stock.
DIRECTOR LIABILITY AND INDEMNIFICATION. The Company's amended Articles
will provide that the Corporation may indemnify any director, officer,
incorporator or any former director or officer of the Corporation and any
person who is or has served at the request of the Corporation as a director,
officer or trustee of another corporation, partnership, joint venture, trust
or other enterprise (and his or hers heirs, executors and administrators)
against expenses, including attorney fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred by him by reason of the fact
that he is or was such director, officer, incorporator or trustee in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative, to the
full extent and according to the procedures and requirements set forth in the
Ohio General Corporation Law as the same may be in effect from time to time.
The indemnification provided herein shall not be deemed to restrict the right
of the Corporation to (i) indemnify employees, agents and others as permitted
by law, (ii) purchase and maintain insurance or provide similar protection on
behalf of the directors, officers or such other persons against liabilities
asserted against them or expenses incurred by them arising out of their
service to the Corporation as contemplated herein, and (iii) enter into
agreements with such directors, officers, incorporators, employees, agents or
others indemnifying them against any and all liabilities asserted against
them or incurred by them arising out of their service to the Corporation as
contemplated herein.

-46-

<PAGE>

REGULATION PROVISIONS
The following chart (the "Chart") provides a comparison of certain
provisions of the Company's and the Predecessor Companies Codes of Regulation
as are now in effect and compares certain other rights the shareholders of the
Company and the Predecessor Companies may have. The Company Regulations will
be amended upon the Effective Date of the Merger.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Entity Meetings Directors Officers Committees Indemnification
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Annual meeting Not less than President, Board may Each director,
Company held on first three, and Secretary, designate officer and member
(1) first Tuesday number can and directors of committee
in the third be fixed or Treasurer to serve on shall be indemnified
month following changed at a and in the an against all expenses
the end of the meeting of discretion executive incurred in
fiscal year, shareholders. of the committee, connection with any
within or without Board, a and other action from position
the State of Ohio. Chairman of committees held at the Company.
Action may be the Board, at its
taken without vice- discretion.
meeting if written presidents
consent of all and other
holders entitled such
to notice of a officers as
meeting for such the Board
purpose. may decide.
- -----------------------------------------------------------------------------------------------
</TABLE>

-47-

<PAGE>

Entity Meetings Directors Officers Committees Indemnification
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ERG Annually, as the Not less than President, Executive Committee For officer or director
directors may three, with number Secretary, specifically director against
decide within or determined by Treasurer and provided for expenses incurred in
without the vote of in the and the Board any action resulting
State of Ohio. shareholders. discretion of has authority to from position held at
the Board, a elect other committees. the Company.
Chairman of
the Board.

- ------------------------------------------------------------------------------------------------------------------------
CCWP Annually as the Not less than President, For officer or Executive
Directors may three, with the Secretary, director against Committee
decide within or number Treasurer and in expenses incurred specifically
without the State determined by the discretion in connection with provided for
of Ohio. a vote of of the Board, any action resulting and the Board
shareholders. a Chairman of from position held has authority to
the Board. at the Company. elect other
committees.

- ------------------------------------------------------------------------------------------------------------------------
CCI Annually as the Not less than President, Executive For officer or
Directors may number Secretary, Committee director against
decide within determined by Treasurer and in specifically expenses incurred
or without the a vote of the discretion of provided for in connection with
State of Ohio. shareholders. the Board, a and the Board any action resulting
Chairman of the has authority to from position held
Board. elect other at the Company.
committees.

- ------------------------------------------------------------------------------------------------------------------------
CIN Annual meeting Not less than President, Vice Board of Directors may Each director
held on second three, and President, designate directors to indemnified to the
Tuesday of April, number can be Secretary, and in serve on an executive fullest extent of
within or fixed or changed the discretion of committee, audit Ohio law.
without the State at a meeting the Board, a committee or
of Ohio. Action of shareholders. Chairman of the compensation committee.
may be taken Board.
without meeting
if written
consent of all
holders entitled
to vote.

- ------------------------------------------------------------------------------------------------------------------------
INC Annually as the Not less than President, Executive Committee For officer or
Directors may three, and Secretary, specifically provided director against
decide within or number can be Treasurer and in for and the Board has expenses incurred
without the State fixed or changed the discretion of authority to elect other in connection with
of Ohio. at a meeting the Board, a committees. any action resulting
of shareholders. Chairman of the from position held
Board. at the Company.

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company Regulations will be amended upon the Effective Date of
the Merger as described under "COMPARISON OF CERTAIN RIGHTS OF THE
COMPANY AND THE PREDECESSOR COMPANY SHAREHOLDERS - Amended Company
Regulations"
AMENDED COMPANY REGULATIONS

At the Effective Time of the Merger, the Company Regulations will be
amended. This summary is not intended to be complete and is qualified in its
entirety by reference to applicable provisions of the Ohio General Corporation
Law and to the respective corporate documents of the Company and the Predecessor
Companies. For information as to how such corporate documents may be obtained,
see "AVAILABLE INFORMATION."
CLASSIFIED BOARD OF DIRECTORS. The amended Company Regulations provide for
the Company Board of Directors to be divided into three classes (unless there
are fewer than 9 directors in which case there will be two classes) of directors
serving staggered three-year terms. As a result, approximately one-third of the
Company Board of Directors will be elected each year. Classification of the
Company Board of Directors expands the time required to change the composition
of a majority of directors and may tend to discourage a proxy contest or other
takeover bid for the Company.
REMOVAL OF DIRECTORS. The amended Company Regulations provide that any
director or the entire Company Board of Directors may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least 80% of all of the outstanding shares of capital stock of the Company
entitled to vote on the election of directors at a meeting of shareholders
called for that purpose, except that if the Company Board of Directors, by an
affirmative vote of at least 66 2/3% of the entire Company Board of Directors,
recommends removal of a director to the shareholders, such removal may be
effected by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Company present in person or
represented by proxy and entitled to vote on the election of directors at a
meeting of shareholders called for that purpose. These provisions, when coupled
with provisions of the amended Company Regulations authorizing only the Company
Board of Directors to fill vacant directorships, will preclude shareholders of
the Company from removing incumbent directors without cause, and simultaneously
gaining control of the Company Board of Directors by filling the vacancies with
their own nominees.
The term "cause" is not defined in the Company Articles or the Ohio General
Corporation Law. Consequently, any question concerning the legal standard for
"cause" would have to be judicially determined and such a determination could be
difficult, expensive and time consuming.

MEETINGS OF SHAREHOLDERS. The amended Company Regulations provide that
annual meetings of shareholders shall be held at such time and on such
business day as the Board of Directors may determine. Except as otherwise
provided by law or by the amended Company Articles, a quorum for any meeting
of the Company shareholders is a majority of the capital stock issued and
outstanding and entitled to vote at the meeting.

SPECIAL MEETINGS OF SHAREHOLDERS. The amended Company Regulations provide
that special meetings of shareholders may be called by the Chairman of the
Board, President or Chief Executive Officer or by the Board of Directors by
action at a meeting or a majority of the directors without a meeting or by
shareholders holding 50% or more of the voting power entitled to elect
directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The amended Company Regulations provide that shareholders seeking
to bring business before a meeting of shareholders, or to nominate candidates
for election as directors at a meeting of shareholders, must provide timely
notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive office of the
Company, not less than 30 days nor more than 60 days prior to the scheduled
meeting (or, if less than 40 days' notice of the meeting is given to
shareholders not later than the close of business on the tenth day following the
earlier of (i) the day on which such notice of the date of the meeting was
mailed, or (ii) the day on which public disclosure of the date of the special
meeting was made). The amended Company Regulations also specify certain
requirements pertaining to the form and substance of a shareholder's notice.
These provisions may preclude some shareholders from making nominations for
directors at an annual or special meeting or from bringing other matters before
the shareholders at a meeting.
VOTING REQUIREMENTS. The Company Regulations provide that certain
provisions in the Company Regulations may not be altered, amended or repealed in
any respect, and new provisions inconsistent therewith may not be adopted unless
such action is approved by the affirmative vote of the holders of at least 80%
of all of the outstanding shares of capital stock of the Company entitled to
vote on such matter at a meeting of shareholders called for that purpose.

-48-

<PAGE>

SHAREHOLDER NOMINATIONS AND PROPOSALS. The amended Company Regulations also
specify certain requirements pertaining to the form and substance of a
shareholder's notice. These provisions may preclude some shareholders from
making nominations for directors at an annual or special meeting or from
bringing other matters before the shareholders at a meeting. See "COMPANY -
Description of Capital Stock."
Although the Company corporate documents do not give the Company Board any
power to approve or disapprove shareholder nominations for the election of
directors or proposals for action, the foregoing provisions may have the effect
of precluding a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its shareholders. On the other hand,
by requiring advance notice of nominations by shareholders, these shareholder
notice procedures afford the Company Board of Directors an opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Company Board of Directors, to inform shareholders
about such qualifications. By requiring advance notice of other proposed
business, the shareholder notice procedures provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Company Board of Directors, provide the Board with an
opportunity to inform shareholders, prior to such meeting, of any business
proposed to be conducted at the meeting, together with any recommendations by
the Company Board of Directors or statements as to the Company Board of
Director's position regarding action to be taken with respect to such business,
so that shareholders can better decide whether to attend the meeting or to grant
a proxy regarding the disposition of any such business.
OHIO GENERAL CORPORATION LAW
Certain provisions of the General Corporation Law of Ohio and of the
amended Company Articles and the amended Company Regulations summarized in the
following paragraphs, may be considered to have an anti-takeover effect and
may delay, deter or prevent a tender offer, proxy contest or other takeover
attempt that a shareholder might consider to be in such shareholder's best
interest, including such an attempt as might result in payment of a premium
over the market price for shares held by shareholders.
DIVIDENDS. The Ohio General Corporation Law generally allows dividends to
be paid in cash, property, or shares of the corporation. The dividend shall not
exceed the combination of the surplus of the Corporation and the difference
between (i) the reduction in surplus that results from the immediate recognition
of the transition obligation under the statement of financial accounting
standards No. 106; and (2) the aggregate amount of the transition obligation
that would have been recognized as of the date of the declaration of a dividend
if the corporation had elected to amortize its recognition of the transition
obligation under statement of financial accounting standards No. 106. However,
no dividends may be paid to the holders of shares of any class in violation of
the rights of the holders of shares of any other class, or when the corporation
is insolvent or there is reasonable ground to believe that by such payment it
would be rendered insolvent. Holders of both the Company common stock and the
Predecessor Company common stock are entitled to receive dividends in such
amounts and at such times as declared by their respective Boards of Directors.
Neither the Company nor any Predecessor Company has paid cash dividends. The
Company presently anticipates that all of its future earnings will be retained
for the development of its business and does not anticipate paying cash
dividends on the Company common stock in the foreseeable future. The payment of
any future dividends will be at the discretion of the Company's Board of
Directors and will be based on the Company's future earnings, financial
condition, capital requirements and other relevant factors.
-49-

<PAGE>

ACTION BY WRITTEN CONSENT. The Ohio General Corporation Law provides
that, unless otherwise provided in the Articles of Incorporation, any action
that is required 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 in writing, setting forth the action so
taken, shall be signed by all the shareholders who would be entitled to
notice of a meeting of the shareholders held for such purpose.

-50-

<PAGE>

LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section
1701.59 of the Ohio General Corporation Law provides that a director shall
not be found to have violated his duties under the Ohio General Corporation
Law unless it is proved by clear and convincing evidence that the director
has not acted in good faith, in a manner he reasonably believes to be in or
not opposed to the best interests of the corporation, or with the care that
an ordinary prudent person in a like position would use under similar
circumstances.
Section 1701.13 of the Ohio General Corporation Law allows for corporations
to indemnify officers and directors from actions, suits or proceedings arising
out of their service to the corporation. The Company's Articles provide that
the Corporation may indemnify any director, officer, incorporator or any former
director or officer of the Corporation and any person who is or has served at
the request of the Corporation as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise (and his or
hers heirs, executors and administrators) against expenses, including attorney
fees, judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him by reason of the fact that he is or was such director, officer,
incorporator or trustee in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, to the full extent and according to the procedures and
requirements set forth in the Ohio General Corporation Law as the same may be in
effect from time to time. The indemnification provided herein shall not be
deemed to restrict the right of the Corporation to (i) indemnify employees,
agents and others as permitted by law, (ii) purchase and maintain insurance or
provide similar protection on behalf of the directors, officers or such other
persons against liabilities asserted against them or expenses incurred by them
arising out of their service to the Corporation as contemplated herein, and
(iii) enter into agreements with such directors, officers, incorporators,
employees, agents or others indemnifying them against any and all liabilities
asserted against them or incurred by them arising out of their service to the
Corporation as contemplated herein.
INTERESTED SHAREHOLDER TRANSACTIONS. Chapter 1704 of the Ohio General
Corporation Law prohibits certain transactions between a Ohio corporation and
an "interested shareholder" Chapter 1704 allows for a corporation to exclude
itself from Chapter 1204 by exempting itself in its Articles of
Incorporation. The Company has not included such an exemptive provision in
the Company Articles. See "THE COMPANY - Description of Capital Stock."

-51-

<PAGE>
REPURCHASE AND REDEMPTION OF STOCK. Ohio corporations may generally purchase
or redeem their own shares of capital stock. The Company Articles provide
that its Board of Directors have the right and power to repurchase any of its
outstanding shares upon such terms and conditions agreed upon by the
corporation and the selling shareholder.

EXPERTS

The financial statements of Papnet of Ohio, Inc. at December 31, 1995
and 1994 and for each of the three years in the period ended December 31,
1995; the financial statements of ER Group, Inc. at December 31, 1995 and
1994 and for each of the years then ended; the combined financial statements
of Carolina Cytology, Inc. and CCWP Partners, Inc. at December 31, 1995 and
1994 and for each of the years then ended; the financial statements of
Indiana Cytology Review Company at December 31, 1995 and the period December
1 through December 31, 1995 and the financial statements of Cytology Indiana,
Inc. at December 31, 1995 and 1994 and for each of the years then ended;
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

LEGAL OPINIONS

The validity of the Company Shares to be issued to the Predecessor Company
shareholders pursuant to the Merger and certain other legal matters in
connection with the Merger, including certain tax matters, will be passed upon
by Porter, Wright, Morris & Arthur, Columbus, Ohio.

-52-

<PAGE>

Index to Financial Statements

Papnet of Ohio, Inc.

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F - 3
Balance Sheets at December 31, 1994 and 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F - 4
Statements of Operations for each of the three years ended
December 31, 1993, 1994 and 1995 and for the six-month
periods ended June 30, 1995 and 1996 (Unaudited). . . . . . . . . . . F - 5
Statements of Stockholders' Equity for each of the three years ended
December 31, 1993, 1994 and 1995 and for the six-month
period ended June 30, 1996 (Unaudited). . . . . . . . . . . . . . . . F - 6
Statements of Cash Flows for each of the three years ended
December 31, 1993, 1994 and 1995 and for the six-month
periods ended June 30, 1995 and 1996 (Unaudited). . . . . . . . . . . F - 7
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F - 8

ER Group, Inc.

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F - 15
Balance Sheets at December 31, 1994 and 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F - 16
Statements of Operations for the years ended December 31, 1994 and 1995
and for the six-month period ended June 30, 1996 (Unaudited). . . . . F - 17
Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the six-month period ended June 30, 1996 (Unaudited). . . . . F - 18
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F - 19

Carolina Cytology, Inc. and CCWP Partners, Inc.

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F - 22
Combined Balance Sheets at December 31, 1994 and 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F - 23
Combined Statements of Operations for the years
ended December 31, 1994 and 1995 and for the six-month
period ended June 30, 1996 (Unaudited). . . . . . . . . . . . . . . . F - 24
Combined Statements of Cash Flows for the years
ended December 31, 1994 and 1995 and for the six-month
period ended June 30, 1996 (Unaudited). . . . . . . . . . . . . . . . F - 25
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . F - 26

F-1

<PAGE>

Index to Financial Statements (continued)

Indiana Cytology Review Corporation

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F - 29
Balance Sheets at December 31, 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F - 30
Statements of Operations for the period December 1
through December 31, 1995 and for the six-month period
ended June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . F - 31
Statements of Cash Flows for the period December 1
through December 31, 1995 and for the six-month period
ended June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . F - 32
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F - 33

Cytology Indiana, Inc.

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F - 37
Balance Sheets at December 31, 1994 and 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F - 38
Statements of Operations for the years ended December 31, 1994 and 1995
and for the six-month period ended June 30, 1996 (Unaudited). . . . . F - 39
Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the six-month period ended June 30, 1996 (Unaudited). . . . . F - 40
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F - 41

F-2

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
Papnet of Ohio, Inc.

We have audited the accompanying balance sheets of Papnet of Ohio, Inc. (the
Company) as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Columbus, Ohio
March 22, 1996, except for
Note 8 as to which the date
is July 5, 1996

F-3

<PAGE>

Papnet of Ohio, Inc.

Balance Sheets
<TABLE>
<CAPTION>

DECEMBER 31 JUNE 30,
1994 1995 1996
----------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 535,545 $ 811,359 $ 220,159
Accounts receivable 33,445 75,993 171,631
Due from related entities (NOTE 8) - - 227,206
Note receivable from stockholder (NOTE 6) 50,000 50,000 50,000
Prepaid assets 1,021 1,021 1,021
----------------------------------------
Total current assets 620,011 938,373 670,017

Notes receivable - NSI 126,041 51,080 21,443
Investment in NSI--available for sale - 7,696,296 5,700,960
Investment in partnerships - 172,679 125,866
Furniture and equipment (net of accumulated
depreciation of $17,127 -- 1994 and $24,623 -- 1995) 20,552 17,316 14,316
Deferred taxes - 68,715 190,716
Deposits and other assets 2,330 1,330 1,330
----------------------------------------
Total assets $ 768,934 $8,945,789 $6,724,648
----------------------------------------
----------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ - $ 49,931 $ 209,672
Accrued expenses 30,334 81,630 17,214
Other liabilities - 42,831 -
----------------------------------------
Total current liabilities 30,334 174,392 226,886

Deferred taxes - 2,517,718 1,719,583

Stockholders' equity:
Common stock no par value, 8,000,000 shares
authorized, 5,864,916 and 6,072,936 issued
and outstanding at December 31, 1994 and 1995 1,488,948 1,779,465 1,779,465
Additional paid-in capital 783,077 783,077 783,077
Unrealized gains on available-for-sale securities
net of deferred taxes of $2,517,718 in 1995 and
$1,719,583 in 1996 - 3,899,617 2,659,694
Retained deficit (1,533,425) (208,480) (444,057)
----------------------------------------
Total stockholders' equity 738,600 6,253,679 4,778,179
----------------------------------------
Total liabilities and stockholders' equity $ 768,934 $8,945,789 $6,724,648
----------------------------------------
----------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4

<PAGE>

Papnet of Ohio, Inc.

Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1993 1994 1995 1995 1996
------------------------------------------------------------------------
(UNAUDITED)

<S> <C> <C> <C> <C> <C>
Royalty revenue $ 4,322 $ 24,765 $ 48,000 $ 21,340 $ 27,099

Operating expenses:
Salaries and benefits 180,909 184,113 284,041 101,278 125,973
Sales and marketing 41,881 26,433 62,079 23,692 45,125
Professional 38,935 40,664 32,854 14,786 21,121
Payroll and franchise taxes 19,272 20,831 22,316 17,089 28,843
Depreciation and amortization 8,916 8,152 7,496 3,469 3,000
Office and other - 47,168 57,948 27,198 32,945
Merger (NOTE 8) - - 106,415 - 134,450
------------------------------------------------------------------------
Total operating expense 289,913 327,361 573,149 187,512 391,457
------------------------------------------------------------------------

Operating loss (285,591) (302,596) (525,149) (166,172) (364,358)

Other income (expense):
Interest income 9,037 19,059 16,606 11,240 10,871
Interest expense (514) - (264) (39) -
Equity income (loss) in partnerships - - 49,638 - (4,091)
NSI settlement and common stock
transactions (NOTE 3) - - 1,715,399 - -
------------------------------------------------------------------------
Total other income 8,523 19,059 1,781,379 11,201 6,780
------------------------------------------------------------------------
Income (loss) before income taxes (277,068) (283,537) 1,256,230 (154,971) (357,578)

Income tax provision (benefit) - - (68,715) - (122,001)
------------------------------------------------------------------------
Net income (loss) $(277,068) $(283,537) $1,324,945 (154,971) (235,577)
------------------------------------------------------------------------

Net income (loss) per share $(.05) $(.05) $.21 $(.03) $(.04)
------------------------------------------------------------------------
------------------------------------------------------------------------

Shares used in computation 5,623,000 5,860,336 6,349,594 5,870,778 6,072,936
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.

F-5

<PAGE>

Papnet of Ohio, Inc.

Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADJUSTMENTS
ADDITIONAL TO UNREALIZED RETAINED
COMMON PAID-IN GAINS EARNINGS
STOCK CAPITAL (LOSSES) (DEFICIT) TOTAL
-------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 602,000 $783,077 $ - $ (972,820) $ 412,257
Stock issued 401,802 - - - 401,802
Stock subscribed 386,837 - - - 386,837
Net loss - - - (277,068) (277,068)
-------------------------------------------------------------------------------
Balance, December 31, 1993 1,390,639 783,077 - (1,249,888) 923,828
Stock issued and warrants exercised 98,309 - - - 98,309
Net loss - - - (283,537) (283,537)
-------------------------------------------------------------------------------
Balance, December 31, 1994 1,488,948 783,077 - (1,533,425) 738,600
Stock issued and warrants exercised 290,517 - - - 290,517
Adjustment to unrealized gains net of tax
(unaudited) - - 3,899,617 - 3,899,617
Net income - - - 1,324,945 1,324,945
-------------------------------------------------------------------------------
Balance, December 31, 1995 1,779,465 783,077 3,899,617 (208,480) 6,253,679
Net loss (unaudited) - - - (235,577) (235,577)
Adjustment to unrealized gains net of tax
(unaudited) - - (1,239,923) - (1,239,923)
-------------------------------------------------------------------------------
Balance, June 30, 1996 (unaudited) $1,779,465 $783,077 $2,659,694 $(444,057) $4,778,179
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-6

<PAGE>

Papnet of Ohio, Inc.

Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1993 1994 1995 1995 1996
------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(277,068) $(283,537) $1,324,945 $(154,971) $ (235,577)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 8,916 8,152 7,496 3,469 3,000
Recognition of deferred tax assets - - (68,715) - (122,001)
Gain on settlement and exercise of
warrants with NSI - - (1,402,002) - -
Equity (income) loss in partnership - - (49,638) - 4,091
Changes in operating assets and
liabilities:
Accounts receivable (5,121) (24,765) (42,548) (18,378) (95,638)
Note receivable from stockholder - (50,000) - - -
Prepaid assets (1,021) - - - -
Accounts payable 18,969 (23,905) 49,931 2,384 159,741
Due from related entities - - - - (227,206)
Accrued expenses and other
liabilities 2,179 15,574 94,127 (7,887) (107,247)
------------------------------------------------------------------------
Net cash used in operating activities (253,146) (358,481) (86,404) (175,383) (620,837)

INVESTING ACTIVITIES
Notes receivable - NSI 27,012 70,717 74,961 47,038 29,637
Purchase of furniture and equipment (7,179) (7,200) (4,260) (6,600) -
Other assets (126) (172) 1,000 - -
------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 19,707 63,345 71,701 40,438 29,637

FINANCING ACTIVITIES
Proceeds from stock subscription
receivable 95,862 290,975 - - -
Issuance of common stock and warrants
exercised - 98,309 290,517 - -
------------------------------------------------------------------------
Net cash provided by financing activities 95,862 389,284 290,517 - -

Net increase (decrease) in cash (137,577) 94,148 275,814 (134,935) (591,200)

Cash and cash equivalents at beginning
of period 578,974 441,397 535,545 535,545 811,359
------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 441,397 $ 535,545 $ 811,359 $400,600 $ 220,159
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplemental non-cash transactions:
Assets acquired in acquisition of
minority interests in exchange for
common stock $ 401,802 $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Stock subscriptions received from
stock offering $ 290,975 $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-7
<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements

December 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Papnet of Ohio, Inc. (the Company) holds a long-term territorial license
agreement ("License Agreement") issued by Neuromedical Systems, Inc. (NSI),
which provides the right to sell the "PAPNET-Registered Trademark- System" and
the "PAPNET-Registered Trademark- Service", as described below, in Ohio,
Kentucky and the Standard Metropolitan Area of Chicago.

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET-Registered Trademark- System, was
approved for commercial use in the United States by the Food and Drug
Administration (the "FDA") on November 8, 1995. The PAPNET-Registered Trademark-
Service permits laboratories to submit slides to one of NSI's central facilities
for processing by the PAPNET-Registered Trademark- System. NSI's objective is
to establish the use of its PAPNET-Registered Trademark- System as the new
standard of care in cervical cancer screening.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.

CASH EQUIVALENTS

Cash equivalents include investments in highly liquid debt instruments with a
maturity of three months or less at date of acquisition. The carrying amounts
reported in the balance sheets for cash equivalents approximate fair value.

INVESTMENT IN PARTNERSHIPS

The Company accounts for its minority interest in two partnerships on the equity
method because the Company exercises significant influence over the
partnerships. The majority owners of these partnerships are parties to the
Merger Agreement described in Note 8.

F-8

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FURNITURE AND EQUIPMENT

Furniture and equipment consists of office furniture and computer equipment
recorded at cost which is being depreciated on an accelerated method over
estimated useful lives ranging from five to seven years.

LICENSE AGREEMENT

The License Agreement expires in 2025, but provide for a 20 year renewal option.
Amounts paid by the Company to NSI in exchange for the License Agreement have
been expensed in the years paid. This accounting reflects the uncertainty as to
the recoverability of amounts paid for the License Agreement, which was
contingent on FDA approval of the PAPNET-Registered Trademark- System and the
ability of NSI and the Company to develop a profitable market for the
technology. The Company treated these payments as an intangible asset in its
previously issued financial statements. The Company's historical financial
statements have been restated to conform with the accounting practices of the
other NetMed Entities, as described in Note 8, so there is consistent
application for the merger also described in Note 8. The effect of this change
on the Company's historical financial statements was to increase income in each
of the three years ended December 31, 1993, 1994 and 1995, by approximately
$43,000, $43,000 and $31,000, respectively, in addition to reducing assets and
retained earnings by the unamortized balance of the intangible asset.

ROYALTY REVENUE

Pursuant to the License Agreements, the Company is entitled to receive a
calculated royalty or a specified percentage of NSI's annual slide processing
revenues less certain expenses, up to specific annual monetary limits for each
licensee. Royalty revenue is recognized as earned based on the License
Agreements.

INCOME TAXES

The Company accounts for income taxes using the liability method under Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Deferred items are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted rates and laws that will be in effect when the differences are expected
to reverse.

STOCK OPTIONS AND WARRANTS

The Company accounts for stock options and warrants under APB 25 "Accounting for
Stock Issued to Employees."

F-9

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

3. INVESTMENT IN NSI

The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available-for-sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASDAQ NMS under the symbol "NSIX." As of December
31, 1995, the Company owned 380,064 shares of NSI stock at a cost of $1,402,002.

The exercise of the warrants in NSI was completed utilizing a cashless exercise
provision in the warrant agreement. This resulted in a gain of $652,250 which
has been reported as other income. As a result of settling certain claims with
NSI in December 1995, the Company received 53,939 shares of NSI stock resulting
in a gain of $749,752 which is recorded in other income. In addition, the
Company was allocated the right to purchase 65,000 shares of NSI stock at NSI's
initial public offering. The Company purchased and sold the entire 65,000
shares for $1,292,363 during 1995 resulting in a realized gain of $313,397 which
has been recorded as other income.

4. STOCK OPTIONS AND WARRANTS

The Company adopted a stock option plan in 1995 under which qualified or
nonqualified options may be granted. No options are currently outstanding under
the Plan.

As of December 31, 1995, there were outstanding 47,020 warrants for the
President of the Company and 24,000 for a former consultant to purchase stock at
exercise prices of $.875 per share and $1.25 per share, respectively.

SHARES VALUE
-----------------------------------------
Outstanding at December 31, 1993 339,040 $.875 to $1.25

Exercised (84,000) $1.25
--------------

Outstanding at December 31, 1994 255,040

Exercised (184,020) $.875 to $1.25
--------------

Outstanding at December 31, 1995 71,020 $.875 to $1.25
--------------
--------------

F-10

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

4. STOCK OPTIONS AND WARRANTS (CONTINUED)

The Company has outstanding options to issue 365,600 of the Company's shares
under a non-qualified stock option plan at exercise prices ranging from $1.09 to
$12.00 per share. As of December 31, 1995 and 1994, respectively, the
outstanding shares and respective exercise prices were as follows:

SHARES VALUE
-----------------------------------------

Outstanding at December 31, 1993 397,600 $1.09 to $1.56

Issued 32,000 $2.25 to $3.25
Expired 24,000 $1.38
--------------
Outstanding at December 31, 1994 429,600 $1.09 to $3.25

Issued 16,000 $12.00
Expired 56,000 $1.38
--------------
Outstanding at December 31, 1995 365,600 $1.09 to $12.00
--------------
--------------

All options and warrants were issued at prices that equaled or exceeded fair
market value at date of grant.

F-11

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

5. INCOME TAXES

Significant components of deferred tax assets and liabilities are as follows:

1994 1995
-------------------------------------
Loss carryforwards $ 259,000 $ 68,715
License fees 312,000 -
Unrealized gains on investments - (2,517,718)
-------------------------------------
571,000 (2,449,003)
Valuation allowance (571,000) -
-------------------------------------
Net deferred tax liability $ - $(2,449,003)
-------------------------------------
-------------------------------------

At December 31, 1995, the Company had unused NOL carryforwards for tax purposes
of approximately $172,000 which expire in 2009.

At December 31, 1993 and 1994, a full valuation allowance was recorded due to
the lack of deferred tax liabilities, historical income and tax planning
strategies. During 1995, due to the recognition of a significant deferred tax
liability, a valuation allowance was not required.

The reconciliation of income tax computed at the statutory rate to the recorded
tax provision (benefit) is:

1993 1994 1995
-------------------------------------

Tax provision (benefit) at statutory rate $(94,203) $(96,402) $ 427,118
Recognition of previously reserved tax
assets - - (495,833)
Valuation allowance provided 94,203 96,402 -
-------------------------------------

Total tax provision (benefit) $ - $ - $ (68,715)
-------------------------------------
-------------------------------------

6. NOTE RECEIVABLE FROM STOCKHOLDER

On October 14, 1994, the Company loaned one of its officers and stockholders
$50,000, at prime plus 1/2% interest. The loan is due June 1, 1996. Under the
loan agreement, effective with the merger described in Note 8, the loan will be
deemed a bonus and converted into compensation.

F-12

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

7. LEASES

The Company leases facilities and equipment under operating leases. Rent
expense for the years ended December 31, 1993, 1994 and 1995 was $12,250,
$15,526 and $19,537, respectively.

8. SUBSEQUENT EVENTS

MERGER AGREEMENT

Certain entities with a degree of common ownership interest also hold long-term
territorial License Agreements for the PAPNET-Registered Trademark- System.
These entities consist of Cytology Indiana, Inc. ("CIN"), Indiana Cytology
Review Corporation ("INC"), ER Group, Inc. ("ERG") and Carolina Cytology, Inc.
("CCI"). These entities, along with the Company and CCWP Partners, Inc.
("CCWP"), have signed an agreement to merge into the Company, which will be
renamed NetMed, Inc. (NetMed). The entities party to the merger are
collectively referred to as the NetMed Entities.

NetMed will hold the License Agreements previously held by the individual NetMed
Entities. The business purpose of NetMed will be to market the proprietary
products of NSI, including the PAPNET-Registered Trademark- System, in the
territories encompassed under the License Agreements. These territories include
Ohio, Kentucky, the Standard Metropolitan Area of Chicago, Missouri, Georgia and
North Carolina.

LOAN AGREEMENT WITH NETMED ENTITIES

The Company has entered into Loan Agreements with the individual NetMed
Entities, dated July 5, 1996 (the "Loan Agreement"), whereby the Company has
agreed to advance to the individual NetMed Entities the expenses incurred in
connection with the Merger. In addition, the Company will advance funds
necessary to pay reasonable expenses of ordinary business operations for the
individual NetMed Entities. Advances will be evidenced by a promissory note
bearing interest at an annual rate of 7% payable 180 days after the earlier of
the consummation of the merger or the termination of the Merger Agreement.
Promissory notes delivered by the individual NetMed Entities will be secured by
their shares of NSI common stock.

F-13

<PAGE>

Papnet of Ohio, Inc.

Notes to Financial Statements (continued)

8. SUBSEQUENT EVENTS (CONTINUED)

LOAN AGREEMENT WITH NETMED ENTITIES (CONTINUED)

Pending completion of the merger, the business operations of the NetMed Entities
are being managed by the Company.

COMMITMENT

The Company has also entered into a Loan Agreement, dated March 14, 1996, (the
"Loan Agreement"), with Cytology West, Inc. ("CWI") and Papnet Utah, Inc.
("PUI"). CWI is licensed to sell the PAPNET System and the PAPNET Service in
Arizona, Nevada and San Diego County California. The President of CWI, owns
383,616 shares of the Company's common stock. The Loan Agreement provides for
advances to CWI of up to $585,000 to cover certain operating expenses and the
acquisition of new technology. PUI is licensed to sell the PAPNET System and
the PAPNET Service in Utah. No specific amount was established for advances to
PUI. The advances will bear interest at the rate of 7% per annum. As of June
15, 1996, the Company has advanced $146,320 to CWI and $14,315 to PUI under the
terms of the Loan Agreements.

9. UNAUDITED FINANCIAL STATEMENTS

The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited; however, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial statements for these interim periods have
been included. The results for the interim period ended June 30, 1996 are
not necessarily indicative of the results to be obtained for the full fiscal
year ending December 31, 1996.

F-14

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
ER Group, Inc.

We have audited the accompanying balance sheets of ER Group, Inc. (the
Company) as of December 31, 1995 and 1994, and the related statements of
operations and cash flows for each of the years then ended. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for each
of the years then ended, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Columbus, Ohio
March 22, 1996, except for
Note 4 as to which the date
is July 5, 1996

F-15

<PAGE>

ER Group, Inc.

Balance Sheets

DECEMBER 31, JUNE 30,
1994 1995 1996
-------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 68,030 $ 53,273 $ 50,649
Accounts receivable 10,859 18,190 5,059
-----------------------------------------
Total current assets 78,889 71,463 55,708

Investment in NSI--available for sale -- 2,923,351 2,165,445
Deposits and other assets 235 69 69
----------------------------------------
Total assets $ 79,124 $2,994,883 $2,221,222
----------------------------------------
---------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 14,710 $ -
Due to related entities (NOTE 4) -- - 70,887
Accrued expenses -- - 3,557
----------------------------------------
Total current liabilities -- 14,710 74,444

Deferred taxes -- 955,917 652,755

Stockholders' equity:
Common stock $575,000 575,000 610,000
Unrealized gains on available-for-sale
securities net of deferred taxes of
$955,917 in 1995 and $652,775 in 1996 -- 1,433,876 979,132
Retained earnings (deficit) (495,876) 15,380 (95,109)
-------------------------------------------
Total stockholders' equity 79,124 2,024,256 1,494,023
-------------------------------------------
Total liabilities and stockholders' $ 79,124 $2,994,883 $2,221,222
equity -------------------------------------------
-------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-16

<PAGE>

ER Group, Inc.

Statements of Operations

SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996
--------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>

Royalty revenue $6,190 $ 12,000 $ 7,137

Operating expenses:
Salaries and benefits -- - 60,414
Sales and marketing -- - 10,936
Payroll and franchise taxes -- - 2,155
Professional 1,744 2,042 5,452
Depreciation and amortization 166 166 -
Office 175 1,337 1,549
Merger (NOTE 4) -- 32,103 37,684
--------------------------------------------------
Total operating expense 2,085 35,648 118,190
--------------------------------------------------
Operating income (loss) 4,105 (23,648) (111,053)

Other income:
Interest income 1,518 1,346 564
NSI settlement and common stock
transactions (NOTE 3) -- 533,558 -
--------------------------------------------------
Total other income 1,518 534,904 564
--------------------------------------------------
Net income (loss) $5,623 $511,256 $(110,489)
--------------------------------------------------
--------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-17

<PAGE>

ER Group, Inc.

Statements of Cash Flows

SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996
--------------------------------------------
(UNAUDITED)

<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 5,623 $ 511,256 $(110,489)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 166 166 -
Gain on settlement and exercise of warrants
with NSI - (533,558) -
Stock issued for consulting services - - 35,000
Changes in operating assets and liabilities:
Accounts receivable (6,190) (7,331) 13,131
Accounts payable - 14,710 (14,710)
Due to related entities - - 70,887
Accrued expenses - - 3,557
--------------------------------------------

Net cash used in operating activities (401) (14,757) (2,624)

Cash and cash equivalents at beginning of period 68,431 68,030 53,273
--------------------------------------------

Cash and cash equivalents at end of period $68,030 $ 53,273 $ 50,649
--------------------------------------------
--------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-18

<PAGE>

ER Group, Inc.

Notes to Financial Statements

December 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

ER Group, Inc. (the Company) holds a long-term territorial license agreement
("License Agreement") issued by Neuromedical Systems, Inc. (NSI), which
provides the right to sell the "PAPNET-Registered Trademark- System" and the
"PAPNET-Registered Trademark- Service" , as described below, in Georgia.

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET-Registered Trademark- System, was
approved for commercial use in the United States by the Food and Drug
Administration (the "FDA") on November 8, 1995. The PAPNET-Registered
Trademark- Service permits laboratories to submit slides to one of NSI's central
facilities for processing by the PAPNET-Registered Trademark- System. NSI's
objective is to establish the use of its PAPNET-Registered Trademark- System as
the new standard of care in cervical cancer screening.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

LICENSE AGREEMENT
The License Agreement expires in 2025, but provides for a 20 year renewal
option. Amounts paid by the Company to NSI in exchange for the License
Agreement have been expensed in the years paid. This accounting reflects the
uncertainty as to the recoverability of amounts paid for the License Agreement,
which was contingent on FDA approval of the PAPNET-Registered Trademark- System
and the ability of NSI and the Company to develop a profitable market for the
technology.

F-19

<PAGE>

ER Group, Inc.

Notes to Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ROYALTY REVENUE

Pursuant to the License Agreement, the Company is entitled to receive a
calculated royalty or a specified percentage of NSI's annual slide processing
revenues less certain expenses, up to specific annual monetary limits for each
licensee. Royalty revenue is recognized as earned based on the License
Agreement.

INCOME TAXES

The shareholders of the Company have elected to report the taxable income of the
Company on their individual federal and state income tax returns (Subchapter S
corporation election). Accordingly, the financial statements include no
provisions for federal or state income taxes. A deferred tax liability relating
to the gain on investment in NSI stock has been recorded using a 34% rate. This
liability has been recorded to recognize the obligation that would arise for
distributions to the S Corporation shareholders to pay their tax liabilities
that would arise upon the realization of the gain.

3. INVESTMENT IN NSI

The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available for sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASDAQ NMS under the symbol "NSIX." As of
December 31, 1995, the Company owned 144,363 shares of NSI stock at a cost of
$533,558.

The exercise of the warrants in NSI was completed utilizing a cashless exercise
provision in the warrant agreement. This resulted in a gain of $247,750 which
has been reported as other income. As a result of settling certain claims with
NSI in December 1995, the Company received 20,488 shares of NSI stock resulting
in a gain of $285,808 which is recorded in other income.

F-20
<PAGE>

ER Group, Inc.

Notes to Financial Statements (continued)

4. SUBSEQUENT EVENTS

MERGER AGREEMENT

Certain entities with a degree of common ownership interest also hold long-term
territorial License Agreements for the PAPNET-Registered Trademark- System.
These entities consist of Papnet of Ohio, Inc. ("PPNT"), Cytology Indiana, Inc.
("CIN"), Indiana Cytology Review Corporation ("INC") and Carolina Cytology, Inc.
("CCI"). These entities, along with the Company and CCWP Partners, Inc.
("CCWP"), have signed an agreement to merge into PPNT which will be renamed
NetMed, Inc. (NetMed). The entities party to the merger are collectively
referred to as the NetMed Entities.

LOAN AGREEMENT WITH PPNT
The Company has entered into a Loan Agreement with PPNT, dated July 5, 1996 (the
"Loan Agreement"), whereby PPNT has agreed to advance to the Company the
expenses incurred in connection with the Merger. In addition, PPNT will advance
funds necessary to pay reasonable expenses of ordinary business operations for
the Company. Advances will be evidenced by a promissory note bearing interest
at an annual rate of 7%, payable 60 days after the earlier of the consummation
of the merger or the termination of the Merger Agreement. Promissory notes
delivered by the Company will be secured by its shares of NSI common stock.
Pending completion of the merger, the business operations of the Company are
being managed by PPNT.

5. UNAUDITED FINANCIAL STATEMENTS
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim period have been
included. The results for the interim period ended June 30, 1996 are not
necessarily indicative of the results to be obtained for the full fiscal year
ending December 31, 1996.

F-21

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
Carolina Cytology, Inc. and CCWP Partners, Inc.

We have audited the accompanying combined balance sheets of Carolina
Cytology, Inc. and CCWP Partners, Inc. (the Company) as of December 31, 1995
and 1994, and the related combined statements of operations and cash flows
for each of the years then ended. 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 audit.

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 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company at December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Columbus, Ohio
March 22, 1996, except for
Note 4 as to which the date
is July 5, 1996

F-22

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Combined Balance Sheets

DECEMBER 31, JUNE 30,
1994 1995 1996
--------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,981 $ 5,990 $ 26,397
Accounts receivable 9,778 18,190 8,340
--------------------------------------------------
Total current assets 12,759 24,180 34,737

Investment in NSI--available for sale - 2,923,351 2,165,445
Deposits and other assets 3,018 2,065 2,065
--------------------------------------------------
Total assets $ 15,777 $2,949,596 $2,202,247
--------------------------------------------------
--------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ - $ 8,906 $ 3,558
Due to related entities (NOTE 4) - - 80,143
Other liabilities - 23,289 1,172
--------------------------------------------------
Total current liabilities - 32,195 84,873

Deferred taxes - 955,918 652,755
Minority interest - 172,679 125,866

Stockholders' equity:
Common stock 463,500 463,500 465,000
Unrealized gains on available-for-sale
securities net of deferred taxes of
$955,918 in 1995 and $652,755 in 1996 - 1,310,834 898,814
Retained earnings (deficit) (447,723) 14,470 (25,061)
--------------------------------------------------
Total stockholders' equity 15,777 1,788,804 1,338,753
--------------------------------------------------
Total liabilities and owners' equity $15,777 $2,949,596 $2,202,247
--------------------------------------------------
--------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-23

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Combined Statements of Operations

SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996
----------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>

Royalty revenue $ 6,190 $ 12,000 $ 8,715

Operating expenses:
Salaries and benefits - - 1,667
Sales and marketing - - 1,870
Payroll and franchise taxes - - 158
Professional 1,025 535 10,852
Depreciation and amortization 935 953 -
Office 258 44 -
Merger (SEE NOTE 4) - 32,195 37,790
----------------------------------------------
Total operating expense 2,236 33,727 52,337
----------------------------------------------

Operating income (loss) 3,954 (21,727) (43,622)

NSI settlement and common stock transactions
(SEE NOTE 3) - 533,558 -
Minority interest - (49,638) 4,091
----------------------------------------------
Net income (loss) $ 3,954 $462,193 $(39,531)
----------------------------------------------
----------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-24

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Combined Statements of Cash Flows

SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996
-----------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,954 $462,193 $(39,531)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 953 953 -
Gain on settlement and exercise of warrants
with NSI - (533,558) -
Minority interest - 49,638 (4,091)
Changes in operating assets and liabilities:
Accounts receivable (6,190) (8,412) 9,850
Accounts payable - 8,906 (5,350)
Due to related entities - - 80,144
Other liabilaities - 23,289 (22,115)
------------------------------------------------------
Net cash provided by (used in) operating
activities (1,283) 3,009 18,907

FINANCING ACTIVITIES
Sale of common stock 375 - 1,500
------------------------------------------------------
Net cash provided by financing activities 375 - 1,500

Net increase (decrease) in cash (908) - 20,407
Cash and cash equivalents at beginning of period 3,889 2,981 5,990
------------------------------------------------------
Cash and cash equivalents at end of period $ 2,981 $ 5,990 $ 26,397
------------------------------------------------------
------------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-25

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Notes to Combined Financial Statements

December 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Carolina Cytology, Inc. (CCI) holds (through its majority interest in a
partnership) a long-term territorial license agreement ("License Agreement")
issued by Neuromedical Systems, Inc. (NSI), which provides the right to sell the
"PAPNET-Registered Trademark- System" and the "PAPNET-Registered Trademark-
Service", as described below, in North Carolina. CCWP Partners, Inc. (CCWP) was
formed on December 1, 1995 for the sole purpose of holding an interest in a
partnership that held certain warrants for the purchase of NSI common stock.
These warrants were exercised in December 1995. The accompanying financial
statements include the accounts of CCI and CCWP and their consolidated
partnerships. CCI and CCWP are hereinafter referred to collectively as the
"Company".

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET-Registered Trademark- System, was
approved for commercial use in the United States by the Food and Drug
Administration (the "FDA") on November 8, 1995. The PAPNET-Registered
Trademark- Service permits laboratories to submit slides to one of NSI's central
facilities for processing by the PAPNET-Registered Trademark- System. NSI's
objective is to establish the use of its PAPNET-Registered Trademark- System as
the new standard of care in cervical cancer screening.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

LICENSE AGREEMENT
The License Agreement expires in 2025, but provide for a 20 year renewal option.
Amounts paid by the Company to NSI in exchange for the License Agreement has
been expensed in the years paid. This accounting reflects the uncertainty as to
the recoverability of amounts paid for the License Agreement, which was
contingent on FDA approval of the PAPNET-Registered Trademark- System and the
ability of NSI and the Company to develop a profitable market for the
technology.

F-26

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Notes to Combined Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ROYALTY REVENUE

INCOME TAXES

3. INVESTMENT IN NSI

F-27

<PAGE>

Carolina Cytology, Inc. and CCWP Partners, Inc.

Notes to Combined Financial Statements (continued)

4. SUBSEQUENT EVENTS

MERGER AGREEMENT

Certain entities with a degree of common ownership interest also hold long-term
territorial License Agreements for the PAPNET-Registered Trademark- System.
These entities consist of Papnet of Ohio, Inc. ("PPNT"), Cytology Indiana, Inc.
("CIN"), Indiana Cytology Review Corporation ("INC") and ER Group, Inc. ("ERG").
These entities, along with the Company, have signed an agreement to merge into
PPNT which will be renamed NetMed, Inc. ("NetMed"). The entities party to the
merger are collectively referred to as the NetMed Entities.

LOAN AGREEMENT WITH PPNT

The Company has entered into Loan Agreements with PPNT, dated July 5, 1996 (the
"Loan Agreement"), whereby PPNT has agreed to advance to the Company the
expenses incurred in connection with the Merger. In addition, PPNT will advance
funds necessary to pay reasonable expenses of ordinary business operations for
the Company. Advances will be evidenced by a promissory note bearing interest
at an annual rate of 7%, payable 60 days after the earlier of the consummation
of the merger or the termination of the Merger Agreement. Promissory notes
delivered by the Company will be secured by its shares of NSI common stock.
Advances made to the Company may be repaid, at PPNT's option, in shares of the
Company's common stock.

Pending completion of the merger, the business operations of the Company are
being managed by PPNT.

F-28

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
Indiana Cytology Review Corporation

We have audited the accompanying balance sheet of Indiana Cytology Review
Corporation (the Company) as of December 31, 1995, and the related statements of
operations and cash flows for the period December 1 through December 31, 1995.
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 audit.

We conducted our audit 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995, and the results of its operations and its cash flows for the period
December 1 through December 31, 1995, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Columbus, Ohio
March 22, 1996, except for
Note 5 as to which the
date is July 5, 1996

F-29

<PAGE>

Indiana Cytology Review Corporation

Balance Sheets

DECEMBER 31, JUNE 30,
1995 1996
-----------------------------
(UNAUDITED)

ASSETS
Current assets:
Accounts receivable $ 6,366 $ 2,083
Due from related entities 2,778 -
-----------------------------
Total current assets 9,144 2,083

Investment in NSI--available for sale 506,437 375,150
Deferred taxes 9,822 20,676
-----------------------------
Total assets $ 525,403 $ 397,909
-----------------------------
-----------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to related entities (NOTE 5) $ - $ 26,392
Accrued liabilities 36,976 36,976
Other liabilities 7,851 97
-----------------------------
Total current liabilities 44,827 63,465

Deferred taxes 165,598 113,083

Stockholders' equity:
Common stock 196,735 196,735
Unrealized gains on available-for-sale
securities net of deferred taxes of
$165,598 in 1995 and $113,083 in 1996 248,397 169,624
Retained deficit (130,154) (144,998)
-----------------------------
Total stockholders' equity 314,978 221,361
-----------------------------
Total liabilities and stockholders' equity $ 525,403 $ 397,909
-----------------------------
-----------------------------

SEE ACCOMPANYING NOTES.

F-30
<PAGE>

Indiana Cytology Review Corporation

Statements of Operations

FOR THE PERIOD
DECEMBER 1 SIX
THROUGH MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
-----------------------------
(UNAUDITED)

Royalty revenue $ 4,200 $ 2,577

Operating expenses:
Salaries and benefits - 10,401
Sales and marketing - 6,668
Payroll and franchise taxes - 1,107
Professional 3,331 995
Depreciation and amortization 70 -
Office 487 -
Merger (NOTE 5) 7,755 9,103
-----------------------------
Total operating expense 11,643 28,274
-----------------------------
Operating loss (7,443) (25,697)

Other income:
Interest income 158 -
NSI settlement and common stock
transactions (NOTE 3) 92,442 -
-----------------------------
Total other income 92,600 -
-----------------------------
Income (loss) before income taxes 85,157 (25,697)
Income tax provision (benefit) 27,154 (10,853)
-----------------------------
Net income (loss) $58,003 $(14,844)
-----------------------------
-----------------------------

SEE ACCOMPANYING NOTES.

F-31

<PAGE>

Indiana Cytology Review Corporation

Statements of Cash Flows

FOR THE
PERIOD
- DECEMBER 1 SIX
THROUGH MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
-----------------------------
(UNAUDITED)

OPERATING ACTIVITIES
Net income (loss) $58,003 $(14,844)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization 70 -
Gain on settlement and exercise of warrants
with NSI (92,442) -
Changes in operating assets and liabilities:
Accounts receivable (2,943) 4,283
Due to/from related entities (2,778) 29,170
Deferred taxes and taxes payable 27,154 (10,854)
Other liabilities 7,755 (7,755)
-----------------------------
Net cash used in operating activities (5,181) -

Cash and cash equivalents at beginning of period 5,181 -
-----------------------------
Cash and cash equivalents at end of period $ - $ -
-----------------------------
-----------------------------

SEE ACCOMPANYING NOTES.

F-32

<PAGE>

Indiana Cytology Review Corporation

Notes to Financial Statements

December 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Indiana Cytology Review Corporation (the Company) was formed on December 1, 1995
and holds an approximate 35% interest in a long-term territorial license
agreement ("License Agreement") issued by Neuromedical Systems, Inc. (NSI),
which provides the right to sell the "PAPNET-Registered Trademark- System" and
the "PAPNET-Registered Trademark- Service" , as described below, in Missouri.

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET-Registered Trademark- System, was
approved for commercial use in the United States by the Food and Drug
Administration (the "FDA") on November 8, 1995. The PAPNET-Registered
Trademark- Service permits laboratories to submit slides to one of NSI's central
facilities for processing by the PAPNET-Registered Trademark- System. NSI's
objective is to establish the use of its PAPNET-Registered Trademark- System as
the new standard of care in cervical cancer screening.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

LICENSE AGREEMENT

The License Agreement expires in 2025, but provides for a 20 year renewal
option. Amounts paid by the Company to NSI in exchange for the License
Agreement has been expensed in the years paid. This accounting reflects the
uncertainty as to the recoverability of amounts paid for the License Agreement,
which was contingent on FDA approval of the PAPNET-Registered Trademark- System
and the ability of NSI and the Company to develop a profitable market for the
technology.

F-33

<PAGE>

Indiana Cytology Review Corporation

Notes to Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ROYALTY REVENUE

INCOME TAXES

The Company, accounts for income taxes using the liability method under
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred items are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted rates and laws that will be in effect when the differences are
expected to reverse.

3. INVESTMENT IN NSI

The exercise of the warrants in NSI was completed utilizing a cashless exercise
provision in the warrant agreement. This resulted in a gain of $42,924 which
has been reported as other income. As a result of settling certain claims with
NSI in December 1995, the Company received 3,550 shares of NSI stock resulting
in a gain of $49,518 which is recorded in other income.

F-34

<PAGE>

Indiana Cytology Review Corporation

Notes to Financial Statements (continued)

4. INCOME TAXES

Significant components for the deferred tax assets and liabilities at December
31, 1995 are as follows:

License fees $ 9,822
Unrealized gains on investments (165,598)
--------------
Net deferred tax asset (liability) $(155,776)
--------------
--------------

5. SUBSEQUENT EVENTS

MERGER AGREEMENT

Certain entities with a degree of common ownership interest also hold long-term
territorial License Agreements for the PAPNET-Registered Trademark- System.
These entities consist of Papnet of Ohio, Inc. ("PPNT"), Cytology Indiana, Inc.
("CIN"), ER Group, Inc. ("ERG") and Carolina Cytology, Inc. ("CCI"). These
entities, along with the Company and CCWP Partners, Inc. ("CCWP"), have signed
an agreement to merge into PPNT which will be renamed NetMed, Inc. (NetMed).
The entities party to the merger are collectively referred to as the NetMed
Entities.

F-35

<PAGE>

Indiana Cytology Review Corporation

Notes to Financial Statements (continued)

5. SUBSEQUENT EVENTS (CONTINUED)

LOAN AGREEMENT WITH PPNT

The Company has entered into a Loan Agreement with PPNT, dated July 5, 1996 (the
"Loan Agreement"), whereby PPNT has agreed to advance to the Company the
expenses incurred in connection with the Merger. In addition, PPNT will advance
funds necessary to pay reasonable expenses of ordinary business operations for
the Company. Advances will be evidenced by a promissory note bearing interest
at an annual rate of 7%, payable 60 days after the earlier of the consummation
of the merger or the termination of the Merger Agreement. Promissory notes
delivered by the Company will be secured by its shares of NSI common stock.
Advances made to the Company may be repaid, at PPNT's option, in shares of the
Company's common stock.

Pending completion of the merger, the business operations of the Company are
being managed by PPNT.

6. UNAUDITED FINANCIAL STATEMENTS
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim period have been
included. The results for the interim period ended June 30, 1996 are not
necessarily indicative of the results to be obtained for the full fiscal year
ending December 31, 1996.

F-36

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
Cytology Indiana, Inc.

We have audited the accompanying balance sheets of Cytology Indiana, Inc.
(the Company) as of December 31, 1995 and 1994, and the related statements of
operations and cash flows for each of the years then ended. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for each
of the years then ended, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Columbus, Ohio
March 22, 1996, except for
Note 4 as to which the date
is July 5, 1996

F-37

<PAGE>

Cytology Indiana, Inc.

Balance Sheets

DECEMBER 31, JUNE 30,
1994 1995 1996
----------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,623 $ - $ -
Accounts receivable 6,356 11,824 3,868
Due from related entities 179 5,158 -
----------------------------------------------------
Total current assets 16,158 16,982 3,868

Investment in NSI--available for sale - 940,527 696,685
Other assets 130 - -

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

Total assets $16,288 $ 957,509 $ 700,553
----------------------------------------------------
----------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to related entities (NOTE 4) $ - $ - $ 49,784
Other liabilities - 14,580 199
----------------------------------------------------
Total current liabilities - 14,580 49,983

Deferred taxes - 307,540 210,003

Stockholders' equity:
Common stock 562,100 365,365 365,365
Unrealized gains on available-for-sale
securities net of deferred taxes of
$307,540 in 1995 and $210,003 in 1996 - 461,310 315,005
Retained deficit (545,812) (191,286) (239,803)
----------------------------------------------------
Total stockholders' equity 16,288 635,389 440,567
----------------------------------------------------
Total liabilities and stockholders' equity $ 16,288 $ 957,509 $ 700,553
----------------------------------------------------
----------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-38

<PAGE>

Cytology Indiana, Inc.

Statements of Operations

SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996
--------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>

Royalty revenue $ 6,190 $ 7,800 $ 4,784

Operating expenses:
Salaries and benefits - - 19,316
Sales and marketing - - 12,383
Payroll and franchise taxes - - 2,056
Professional - 6,186 2,620
Depreciation and amortization 267 130 -
Office - 904 -
Merger (NOTE 4) - 14,401 16,926
--------------------------------------------------
Total operating expense 267 21,621 53,301
--------------------------------------------------

Operating income (loss) 5,923 (13,821) (48,517)

Other income:
Interest income 382 293 -
NSI settlement and common stock
transactions (NOTE 3) - 171,677 -
--------------------------------------------------
Total other income 382 171,970 -
--------------------------------------------------
Net income (loss) $ 6,305 $158,149 $(48,517)
--------------------------------------------------
--------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

F-39

<PAGE>

Cytology, Indiana, Inc.

Statements of Cash Flows

SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995 1996
-------------------------------------------
(UNAUDITED)

<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 6,305 $158,149 $(48,517)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 267 130 -
Gain on settlement and exercise of warrants
with NSI - (171,677) -
Changes in operating assets and liabilities:
Accounts receivable (6,190) (5,468) 7,956
Due to/from related entities - (5,337) 54,942
Other liabilities - 14,580 (14,381)
-----------------------------------------
Net cash provided by (used in) operating
activities 382 (9,623) -

Cash and cash equivalents at beginning of period 10,005 9,623 -
-----------------------------------------
Cash and cash equivalents at end of period $ 9,623 $ - $ -

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

</TABLE>

SEE ACCOMPANYING NOTES.

F-40

<PAGE>

Cytology, Indiana, Inc.

Notes to Financial Statements

December 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Cytology Indiana, Inc. (the Company) holds an approximate 65% interest in a
long-term territorial license agreement ("License Agreement") issued by
Neuromedical Systems, Inc. (NSI), which provides the right to sell the
"PAPNET-Registered Trademark- System" and the "PAPNET-Registered Trademark-
Service" , as described below, in Missouri.

NSI, founded in 1988, is a healthcare technology company focused on diagnostic
screening applications to aid in the early detection of certain cancers. NSI's
first and to date only product, the PAPNET-Registered Trademark- System, was
approved for commercial use in the United States by the Food and Drug
Administration (the "FDA") on November 8, 1995. The PAPNET-Registered
Trademark- Service permits laboratories to submit slides to one of NSI's central
facilities for processing by the PAPNET-Registered Trademark- System. NSI's
objective is to establish the use of its PAPNET-Registered Trademark- System as
the new standard of care in cervical cancer screening.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

LICENSE AGREEMENT

F-41

<PAGE>

Cytology, Indiana, Inc.

Notes to Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ROYALTY REVENUE

INCOME TAXES

3. INVESTMENT IN NSI

The Company owns stock in NSI as a result of the exercise of warrants and
settlement of certain claims with NSI. The investment is classified as
available for sale and is carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
NSI trades publicly on the NASDAQ NMS under the symbol "NSIX." As of December
31, 1995, the Company owned 46,446 shares of NSI stock at a cost of $171,677.

The exercise of the warrants in NSI was completed utilizing a cashless exercise
provision in the warrant agreement. This resulted in a gain of $79,700 which
has been reported as other income. As a result of settling certain claims with
NSI in December 1995, the Company received 6,593 shares of NSI stock resulting
in a gain of $91,977 which is recorded in other income.

F-42

<PAGE>

Cytology, Indiana, Inc.

Notes to Financial Statements (continued)

4. SUBSEQUENT EVENTS

MERGER AGREEMENT

Certain entities with a degree of common ownership interest also hold long-term
territorial License Agreements for the PAPNET-Registered Trademark- System.
These entities consist of Papnet of Ohio, Inc. ("PPNT"), Indiana Cytology Review
Corporation ("INC"), ER Group, Inc. ("ERG") and Carolina Cytology, Inc. ("CCI").
These entities, along with the Company and CCWP Partners, Inc. ("CCWP"), have
signed an agreement to merge into PPNT, which will be renamed NetMed, Inc.
(NetMed). The entities party to the merger are collectively referred to as the
NetMed Entities.

LOAN AGREEMENT WITH PPNT

Pending completion of the merger, the business operations of the Company are
being managed by PPNT.

5. UNAUDITED FINANCIAL STATEMENTS

The financial statements as of June 30, 1996 and for the six months ended
June 30, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim period have been
included. The results for the interim period ended June 30, 1996 are not
necessarily indicative of the results to be obtained for the full fiscal year
ending December 31, 1996.

F-43

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Ohio General Corporation Law, Article NINTH of
Registrant's amended Articles provides that a director, officer,
incorporator, or any former officer or director of the Registrant shall be
indemnified by the Registrant to the fullest extent permitted by the Ohio
General Corporation Law.
Indemnification of directors, officers, employees and agents is required
under Section 1701.13 of the Ohio General Corporation Law in those cases where
the person to be indemnified has been successful on the merits or otherwise in
defense of a lawsuit. Indemnification is permitted in third party actions where
the indemnified person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and in
criminal actions where he had no reasonable cause to believe his conduct was
unlawful. Indemnification is also permitted in lawsuits brought by or on behalf
of the corporation if the standards of conduct described above are met, except
that no indemnification is permitted in respect to any matter in which the
person is adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless a court shall determine that
indemnification is fair and reasonable in view of all the circumstances of the
case. In cases where indemnification is permissive, a determination as to
whether the person met the applicable standard of conduct must be made either by
the court, disinterested directors, by independent legal counsel, or by the
shareholders. Such indemnification rights are specifically not deemed to be
exclusive of other rights of indemnification by agreement or otherwise and the
corporation is authorized to advance expenses incurred prior to the final
disposition of a matter upon receipt of an undertaking to repay such amounts on
a determination that indemnification was not permitted in the circumstances of
the case.

Under Section 1701.13 of the Ohio General Corporation Law, a corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the corporation, or who, while serving
in such capacity, is or was at the request of the corporation, a director,
officer, employee or agent of another corporation or legal entity or of an
employee benefit plan, against liability asserted against or incurred by such
person in any such capacity whether or not the corporation would have the power
to provide indemnity under Section 1701.13 of the Ohio General Corporation Law.
The Registrant has not applied for directors' and officers' liability insurance.

The above discussion of the Registrant's Articles and of Section 1701.13 of
the Ohio General Corporation Law is not intended to be exhaustive and is
respectively qualified in its entirety by such Articles of Incorporation and
statute.

II-1
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
2(a) Agreement and Plan of Merger, dated as of July 5, 1996, as
amended, among the Registrant, Cytology Indiana, Inc., Indiana
Cytology Review Company, ER Group, Inc., CCWP Partners, Inc.,
and Carolina Cytology, Inc.
3(a) Articles of Incorporation of the Registrant.

3(b) Code of Regulations of the Registrant.
3(c) Proposed Amended and Restated Articles of Incorporation of the
Registrant, (filed as part of Appendix A hereto, and
incorporated herein by reference).

3(d) Proposed Amended and Restated Regulations of the Registrant,
(filed as part of Appendix A hereto, and incorporated herein by
reference).

3(e) Form of Specimen Stock Certificate.

4(a) Articles FOURTH and FIFTH of the Registrant's Articles of
Incorporation (contained in the Registrant's Articles of
Incorporation filed as Exhibit 3(a) hereto)
Articles II, VII and XI of the Registrant's Code of
Regulations (contained in the Registrant's Code of Regulations
filed as Exhibit 3(b) hereto).

4(b) Articles FOURTH, SIXTH, SEVENTH, EIGHTH, TENTH, and ELEVENTH,
of the Registrant's Amended and Restated Articles of
Incorporation (contained in the Registrant's Amended and
Restated Articles of Incorporation filed as part of Appendix A
hereto) and Articles I, V and VII of the Registrant's Amended
and Restated Regulations (contained in the Registrant's Amended
and Restated Code of Regulations filed as part of Appendix A
hereto).
5 Opinion of Porter, Wright, Morris & Arthur regarding legality.
8 Opinion of Porter, Wright, Morris & Arthur regarding tax
matters.
10(a) Settlement Agreement among Neuromedical Systems, Inc. and the
Registrant, Cytology Indiana, Inc., Indiana Cytology Review
Company, ER Group, Inc., Cytology West, Inc., Carolina Cytology
Licensing Company, Papnet Utah, Inc., Carolina Cytology Warrant
Partnership, and GRK Partners, dated as of December 5, 1995.

10(b) Letter of Intent among the Registrant and Cytology West, Inc.,
Cytology Indiana, Inc., Indiana Cytology Review Company, ER
Group, Inc., CCWP Partners, Inc., Carolina Cytology, Inc., and
Papnet Utah, Inc., dated February 1, 1995.
10(c) Voting Agreement among the Registrant, Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP Partners,
Inc., and Carolina Cytology, Inc., and certain shareholders of
these entities dated July 5, 1996.

10(d) Loan Agreement among the Registrant, Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP Partners,
Inc., and Carolina Cytology, Inc., dated July 5, 1996, and
the Side Letter thereof, dated July 16, 1996.

II-2

<PAGE>

10(e) Loan Agreement between the Registrant and Cytology West, Inc.
and Papnet Utah, Inc., dated March 14, 1996.

10(f) Promissory Note and Security Agreement among Cytology West,
Inc. and the Registrant dated April 5, 1996 and April 4, 1996
respectively.

10(g) Guaranty executed by Carl Genberg, guaranteeing all obligation
of Cytology West, Inc., dated April 4, 1996.

10(h) Security Agreement granting a security interest in Neuromedical
Systems, Inc. stock to the Registrant, executed by Carl Genberg
on April 4, 1996.

10(i) Amended and Restated 1995 Stock Option Plan of the Registrant.

10(j) Registrant Office Lease

23(a) Consent of Porter, Wright, Morris & Arthur (included in
Exhibits 5 and 8).

23(b) Consent of Ernst & Young, LLP.
24 * Powers of Attorney.
27 Financial Data Schedule.

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

* Filed hereto with this Pre-Effective Amendment No. 3 to the Registration
Statement.
(b) FINANCIAL STATEMENT SCHEDULES

Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or the notes thereto.

ITEM 22. UNDERTAKINGS.
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. Notwithstanding the foregoing, any increase or
decrease in volume or securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (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 anew 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; (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.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.

The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes 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 offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

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 Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for

II-3

<PAGE>

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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Registration Statement, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.

The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
companies being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Pre-Effective Amendment No. 3 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Columbus, State of Ohio, on
November 4, 1996.

PAPNET OF OHIO, INC.

By: /s/ David J. Richards
-----------------------------------
David J. Richards, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----

/s/ David J. Richards President, Secretary and November 4, 1996.
- ------------------------- Director
David J. Richards

*John P. Kennedy Vice President, Treasurer, November 4, 1996.
- ------------------------- Assistant Secretary, and
John P. Kennedy Director

* Kenneth B. Leachman
- -------------------------- Vice President - Finance November 4, 1996.
Kenneth B. Leachman

*S. Trevor Ferger Director November 4, 1996.
- -------------------------
S. Trevor Ferger

*Cecil J. Petitti Director November 4, 1996.
- -------------------------
Cecil J. Petitti

*Bryan Whipp Director November 4, 1996.
- -------------------------
Bryan Whipp

*By: /s/ David J. Richards
----------------------------------------------
David J. Richards, attorney-in-fact
for each of the persons indicated

II-5

<PAGE>
APPENDIX A

AGREEMENT AND PLAN OF MERGER

AMONG

PAPNET OF OHIO, INC.

AND

CYTOLOGY INDIANA, INC.
INDIANA CYTOLOGY REVIEW COMPANY
ER GROUP, INC.
CCWP PARTNERS, INC.
CAROLINA CYTOLOGY, INC.

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS

Section 1.01 Definitionst 1
Section 1.02 Interpretation 5

ARTICLE II

THE MERGER

Section 2.01 The Merger 6
Section 2.02 Effects of the Merger 6
Section 2.03 Articles of Incorporation and Regulations 6
Section 2.04 Directors and Officers 6
Section 2.05 Conversion; Lockup 6
Section 2.06 Tax Consequences 8
Section 2.07 Absence of Control 8

ARTICLE III

EXCHANGE OF SHARES

Section 3.01 Exchange of Certificates 8
Section 3.02 Dissenting Predecessor Company Shares 9
Section 3.03 Adjustments 9

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PREDECESSOR COMPANIES

Section 4.01 Organization 10
Section 4.02 Capitalization 10
Section 4.03 Authority Relative to this Agreement 11
Section 4.04 Consents and Approvals; No Violations 11
Section 4.05 Financial Statements 11
Section 4.06 Absence of Certain Changes 11
Section 4.07 No Undisclosed Liabilities 12

ii
<PAGE>

Section 4.08 Information in Registration Statement 12
Section 4.09 No Default 12
Section 4.10 Litigation 12
Section 4.11 Compliance with Applicable Law 12
Section 4.12 Taxes 13
Section 4.13 ERISA 13
Section 4.14 Intellectual Property 14
Section 4.15 Change in Control 14

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 5.01 Organization 14
Section 5.02 Capitalization 14
Section 5.03 Authority Relative to this Agreement 15
Section 5.04 Consents and Approvals; No Violations 15
Section 5.05 Financial Statements 15
Section 5.06 Absence of Certain Changes 16
Section 5.07 No Undisclosed Liabilities 16
Section 5.08 Information in Registration Statement 16
Section 5.09 No Default 16
Section 5.10 Litigation 17
Section 5.11 Compliance with Applicable Law 17
Section 5.12 Taxes 17
Section 5.13 ERISA 17
Section 5.14 Intellectual Property 18
Section 5.15 Change in Control 18

ARTICLE VI

COVENANTS

Section 6.01 Covenants of the Predecessor Companies and the Company 18
Section 6.02 Additional Covenants of the Parties 20
Section 6.03 No Solicitation 21
Section 6.04 Access to Information 21
Section 6.05 Best Efforts 21
Section 6.06 Shareholders Meetings 21
Section 6.07 Affiliates 22
Section 6.08 [Reserved] 22
Section 6.09 Indemnification and Insurance 22

iii
<PAGE>

Section 6.10 [Reserved] 23
Section 6.11 [Reserved} 23
Section 6.12 Brokers or Finders 23
Section 6.13 Advisory Board 23

ARTICLE VII

CONDITIONS

Section 7.01 Conditions to Each Party's Obligation to Close and
Effect the Merger 23

ARTICLE VIII

TERMINATION AND AMENDMENT

Section 8.01 Termination 26
Section 8.02 Effect of Termination 27
Section 8.03 Amendment 27
Section 8.04 Extension; Waiver 27
Section 8.05 Termination Payment 27

ARTICLE IX

MISCELLANEOUS

Section 9.01 Nonsurvival of Representations and Warranties 28
Section 9.02 Notices 28
Section 9.03 Descriptive Headings 29
Section 9.04 Counterparts 29
Section 9.05 Entire Agreement; Assignment 29
Section 9.06 Governing Law 29
Section 9.07 Specific Performance 29
Section 9.08 Expenses 30
Section 9.09 Publicity 30
Section 9.10 Parties in Interest 30

EXHIBITS

2.03(a) Articles of Incorporation of Surviving Corporation
2.03(b) Regulations of Surviving Corporation

iv
<PAGE>

SCHEDULES

2.05(a) Conversion Ratios
2.05(c) Lockup Shares Table
4.02(a) Authorized and Issued Shares and Stock Rights of Predecessor Companies
4.02(b) Equity Interests Owned by Predecessor Companies; Voting Agreements
4.06 Certain Predecessor Company Changes Since March 31, 1996
4.14 Pending or Threatened Predecessor Company Intellectual Property Claims
5.02(a) Authorized and Issued Shares and Stock Rights of Company
5.02(b) Equity Interests Owned by Company; Voting Agreements
5.06 Certain Company Changes Since March 31, 1996
5.14 Pending or Threatened Company Intellectual Property Claims

v
<PAGE>

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of July 5, 1996, by and among
Papnet of Ohio, Inc., an Ohio corporation (the "Company"), Cytology Indiana,
Inc., an Ohio corporation ("CIN"), Indiana Cytology Review Company, an Ohio
corporation ("INC"), ER Group, Inc., an Ohio corporation ("ERG"), CCWP Partners,
Inc., an Ohio corporation ("CCWP"), and Carolina Cytology, Inc., an Ohio
corporation ("CCI"), CIN, INC, ERG, CCWP, and CCI are hereinafter sometimes
referred to collectively as the "Predecessor Companies" and individually as a
"Predecessor Company."

RECITALS

A. The Boards of Directors of each of the Predecessor Companies and the
Company have determined that it is in the best interests of their respective
corporations and shareholders for them to enter into a business combination by
which each of the Predecessor Companies shall simultaneously merge with and into
the Company.

B. The parties wish to set forth herein the terms and conditions upon
which the Merger will be effected.

STATEMENT OF AGREEMENT

In consideration of the foregoing, and of their mutual representations,
warranties, covenants and agreements contained herein, the parties agree as
follows:

ARTICLE I

DEFINITIONS

1.01 DEFINITIONS. The following terms shall have the following meanings
for the purposes of this Agreement:

"ADVISORY BOARD" has the meaning specified in Section 6.13.

"AFFILIATE" means, with respect to any specified Person, any other Person
which, directly or indirectly, owns or controls, is under common ownership or
control with, or is owned or controlled by, such specified Person.

"AGREEMENT" means this Agreement and Plan of Merger, all Exhibits and
Schedules hereto, and all amendments made hereto and thereto by written
agreement among the parties.

"BUSINESS DAY" means any day of the year other than (i) any Saturday or
Sunday or (ii) any other day on which commercial banks located in New York City
are generally closed for business.

<PAGE>

"CCI" has the meaning specified in the introductory paragraph.

"CCI TRANSACTION" means the transaction involving CCI described in a letter
which counsel for CCI has provided to counsel for the Company.

"CERTIFICATE OF MERGER" has the meaning specified in Section 2.01.

"CERTIFICATES" has the meaning specified in Section 3.01(a).

"CIN" has the meaning specified in the introductory paragraph.

"CLOSING" means the consummation and closing of the transactions
contemplated herein.

"CLOSING DATE" means the date on which the Closing occurs.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMPANY" has the meaning specified in the introductory paragraph.

"COMPANY BENEFIT PLANS" has the meaning specified in Section 5.13(a).

"COMPANY FINANCIAL STATEMENTS" has the meaning specified in Section 5.05.

"COMPANY PERMITS" has the meaning specified in Section 5.11.

"COMPANY SHARES" has the meaning specified in Section 5.02(a).

"CONTRACT" means any contract, lease, commitment, understanding, sales
order, purchase order, agreement, indenture, mortgage, note, bond, right,
option, warrant, instrument, plan, permit or license, whether written or oral,
which is intended or purports to be binding and enforceable.

"DEFAULTING PARTY" has the meaning specified in Section 8.05.

"DESIGNATED DIRECTORS" means David J. Richards, John P. Kennedy, Cecil J.
Petitti, S. Trevor Ferger, Rodney M. Kinsey and Michael Blue, M.D.

"DISSENTER'S RIGHTS" means rights, if any, of any shareholder of a
Predecessor Company as a dissenter to the Merger under Section 1701.85 of the
OGCL.

"EFFECTIVE TIME" has the meaning specified in Section 2.01.

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"ENFORCEABILITY EXCEPTIONS" means the limitations which may be placed on
enforceability by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditors' rights and by general principles of equity.

"ERG" has the meaning specified in the introductory paragraph.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"EXCHANGE ACT" means the Securities Exchange Act of 1934 as amended and
the rules and regulations thereunder.

"FINANCIAL STATEMENTS" has the meaning specified in Section 4.05.

"GAAP" means United States generally accepted accounting principles in
effect at the time.

"GOVERNMENTAL AUTHORITY" means the government of the United States or any
state or political subdivision thereof and any entity, body or authority
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

"INFORMATION/PROXY STATEMENT" has the meaning specified in Section 4.08.

"INTELLECTUAL PROPERTY" means any and all trademarks, trade names, service
marks, patents, copyrights (including any registrations, applications, licenses
or rights relating to any of the foregoing), technology, trade secrets,
inventions, know-how, designs, computer programs, processes, and other
intangible assets, properties and rights. "COMPANY INTELLECTUAL PROPERTY"
means any and all Intellectual Property used by the Company in the conduct of
its business and "PREDECESSOR INTELLECTUAL PROPERTY" means any and all
Intellectual Property used by a Predecessor Company in the conduct of its
business.

"IRS" means the Internal Revenue Service.

"KEY COMPANY SHAREHOLDERS" means David J. Richards, John P. Kennedy and
Carl A. Genberg.

"KNOWLEDGE" means, with respect to an individual making a representation to
his or her "Knowledge," those facts and circumstances personally known by such
individual; and with respect to an entity making a representation to its
"Knowledge," those facts and circumstances personally known by any officer of
such entity.

"MANAGERS" has the meaning specified in Section 6.09.

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"MATERIAL ADVERSE EFFECT" means, with respect to a party, a material
adverse change in the business, operations, assets, liabilities, results of
operations, cash flows or condition (financial or otherwise) of such party.

"MERGER" means the Merger of the Predecessor Companies with and into the
Company pursuant to the terms of this Agreement.

"NASDAQ NMS" has the meaning specified in Section 6.05.

"OGCL" means the Ohio General Corporation Law, Chapter 1701, OHIO REV.
CODE.

"PERSON" means an individual, firm, partnership, association,
unincorporated organization, trust, corporation, or any other entity, including
a government or any department, agency or instrumentality thereof.

"PREDECESSOR BENEFIT PLANS" has the meaning specified in Section 4.13(a).

"PREDECESSOR COMPANY" and "PREDECESSOR COMPANIES" have the meanings
specified in the introductory paragraph.

"PREDECESSOR COMPANY SHARES" has the meaning specified in Section 2.05(a).

"PREDECESSOR PERMITS" has the meaning specified in Section 4.11.

"REGISTRATION STATEMENT" has the meaning specified in Section 4.08.

"RESTRICTED KCS SHARES" means the Surviving Corporation Shares which the
Key Company Shareholders own immediately after the Merger in respect of their
Company Shares owned immediately prior to the Merger.

"SEC" means the Securities and Exchange Commission.

"SECURITIES ACT" means the Securities Act of 1933 as amended and the rules
and regulations thereunder.

"STOCK RIGHTS" means, with respect to a party, any subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character obligating it to issue, transfer or sell any of its
securities.

"SURVIVING CORPORATION" means the Company as the surviving corporation in
the Merger following the Effective Time.

"SURVIVING CORPORATION SHARES" has the meaning specified in Section
2.05(a).

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"TAX" or "TAXES" means all taxes, charges, fees, duties, levies or other
assessments, including income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational, interest equalization, windfall profits,
severance, employee's income withholding, other withholding, unemployment and
Social Security taxes, which are imposed by any Governmental Authority, and such
term shall include any interest, penalties or additions to tax attributable
thereto.

1.02 INTERPRETATION. The following provisions shall govern the
interpretation of this Agreement:

(a) "Herein" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Article, Section,
Schedule or Exhibit.

(b) Words importing the singular number only shall include the plural
and vice versa and words importing the masculine gender shall include the
feminine and neuter genders and vice versa and words importing individuals shall
include Persons and vice versa.

(c) The calculation of time within which or following which any act
is to be done or step is to be taken pursuant to this Agreement excludes the
date which is the reference day in calculating such period.

(d) Whenever anything is required to be done or any action is
required to be taken hereunder on or by a day which is not a Business Day, then
such thing may be validly done and such action may be validly taken on or by the
next succeeding day that is a Business Day.

(e) Accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP.

(f) As used in this Agreement reference to dollar amounts, unless
otherwise specifically indicated, shall mean the lawful money of the United
States of America.

(g) The term "including" means including without limiting the
generality of any description preceding such term, and, for purposes of this
Agreement, the parties hereto agree that the rule of EJUSDEM GENERIS shall not
be applicable to limit a general statement, which is followed by or referable to
an enumeration of specific matters, to matters similar to the matters
specifically mentioned.

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ARTICLE II

THE MERGER

Section 2.01 THE MERGER. Upon the terms and subject to the conditions
hereof, as promptly as practicable following the satisfaction or waiver of the
conditions set forth in Article VII but in no event later than two days
thereafter, unless the parties shall otherwise agree, a certificate of merger
(the "Certificate of Merger") providing for the simultaneous merger of the
Predecessor Companies with and into the Company shall be duly prepared, executed
and filed by the Company, in accordance with the relevant provisions of the
OGCL, and the parties hereto shall take any other actions required by law to
make the Merger effective.

Following the Merger, the Surviving Corporation, with all its purposes,
objects, rights, privileges, powers and franchises, shall continue, and the
Predecessor Companies shall cease to exist. The time the Merger becomes
effective is referred to herein as the "Effective Time." Prior to the filing of
the Certificate of Merger, the Closing shall take place at the offices of
Porter, Wright, Morris & Arthur, 41 South High Street, Columbus, Ohio 43215.

Section 2.02 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the OGCL.

Section 2.03 ARTICLES OF INCORPORATION AND REGULATIONS. The Articles of
Incorporation of the Surviving Corporation shall be as set forth in
Exhibit 2.03(a). The Regulations of the Surviving Corporation shall be as set
forth in Exhibit 2.03(b).

Section 2.04 DIRECTORS AND OFFICERS. The directors and officers of the
Company immediately prior to the Effective Time shall be the initial directors
and officers of the Surviving Corporation. Any Designated Director who is not
already a director of the Company immediately prior to the Effective Time shall
be elected as a director of the Surviving Corporation. The Designated Directors
shall serve until their successors shall have been duly elected or appointed and
shall have qualified or until their earlier death, resignation or removal in
accordance with the Articles of Incorporation and Regulations of the Surviving
Corporation.

Section 2.05 CONVERSION; LOCKUP. At the Effective Time, by virtue of the
Merger and without any action on the part of the Surviving Corporation, any of
the Predecessor Companies, or the holder of any of the securities of the
Predecessor Companies (other than the approval and adoption of this Agreement by
the shareholders of each party in conformity with the law of the State of Ohio):

(a) Each share of capital stock of each of the Predecessor Companies
("Predecessor Company Shares") issued and outstanding shall be converted into
the right to receive the number of fully paid and nonassessable shares of common
stock, without par value, of the Surviving Corporation (the "Surviving
Corporation Shares") as set forth on Schedule 2.05(a).

<PAGE>

(b) Each Predecessor Company Share which is held in the treasury of a
Predecessor Company shall be cancelled and retired and cease to exist.

(c) Shareholders of the Predecessor Companies receiving Surviving
Corporation Shares shall be prohibited from transferring or selling the
Surviving Corporation Shares during the one-year period commencing on the
Closing Date; provided, however, that each shareholder shall be permitted to
make sales (i) without limitation in privately negotiated transactions not
required to be reported through NASDAQ NMS to persons who agree to be bound by
these restrictions to which the transferor Shareholder is subject and (ii) in
transactions required to be reported through NASDAQ NMS for that number of
Surviving Corporation Shares received with respect to the conversion of the
shareholder's shares in a particular Predecessor Company equal to the product of
(A) the ratio of Surviving Corporation Shares received with respect to the
conversion of the shareholder's shares in such Predecessor Company to the
number of Surviving Corporation Shares so received by all shareholders of such
Predecessor Company, times (B) the applicable number of Shares shown in the
table set forth on Schedule 2.05(c) with respect to such Predecessor Company;
and provided, further, that any such shareholder may at any time assign to any
other such shareholder of any of the Predecessor Companies all or a portion of
his rights to sell Surviving Corporation Shares provided for in clause (ii)
above.

(d) The Key Company Shareholders shall be prohibited from
transferring or selling the Restricted KCS Shares during the one-year period
commencing on the Closing Date; provided, however, that each Key Company
Shareholder may (i) pledge up to 100,000 Restricted KCS Shares as security for
loans subject to the limitation that the pledgee(s) shall agree not to sell more
than an aggregate of 10,000 Restricted KCS Shares which have been pledged in any
one of the four consecutive 90-day periods immediately following the Closing
Date except for sales described in clause (ii) below and (ii) sell Restricted
KCS Shares in privately negotiated transactions not required to be reported
through NASDAQ NMS to persons who agree to be bound by these restrictions to
which the Key Company Shareholder is subject.

(e) Certificates representing the Surviving Corporation Shares held
by the shareholders of the Predecessor Companies and by the Key Company
Shareholders shall bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFERABILITY THAT ARE CONTAINED IN AN INSTRUMENT IN WRITING TO WHICH THE
CORPORATION IS A PARTY (AN AGREEMENT AND PLAN OF MERGER DATED JULY __, 1996).
THE CORPORATION WILL MAIL TO THE SHAREHOLDER A COPY OF SUCH RESTRICTIONS WITHIN
FIVE DAYS AFTER RECEIPT OF WRITTEN REQUEST THEREFOR.

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Section 2.06 TAX CONSEQUENCES. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, and that this Agreement shall constitute a "plan of reorganization" for
the purposes of Section 368 of the Code.

Section 2.07 ABSENCE OF CONTROL. Subject to any specific provisions of
this Agreement, it is the intent of the parties that the Company by reason of
this Agreement shall not (until consummation of the transactions contemplated
hereby) control, and shall not be deemed to control, directly or indirectly, any
of the Predecessor Companies and shall not exercise, or be deemed to exercise,
directly or indirectly, a controlling influence over the management or policies
of any of the Predecessor Companies.

ARTICLE III

EXCHANGE OF SHARES

Section 3.01 EXCHANGE OF CERTIFICATES.

(a) At the Effective Time, the Surviving Corporation shall mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time represented Predecessor Company Shares (the
"Certificates") a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Surviving Corporation) and instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing Surviving Corporation Shares. Upon surrender of a
Certificate to the Surviving Corporation, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the certificates representing the whole Surviving
Corporation Shares which such holder has the right to receive pursuant to the
provisions of this Agreement, and the Certificate so surrendered shall forthwith
be cancelled. If a certificate representing Surviving Corporation Shares is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance that
such Certificate be properly endorsed (or accompanied by an appropriate
instrument of transfer) and accompanied by evidence that any applicable stock
transfer taxes have been paid or provided for. Until surrendered as
contemplated by this Section, each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive the consideration
specified herein; provided that in the event any holder of a Certificate
exercises his Dissenter's Rights and becomes entitled to receive payment for his
Predecessor Company Shares instead of the Surviving Corporation Shares into
which such Predecessor Company Shares shall have been converted, the Surviving
Corporation shall pay such holder the amount to which he is entitled for such
Predecessor Company Shares, together with any other sums which it may owe him as
a result of the Dissenter's Rights proceeding, upon his surrender to the
Surviving Corporation of the certificate or certificates which immediately prior
to the Effective Time represented the Predecessor Company Shares as to which his
Dissenter's Rights were asserted, and the Surviving Corporation shall not
thereafter be required to deliver to such holder any Surviving Corporation
Shares.

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<PAGE>

Any certificates for Surviving Corporation Shares which remain
unclaimed by the holders of Certificates for twelve months after the Effective
Time shall be held by the Surviving Corporation, and any holders of Certificates
who have not theretofore complied with this Section 3.01(a) shall thereafter
receive delivery (subject to abandoned property, escheat or other similar laws)
of the Surviving Corporation Shares issuable upon the conversion of their
Certificates and any dividends payable on such Surviving Corporation Shares,
without any interest thereon, only after delivering their Certificates and
letters of transmittal to the Surviving Corporation, and otherwise complying
with this Section 3.01(a).

(b) No dividends or other distributions declared or made after the
Effective Time with respect to Surviving Corporation Shares with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Surviving Corporation Shares represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole Surviving Corporation Shares
issued in exchange therefor, without interest, at the appropriate payment date
(or promptly after surrender if the payment date has already occurred), the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender.

(c) Following the Effective Time, there shall be no further
registration of transfers on the stock transfer books of any party of
Predecessor Company Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article III.

(d) No certificate or scrip representing fractional Surviving
Corporation Shares shall be issued upon the surrender for exchange of
Certificates, such fractional share interests will not entitle the owner thereof
to vote or to any rights of a shareholder of the Surviving Corporation, and no
cash shall be paid in respect of any fractional shares.

Section 3.02 DISSENTING PREDECESSOR COMPANY SHARES. If any holder of
Predecessor Company Shares shall exercise Dissenter's Rights with respect to his
Predecessor Company Shares, the affected Predecessor Company shall give the
Surviving Corporation notice thereof and the Surviving Corporation shall have
the right to participate in all negotiations and proceedings with respect to any
such Dissenter's Rights. No Predecessor Company shall, except with the prior
written consent of the Surviving Corporation, voluntarily make any payment with
respect to, or settle or offer to settle, any such Dissenter's Rights.

Section 3.03 ADJUSTMENTS. If, between the date of this Agreement and the
Effective Time, any Company Shares or Predecessor Company Shares shall have been
exchanged into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or a stock dividend thereon shall be declared with a
record date within such period, the amount of Surviving Corporation Shares into
which any

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<PAGE>

affected Predecessor Company Shares will be converted in the Merger shall be
correspondingly adjusted.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PREDECESSOR COMPANIES

Each of the Predecessor Companies represents and warrants to the Company
and each of the other Predecessor Companies as follows:

Section 4.01 ORGANIZATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. It is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not in the aggregate have a Material Adverse Effect. It has heretofore
delivered to the Company accurate and complete copies of the Articles of
Incorporation and Regulations, as currently in effect, of such Predecessor
Company, and the partnership agreement or other organizational documents of any
Affiliate.

Section 4.02 CAPITALIZATION.

(a) Its authorized capital stock consists of the number and classes
of shares set forth on Schedule 4.02(a), and as of the date hereof the number of
shares of each such class which are issued and outstanding are as shown on
Schedule 4.02(a). All of its issued and outstanding shares are duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights. As of the date hereof, the number of its shares of any class issuable
upon exercise of Stock Rights and the exercise price(s) thereof are as set forth
on Schedule 4.02(a). Except as set forth on Schedule 4.02(a), since March 31,
1996, it has not issued any shares of its capital stock (nor securities
substantially equivalent to capital stock) except upon exercise of Stock Rights
granted prior to such date. Except as set forth in Schedule 4.02(a), and
except for shares hereafter issued pursuant to the exercise of Stock Rights
described in Schedule 4.02(a), there are not now, and at the Effective Time
there will not be, any shares of capital stock (or securities substantially
equivalent to capital stock) of such Predecessor Company issued and outstanding,
or any outstanding Stock Rights.

(b) Except for common shares of Neuromedical Systems, Inc. and except
as shown on Schedule 4.02(b), it does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest in any business. Except as shown on
Schedule 4.02(b), there are not now, and at the Effective Time there will not
be, any voting trusts or other agreements or understandings to which it is a
party or is bound with respect to the voting of its capital stock.

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Section 4.03 AUTHORITY RELATIVE TO THIS AGREEMENT. It has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by its Board of Directors and no other corporate proceedings
on the part of such Predecessor Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval and adoption of this Agreement by its
shareholders in conformity with the OGCL). This Agreement has been duly and
validly executed and delivered by such Predecessor Company and constitutes its
valid and binding agreement, enforceable against such Predecessor Company in
accordance with its terms, subject to the Enforceability Exceptions.

Section 4.04 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the Securities Act, and the filing and recordation of the
Certificate of Merger as required by the OGCL, no filing with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary
for the consummation by such Predecessor Company of the transactions
contemplated by this Agreement. None of the execution and delivery of this
Agreement by such Predecessor Company, the consummation by it of the
transactions contemplated hereby, or compliance by it with any of the provisions
hereof will (a) conflict with or result in any breach of any provision of the
Articles of Incorporation or Regulations of such Predecessor Company, (b) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any Contract to which such Predecessor Company is a party or by which it or
any of its properties or assets may be bound, or (c) violate any order, writ,
injunction, decree, statute, treaty, rule or regulation applicable to such
Predecessor Company or any of its properties or assets.

Section 4.05 FINANCIAL STATEMENTS. It has delivered to the other parties
copies of its balance sheets as at March 31, 1996 and December 31 in each of the
years 1993 through 1995, and the related statements of income for each of the
three-months' period and fiscal years, respectively, then ended (its "Financial
Statements"). All of its Financial Statements fairly present the financial
condition and the results of operations of such Predecessor Company as at the
respective dates thereof and for the periods referred to therein, all in
accordance with GAAP (except for the absence of notes thereto and statements of
changes in stockholders' equity and cash flow). Its Financial Statements
reflect the consistent application of GAAP throughout the periods involved
(except for the absence of notes thereto and statements of changes in
stockholders' equity and cash flow). The representations and warranties in this
Section 4.05 as they pertain to CCI are qualified to the extent they may be
affected by the CCI Transaction.

Section 4.06 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
4.06, since March 31, 1996, it has not taken any of the actions set forth in
Sections 6.01(b) to (h), suffered any Material Adverse Effect, or entered into
any transaction, or conducted its business or operations, other than in the
ordinary and usual course of business and consistent with past practice.

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Section 4.07 NO UNDISCLOSED LIABILITIES. At March 31, 1996, it did not
have any material liabilities except those reflected in its Financial Statements
for the period ending on such date. Since March 31, 1996, such Predecessor
Company has not incurred any liabilities material to its business, operations or
financial condition, except liabilities incurred in the ordinary and usual
course of business and consistent with past practice and liabilities incurred in
connection with this Agreement and the transactions contemplated herein.

Section 4.08 INFORMATION IN REGISTRATION STATEMENT. None of the
information supplied by it in writing for inclusion or incorporation by
reference in the registration statement on Form S-4 to be filed with the SEC by
the Company in connection with the issuance of Surviving Corporation Shares
pursuant to the transactions contemplated hereby (the "Registration Statement")
will, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
information statement or proxy statement of such Predecessor Company used in
connection with any meeting of shareholders to be held in connection with the
Merger (an "Information/Proxy Statement") will, at the date mailed to
shareholders and at the time of the meeting of shareholders to be held in
connection with the Merger, not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.

Section 4.09 NO DEFAULT. It is not in default or violation (and no event
has occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (a) its Articles of
Incorporation or Regulations, (b) any Contract to which it is a party or by
which it or any of its properties or assets may be bound, or (c) any order,
writ, injunction, decree, statute, rule or regulation applicable to it, which
defaults or violations would, in the aggregate, have a Material Adverse Effect
or which would prevent or delay the consummation of the transactions
contemplated hereby.

Section 4.10 LITIGATION. There is no action, suit, or proceeding pending,
or to the best Knowledge of such Predecessor Company threatened, involving it,
at law or in equity, or before any Governmental Authority.

Section 4.11 COMPLIANCE WITH APPLICABLE LAW. It holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Authorities necessary for the lawful conduct of its businesses (the "Predecessor
Permits"), except for failures to hold such Predecessor Permits which would not,
in the aggregate, have a Material Adverse Effect. It is in compliance with the
terms of the Predecessor Permits, except where the failure so to comply would
not have a Material Adverse Effect. Its businesses are not being conducted in
violation of any applicable law, ordinance, rule, regulation, decree or order of
any Governmental Authority, except for violations which in the aggregate do not
and would not have a Material Adverse Effect.

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Section 4.12 TAXES. It has duly filed all material federal, state, local
and foreign tax returns required to be filed by it, and it has duly paid, caused
to be paid or made adequate provision for the payment of all Taxes required to
be paid in respect of the periods covered by such returns and has made adequate
provision for payment of all Taxes anticipated to be payable in respect of all
fiscal periods since the periods covered by such returns. All deficiencies and
assessments asserted as a result of such examinations or other audits by
federal, state, local or foreign taxing authorities have been paid, fully
settled or adequately provided for in its Financial Statements, and no issue or
claim has been asserted for Taxes by any taxing authority for any prior period,
other than those heretofore paid or provided for. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any federal income tax return of such Predecessor Company.

Section 4.13 ERISA.

(a) With respect to each employee benefit plan (including any
"employee benefit plan," as defined in Section 3(3) of ERISA), and any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, insurance or
other plan, arrangement or understanding (whether or not legally binding) (all
the foregoing being herein called "Predecessor Benefit Plans"), maintained or
contributed to by it, such Predecessor Company has made available to the other
parties a true and correct copy of, where applicable, (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Predecessor Benefit Plan, (iii)
each trust agreement and group annuity contract, if any, relating to such
Predecessor Benefit Plan and (iv) the most recent actuarial report or valuation
relating to a Predecessor Benefit Plan subject to Title IV of ERISA. None of
its Predecessor Benefit Plans are multiemployer plans within the meaning of
Section 3(37) of ERISA. Each of the Predecessor Benefit Plans covered by ERISA
(i) has been operated in all material respects in accordance with ERISA, (ii)
has not engaged in any prohibited transactions (as such term is defined in
Section 406 of ERISA) and (iii) has met the minimum funding standards of
Section 412 of the Code. No material Reportable Event (within the meaning of
Section 4043 of ERISA) has occurred and is continuing with respect to any of its
Predecessor Benefit Plans. It has not terminated any pension plan or withdrawn
from any multiemployer pension plan.

(b) With respect to its Predecessor Benefit Plans, in the aggregate,
no event has occurred, and to the Knowledge of such Predecessor Company there
exists no condition or set of circumstances which are reasonably likely to
occur, in connection with which it would be subject to any liability, that would
have a Material Adverse Effect (except liability for benefits claims and funding
obligations payable in the ordinary course), under ERISA, the Code or any other
applicable law.

(c) With respect to its Predecessor Benefit Plans, in the aggregate,
there are no funded benefit obligations for which contributions have not been
made or properly accrued and there are no unfunded benefit obligations which
have not been accounted for by reserves, or

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otherwise properly footnoted in accordance with GAAP, on its financial
statements referenced in Section 4.05, which obligations are reasonably likely
to have a Material Adverse Effect.

Section 4.14 INTELLECTUAL PROPERTY. Except as shown on Schedule 4.14, no
claim is pending or, to its Knowledge is threatened, to the effect that its
present or past operations infringe upon or conflict with the rights of others
with respect to any Intellectual Property necessary to permit it to conduct its
businesses as now operated, and no claim is pending or threatened to the effect
that any of its Predecessor Intellectual Property is invalid or unenforceable.
No Contract with any party exists which would impede or prevent the continued
use by the Surviving Corporation of the entire right, title and interest of such
Predecessor Company in and to its Predecessor Intellectual Property.

Section 4.15 CHANGE IN CONTROL. It is not a party to any Contract which
contains a "change in control" provision or "potential change in control"
provision.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF
THE COMPANY

The Company represents and warrants to each of the Predecessor Companies as
follows:

Section 5.01 ORGANIZATION. It is a corporation duly organized, validly
existing and in good standing under the laws of Ohio and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. It is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not in
the aggregate have a Material Adverse Effect.

Section 5.02 CAPITALIZATION.

(a) The authorized capital stock of the Company consists of
8,000,000 shares of common stock, without par value ("Company Shares"), of
which, as of the date hereof, 6,072,936 are issued and outstanding. All
issued and outstanding shares of the Company are duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. As of the
date hereof, the number of its shares of any class issuable upon exercise of
Stock Rights and the exercise price(s) thereof are as set forth on Schedule
5.02(a). All Surviving Corporation Shares which are to be issued pursuant to
the Merger or the other transactions contemplated hereby will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and nonassessable and free of any preemptive rights in respect
thereto. Except as set forth in Schedule 5.02(a), since March 31, 1996, the
Company has not issued any shares of its capital stock (nor securities
substantially equivalent to capital stock) except upon exercise of Stock Rights
granted prior to such date. Except for Company Shares (Surviving Corporation
Shares after the

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Effective Time) hereafter issued pursuant to the exercise of Stock Rights
described in Schedule 5.02(a), and except as contemplated hereby, there are not
now, and at the Effective Time there will not be, any shares of capital stock
(or securities substantially equivalent to capital stock) of the Company issued
or outstanding or any outstanding Stock Rights.

(b) Except for common shares of Neuromedical Systems, Inc. and except
as shown on Schedule 5.02(b), the Company does not own, directly or indirectly,
any capital stock or other equity securities of any corporation or have any
direct or indirect equity or ownership interest in any business. There are not
now, and at the Effective Time there will not be, any voting trusts or other
agreements or understandings to which the Company is a party or is bound with
respect to the voting of the capital stock of the Company.

Section 5.03 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval and adoption of this
Agreement by its shareholders in conformity with the OGCL). This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to the Enforceability Exceptions.

Section 5.04 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the Securities Act, and the filing and recordation of the
Certificate of Merger as required by the OGCL, no filing with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary
for the consummation by the Company of the transactions contemplated by this
Agreement. None of the execution and delivery of this Agreement by the Company,
the consummation by the Company of the transactions contemplated hereby or
compliance by the Company with any of the provisions hereof will (a) conflict
with or result in any breach of any provision of the Articles of Incorporation
or Regulations of the Company, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any Contract to which the Company is a
party or by which it or any of its properties or assets may be bound, or
(c) violate any order, writ, injunction, decree, statute, treaty, rule or
regulation applicable to the Company or any of its properties or assets.

Section 5.05 FINANCIAL STATEMENTS. The Company has delivered to each of
the Predecessor Companies copies of its balance sheets as at March 31, 1996 and
December 31 in each of the years 1993 through 1995, and the related statements
of income for each of the three-months' period and fiscal years, respectively,
then ended (the "Company Financial Statements"). All of the Company Financial
Statements fairly present the financial condition and the results of operations
of the Company as at the respective dates thereof and for the periods referred
to therein, all in accordance

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with GAAP (except for the absence of notes thereto and statements of changes in
stockholders' equity and cash flow). The Company Financial Statements reflect
the consistent application of GAAP throughout the periods involved (except for
the absence of notes thereto and statements of changes in stockholders' equity
and cash flow).

Section 5.06 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
5.06, since March 31, 1996, it has not taken any of the actions set forth in
Sections 6.01(b) to (h), suffered any Material Adverse Effect, or entered into
any transaction, or conducted its business or operations, other than in the
ordinary and usual course of business and consistent with past practice.

Section 5.07 NO UNDISCLOSED LIABILITIES. At March 31, 1996, the Company
did not have any material liabilities except those reflected in the Company
Financial Statements for the period ending on such date. Since March 31, 1996,
the Company has not incurred any liabilities material to its business,
operations or financial condition, except liabilities incurred in the ordinary
and usual course of business and consistent with past practice and liabilities
incurred in connection with this Agreement and the transactions contemplated
herein.

Section 5.08 INFORMATION IN REGISTRATION STATEMENT. None of the
information with respect to the Company referenced in the Registration Statement
will, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
Information/Proxy Statement of the Company used in connection with any meeting
of shareholders to be held in connection with the Merger will, at the date
mailed to shareholders and at the time of the meeting of shareholders to be held
in connection with the Merger, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Registration Statement will
comply in all material respects with the provisions of the Securities Act
(including that it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make statements therein not misleading), except that no representation is made
by the Company with respect to statements made therein based on information
supplied by any Predecessor Company in writing for inclusion or incorporation by
reference in the Registration Statement.

Section 5.09 NO DEFAULT. The Company is not in default or violation (and
no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of
(a) its Articles of Incorporation or Regulations (b) any Contract to which the
Company is a party or by which it or any of its properties or assets may be
bound or (c) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, which defaults or violations would, in the aggregate,
have a Material Adverse Effect or which would prevent or delay the consummation
of the transactions contemplated hereby.

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Section 5.10 LITIGATION. There is no action, suit, or proceeding pending,
or to the best Knowledge of the Company threatened, involving it, at law or in
equity, or before any Governmental Authority.

Section 5.11 COMPLIANCE WITH APPLICABLE LAW. The Company holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its businesses (the
"Company Permits"), except for failures to hold such Company Permits which
would not, in the aggregate, have a Material Adverse Effect. The Company is in
compliance with the terms of the Company Permits, except where the failure so to
comply would not have a Material Adverse Effect. The businesses of the Company
are not being conducted in violation of any applicable law, ordinance, rule,
regulation, decree or order of any Governmental Authority, except for violations
which in the aggregate do not and would not have a Material Adverse Effect.

Section 5.12 TAXES. The Company has duly filed all material federal,
state, local and foreign tax returns required to be filed by it, and it has duly
paid, caused to be paid or made adequate provision for the payment of all Taxes
required to be paid in respect of the periods covered by such returns and has
made adequate provision for payment of all Taxes anticipated to be payable in
respect of all fiscal periods since the periods covered by such returns. All
deficiencies and assessments asserted as a result of such examinations or other
audits by federal, state, local or foreign taxing authorities have been paid,
fully settled or adequately provided for in the Company Financial Statements,
and no issue or claim has been asserted for Taxes by any taxing authority for
any prior period, other than those heretofore paid or provided for. There are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal income tax return of the Company.

Section 5.13 ERISA.

(a) With respect to each employee benefit plan (including any
"employee benefit plan", as defined in Section 3(3) of ERISA), and any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, insurance or
other plan, arrangement or understanding (whether or not legally binding) (all
the foregoing being herein called "Company Benefit Plans"), maintained or
contributed to by it, the Company has made available to the Predecessor
Companies a true and correct copy of, where applicable, (i) the most recent
annual report (Form 5500) filed with the IRS, (ii) such Company Benefit Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Company Benefit Plan and (iv) the most recent actuarial report or valuation
relating to a Company Benefit Plan subject to Title IV of ERISA. None of the
Company Benefit Plans are multiemployer plans within the meaning of
Section 3(37) of ERISA. Each of the Company Benefit Plans covered by ERISA (i)
has been operated in all material respects in accordance with ERISA, (ii) has
not engaged in any prohibited transactions (as such term is defined in
Section 406 of ERISA) and (iii) has met the minimum funding standards of
Section 412 of the Code. No material Reportable Event (within the meaning

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of Section 4043 of ERISA) has occurred and is continuing with respect to any of
the Company Benefit Plans. The Company has not terminated any pension plan or
withdrawn from any multiemployer pension plan.

(b) With respect to the Company Benefit Plans, in the aggregate, no
event has occurred, and to the Knowledge of the Company there exists no
condition or set of circumstances which are reasonably likely to occur, in
connection with which it would be subject to any liability, that would have a
Material Adverse Effect (except liability for benefits claims and funding
obligations payable in the ordinary course), under ERISA, the Code or any other
applicable law.

(c) With respect to the Company Benefit Plans, in the aggregate, there
are no funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations which have not
been accounted for by reserves, or otherwise properly footnoted in accordance
with GAAP, on its financial statements referenced in Section 5.05, which
obligations are reasonably likely to have a Material Adverse Effect.

Section 5.14 INTELLECTUAL PROPERTY. Except as shown on Schedule 5.14, no
claim is pending or, to the Knowledge of the Company is threatened, to the
effect that the present or past operations of the Company infringe upon or
conflict with the rights of others with respect to any Intellectual Property,
and no claim is pending or threatened to the effect that any of the Company
Intellectual Property is invalid or unenforceable. No Contract with any party
exists which would impede or prevent the continued use by the Surviving
Corporation of the entire right, title and interest of the Company in and to the
Company Intellectual Property.

Section 5.15 CHANGE IN CONTROL. The Company is not a party to any
Contract which contains a "change in control" or "potential change in control"
provision.

ARTICLE VI

COVENANTS

Section 6.01 COVENANTS OF THE PREDECESSOR COMPANIES AND THE COMPANY.
During the period from the date of this Agreement and continuing until the
Effective Time, the Predecessor Companies and the Company each agree that,
except as expressly contemplated or permitted by this Agreement, or to the
extent that the other parties shall otherwise consent in writing:

(a) Each party shall carry on its respective businesses in the usual,
regular and ordinary course, consistent with past practice, and use its best
efforts to preserve intact its present business organization, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it.

(b) No party shall, nor shall any party propose to, (i) declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in

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respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) repurchase, redeem or otherwise acquire any of its
securities, or (iv) purchase any equity security of any other corporation.
Notwithstanding the foregoing restrictions contained in this Section 6.01(b), a
Predecessor Company may repurchase Predecessor Company Shares pursuant to and in
accordance with a buy/sell agreement in effect on the date hereof, in which
event the Surviving Corporation Shares allocated for such repurchased
Predecessor Company Shares under Section 2.05(a) shall be reallocated pro-rata
among the remaining outstanding Predecessor Company Shares of the relevant
Predecessor Company.

(c) No party shall authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including stock
appreciation rights), except pursuant to the exercise of Stock Rights
outstanding on the date hereof and disclosed in Schedules 4.02(a) and 5.02(a),
or amend in any material respect any of the terms of any such securities or
agreements outstanding on the date hereof.

(d) No party shall amend or propose to amend its Articles of
Incorporation or Regulations.

(e) No party shall acquire, sell, lease, encumber, transfer or
dispose of any assets outside the ordinary course of business, consistent with
past practice, or any assets which are material to such party, except pursuant
to obligations in effect on the date hereof, or enter into any commitment or
transaction outside the ordinary course of business, consistent with past
practice.

(f) No party shall incur (which shall not be deemed to include
entering into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such party or guarantee (or
become liable for) any debt of others or make any loans, advances or capital
contributions or mortgage, pledge or otherwise encumber any material assets or
create or suffer any material lien thereupon other than in each case in the
ordinary course of business consistent with prior practice.

(g) No party shall pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
financial statements (or the notes thereto) of any party or incurred in the
ordinary course of business consistent with past practice.

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(h) No party shall change any of the accounting principles or
practices used by it (except as required by GAAP).

(i) No party shall agree to take any of the foregoing actions or take
or agree to take any action that would or is reasonably likely to result in any
of its representations and warranties set forth in this Agreement being untrue
or in any of the conditions to the Merger set forth in Article VII not being
satisfied.

(j) Each of the parties shall give prompt notice to the other parties
of: (i) any notice of, or other communication relating to, a default or event
which, with notice or the lapse of time or both, would become a default,
received by it subsequent to the date of this Agreement and prior to the
Effective Time, under any Contract material to its financial condition,
properties, businesses or results of operations; (ii) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement, which consent, if required, would breach the representations
contained in Articles IV and V; and (iii) any event or circumstance which may
have a Material Adverse Effect.

(k) The parties shall consult with each other before issuing any
press releases or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect thereto, and shall also comply with Section 9.09 with respect
thereto.

(l) None of the parties hereto or the Surviving Corporation shall at
any time hereafter take or agree to take any action that (without giving effect
to any action taken or agreed to be taken by the other parties hereto or any of
their Affiliates) would prevent the Surviving Corporation from accounting for
the business combination to be effected by the Merger as a reorganization or a
pooling of interests.

Section 6.02 ADDITIONAL COVENANTS OF THE PARTIES. During the period from
the date of this Agreement and continuing until the Effective Time, each of the
parties agrees that it will not, without the prior written consent of the other
parties, except as contemplated by this Agreement or required by law, (a) enter
into, adopt, amend or terminate any Predecessor Company Benefit Plan or Company
Benefit Plan or other employee benefit plan or any agreement, arrangement, plan
or policy between such party and one or more of its directors or executive
officers, or (b) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to such party, increase in
any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof or enter into any Contract to do any of the
foregoing.

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Section 6.03 NO SOLICITATION. No party nor any of its Affiliates,
officers, directors, representatives or agents shall, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) any
person, entity or group concerning any merger, sale of substantial assets
outside the ordinary course of business, sale of shares of capital stock or
similar transaction involving it other than the transactions contemplated by
this Agreement. Each party shall promptly advise the other parties of any such
inquiries or proposals.

Section 6.04 ACCESS TO INFORMATION. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which such party is
subject (from which such party shall use reasonable efforts to be released), the
Predecessor Companies and the Company shall each afford to the officers,
employees, accountants, counsel and other representatives of the other parties,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, Contracts, commitments and records and,
during such period, each of the Predecessor Companies and the Company shall
furnish promptly to another party all information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law or court order, the parties will hold any such
information which is nonpublic in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of the parties, and
in the event of termination of this Agreement for any reason each party shall
promptly return all nonpublic documents obtained from any other party, and any
copies or summaries made of such documents, to such other party.

Section 6.05 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including (a) the prompt preparation and filing with the SEC of the Registration
Statement, (b) such actions as may be required to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable, including by consulting with each other as to, and responding
promptly to, any SEC comments with respect thereto, (c) such actions as may be
required to be taken under applicable state securities or Blue Sky laws in
connection with the issuance of Surviving Corporation Shares contemplated
hereby, (d) the preparation and filing of all other forms, registrations and
notices required to be filed to consummate the transactions contemplated hereby
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any public or private
third party, and (e) the Company using its best efforts to cause the Surviving
Corporation Shares to be admitted for quotation on the NASDAQ National Market
System ("NASDAQ NMS"), subject to official notice of issuance. Each party shall
promptly consult with the other parties with respect to, provide any necessary
information with respect to and provide the other parties (or their counsel)
copies of, all filings made by such party with any Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.

Section 6.06 SHAREHOLDERS MEETINGS. Each of the Predecessor Companies and
the Company shall duly call, give notice of, convene and hold a meeting of its
shareholders (or, in the case of

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<PAGE>

each party other than the Company, obtain the unanimous written consent of its
shareholders) as promptly as practicable for the purpose of approving this
Agreement and related matters and, in the case of the Company, approving the
issuance of Surviving Corporation Shares pursuant hereto. Each of the parties
will, through its respective Board of Directors, recommend to its respective
shareholders approval of such matters and will coordinate and cooperate with
respect to the timing of such meetings and written consents as soon as
practicable after the date hereof, and shall use its best efforts to secure the
approval of its shareholders for the transactions contemplated herein.

Section 6.07 AFFILIATES. Prior to the Closing Date, each party shall
deliver to the other parties a letter identifying all Persons who are, at the
time this Agreement is submitted for approval to the shareholders of such party,
"affiliates" of such party for purposes of Rule 145 under the Securities Act.

Section 6.08 [Reserved]

Section 6.09 INDEMNIFICATION AND INSURANCE. (a) In the event of any
threatened or actual claim, action, suit, proceeding or investigation, whether
civil, criminal or administrative, including any such claim, action, suit,
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of the Predecessor Companies is, or is threatened to
be, made a party by reason of the fact that he is or was a director, officer,
employee or agent of a Predecessor Company or an Affiliate thereof, or is or was
serving at the request of a Predecessor Company or an Affiliate thereof as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, whether before or after the Effective Time,
the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that (i) prior to the
Effective Time a Manager's Predecessor Company shall indemnify and hold him
harmless, and from and after the Effective Time the Surviving Corporation shall
indemnify and hold him harmless, as and to the full extent permitted by
applicable law (including by advancing expenses promptly as statements therefor
are received), against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation described
in the first sentence of this Section 6.09, and (ii) in the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), the Managers may retain counsel satisfactory to them,
and the relevant Predecessor Company prior to the Effective Time, or the
Surviving Corporation after the Effective Time, shall pay all fees and expenses
of such counsel for the Managers promptly, as statements therefor are received,
and will use its respective best efforts to assist in the vigorous defense of
any such matter; provided that no Predecessor Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and provided
further that no party shall have any obligation hereunder to any Manager when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such Manager in the manner contemplated hereby is prohibited by applicable
law. Any Manager wishing to claim indemnification under this Section 6.09(a),
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the relevant

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Predecessor Company and the Company prior to the Effective Time, and after the
Effective Time the Surviving Corporation, thereof (provided that the failure to
give such notice shall not affect any obligations hereunder, unless the
indemnifying party is actually and materially prejudiced thereby).

(b) The Company agrees that all rights to indemnification existing in
favor of any Manager as provided in a Predecessor Company's Articles of
Incorporation or Regulations, as in effect as of the date hereof, and in any
agreement between such Predecessor Company and the Manager with respect to
matters occurring prior to the Effective Time shall survive the Merger and shall
continue in full force and effect for a period of not less than six years.

(c) The provisions of this Section 6.09 are intended to be for the
benefit of, and shall be enforceable by, each indemnified party and his or her
heirs and representatives.

Section 6.10 [Reserved].

Section 6.11 [Reserved].

Section 6.12 BROKERS OR FINDERS. Each of the Predecessor Companies and
the Company represents, as to itself and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement, and
each of them agree to indemnify and hold the others harmless from and against
any and all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its Affiliate.

Section 6.13. ADVISORY BOARD. In order to coordinate the activities of
the parties in taking all actions necessary or advisable to effect the Merger,
the parties hereby appoint an interim advisory board (the "Advisory Board")
consisting of the following persons: David J. Richards (Chairman), S. Trevor
Ferger, Cecil J. Petitti, Thomas J. Kelley, Michael Blue, M.D., Rodney M. Kinsey
and John P. Kennedy. The Advisory Board will meet periodically at the call of
its Chairman or any other member of the Advisory Board, will review progress
toward effecting the Merger and will use its best efforts to assist in the
resolution of any issues which arise. However, the Advisory Board shall not
have any authority to amend this Agreement or waive any party's obligations
hereunder, except that this Agreement may be terminated by the vote of a
majority of the Advisory Board as provided in Section 8.01.

ARTICLE VII

CONDITIONS

Section 7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE AND EFFECT THE
MERGER. The respective obligation of each party to close the transactions
contemplated herein and effect the

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<PAGE>

Merger shall be subject to the satisfaction at or prior to the Closing Date of
the following conditions unless waived by all of the parties:

(a) This Agreement shall have been approved and adopted by the
shareholders of each party in accordance with the OGCL, and the issuance of
Surviving Corporation Shares pursuant to the Merger and the other terms of this
Agreement shall have been approved by the shareholders of the Company in
accordance with the OGCL.

(b) Other than the filing provided for by Section 2.01, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations or terminations of waiting periods imposed by, any
Governmental Authority, and all required third party consents, the failure of
which to obtain would have a Material Adverse Effect on the Surviving
Corporation, taken as a whole, shall have been filed, occurred or obtained. The
Company shall have received all state securities or "Blue Sky" permits and other
authorizations necessary to issue the Surviving Corporation Shares pursuant to
the Merger and the other terms of this Agreement.

(c) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.

(d) No statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or Governmental Authority which prohibits the consummation of the Merger
and shall be in effect.

(e) The representations and warranties of each party set forth in
this Agreement shall be true and correct as of the date of this Agreement, and
shall also be true in all material respects (except for such changes as are
contemplated by the terms of this Agreement and such changes as would be
required to be made in the Schedules to this Agreement if such Schedules were to
speak as of the Closing Date) on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date, except if and to the
extent any failures to be true and correct would not, in the aggregate, have a
Material Adverse Effect on the party.

(f) From the date of this Agreement through the Closing Date no party
shall have suffered any Material Adverse Effect (other than changes relating to
the transactions contemplated by this Agreement).

(g) Each party shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, except
where any failures to perform would not, in the aggregate, have a Material
Adverse Effect on such party.

(h) The opinion, based on representations of the Predecessor
Companies and the Company, of Porter, Wright, Morris & Arthur, counsel to the
Company, to the effect that:

24
<PAGE>

(i) The Merger of the Predecessor Companies with and into the
Company will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code;

(ii) No gain or loss will be recognized by the Predecessor
Companies or the Company as a consequence of the Merger;

(iii) No gain or loss will be recognized by the shareholders of
the Predecessor Companies on the exchange of their Predecessor Company
Shares for Surviving Corporation Shares (except for any gain or loss
attributable to any cash received pursuant to the exercise of
Dissenter's Rights or for fractional share interests to which they may
be entitled);

(iv) The federal income tax basis of the Surviving Corporation
Shares received by the shareholders of the Predecessor Companies
(including fractional share interests to which they may be entitled)
for their Predecessor Company Shares will be the same as the federal
income tax basis of the Predecessor Company Shares surrendered in
exchange therefor; and

(v) The holding period for the Surviving Corporation Shares
received by shareholders of the Predecessor Companies in exchange for
their Predecessor Company Shares will include the period for which the
Predecessor Company exchanged therefor were held, provided that the
exchanged Predecessor Company Shares were held as a capital asset by
such shareholder on the date of the exchange.

(i) At the Closing, each party shall have furnished the other parties
with copies of (i) the resolutions duly adopted by its Board of Directors
approving the execution and delivery of this Agreement and all other necessary
or proper corporate action to enable it to comply with the terms of this
Agreement, (ii) the resolutions duly adopted by its shareholders approving and
adopting this Agreement and the Merger and (iii) the resolutions duly adopted by
the Company's shareholders approving the issuance of Surviving Corporation
Shares, such resolutions to be certified by the President or a Vice President
and Secretary or an Assistant Secretary of the applicable party.

(j) At the Closing, each party shall have furnished each of the other
parties with an opinion, dated the Closing Date, of counsel to such party, to
the effect that:

(i) Such party is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Ohio;

(ii) Such party has the corporate power to carry on its
businesses as they are being conducted on the Closing Date; and

25
<PAGE>

(iii) Such party has taken all required corporate action to
approve and adopt this Agreement and this Agreement is a valid and
binding obligation of such party, enforceable in accordance with its
terms, subject to the Enforceability Exceptions.

In rendering the foregoing opinion, such counsel may rely on
certificates of officers and other agents of the party and public officials as
to matters of fact provided such reliance is expressly noted in the opinion and
the certificates of such officers, agents and public officials relied on are
attached to the opinion.

(k) At the time of the Closing, the shareholders of any Predecessor
Company entitled to assert Dissenter's Rights shall own in the aggregate less
than 10% of the outstanding shares of such Predecessor Company, and the
shareholders of the Company entitled to assert Dissenter's Rights shall own in
the aggregate less than 10% of the outstanding shares of the Company.

(l) At the time of the Closing, the Company and Neuromedical Systems,
Inc. shall have entered into a license agreement in substantially the form of
the license agreement previously agreed to between Neuromedical Systems, Inc.
and the parties for use with the Surviving Corporation, which license agreement
provides that it shall become effective at the Effective Time.

(m) At the time of the Closing, the Surviving Corporation Shares
shall have been admitted for quotation on the NASDAQ NMS, subject to official
notice of issuance.

All actions, proceedings, instruments and documents required to carry
out this Agreement, or incidental hereto, and all other legal matters shall have
been approved by counsel to each party, and such counsel shall have received all
documents, certificates and other papers reasonably requested by it in
connection therewith.

ARTICLE VIII

TERMINATION AND AMENDMENT

Section 8.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger, by the shareholders of the Company or
any or all of the Predecessor Companies:

(a) by mutual consent of all of the parties;

(b) by any of the parties if the Merger shall not have been
consummated before September 30, 1996 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);

26
<PAGE>

(c) by any party if any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and non-appealable;

(d) by any party if any required approval of the shareholders of such
party or any other party shall not have been obtained by reason of the failure
to obtain the required vote upon a vote held at a duly held meeting of
shareholders or at any adjournment thereof for the purpose of obtaining such
vote; or

(e) by a vote of a majority of the Advisory Board.

Section 8.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its Affiliates, directors, officers or shareholders, other
than the provisions of Sections 6.04, 6.12, 8.05 and 9.08. Nothing contained in
this Section 8.02 shall relieve any party from liability for any breach of this
Agreement.

Section 8.03 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of the parties but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.

Section 8.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.

Section 8.05 TERMINATION PAYMENT. In the event that (a) the Merger is not
consummated by reason of a party's breach of this Agreement, or (b) a party
fails to obtain the required approval of the Merger by the shareholders of such
party (in either case, a "Defaulting Party), and this Agreement is thereafter
terminated by any party hereto, in addition to bearing its pro-rata share of
expenses pursuant to Section 9.08 of this Agreement, the Defaulting Party shall
within thirty (30) days of the termination of this Agreement pay to the other
parties the sum of Five Hundred Thousand Dollars ($500,000.00), which shall be
shared among the other parties in proportion to the number of Surviving
Corporation Shares which would have been owned by the shareholders of each such
party immediately after the Effective Time had the Merger been consummated. The
parties agree that such payment shall constitute liquidated damages, and not a
penalty, and that such

27
<PAGE>

payment shall be in lieu of any money damages suffered by any party by reason of
the Defaulting Party's breach of this Agreement or failure to obtain shareholder
approval.

ARTICLE IX

MISCELLANEOUS

Section 9.01 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall not survive beyond the
Effective Time.

Section 9.02 NOTICES. All notices and other communications hereunder
shall be in writing (and shall be deemed given upon receipt) if delivered
personally, telecopied (which is confirmed) or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):

(a) if to the Company, to

Papnet of Ohio, Inc.
6059 Memorial Drive
Dublin, Ohio 43017
Attn: David J. Richards, President
Facsimile: (614) 793-9376

with a copy to

Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Attn: William J. Kelly, Jr., Esq.
Facsimile: (614) 227-2100

and

(b) if to the Predecessor Companies, to

Carolina Cytology, Inc.
CCWP Partners, Inc.
c/o Rodney M. Kinsey
8651 Gairloch Court
Dublin, Ohio 43017
Facsimile: (614) 889-1052

28
<PAGE>

ER Group, Inc.
c/o Thomas J. Kelley
8595 Milmichael Court
Dublin, Ohio 43017
Facsimile: (614) 764-2501

Cytology Indiana, Inc.
Indiana Cytology Review Company
c/o Mr. Cecil J. Petitti
Chaney & Petitti Insurance Agency
4266 Tuller Road
Dublin, Ohio 43017
Facsimile: (614)764-1455

with a copy to

Squire, Sanders & Dempsey
41 South High Street
Suite 1300
Columbus, Ohio 43215
Attn: Daniel M. Maher, Esq.
Facsimile: (614) 365-2499

Section 9.03 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.

Section 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

Section 9.05 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (other than the loan documents referenced in Section 9.08 below) and (b)
shall not be assigned by operation of law or otherwise.

Section 9.06 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to any
applicable principles of conflicts of law.

Section 9.07 SPECIFIC PERFORMANCE. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise

29
<PAGE>

breached, irreparable damage would occur, no adequate remedy at law would exist
and damages would be difficult to determine, and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.

Section 9.08 EXPENSES. Whether or not the Merger is consummated, all
costs and expenses incurred by the parties in connection with this Agreement and
the transactions contemplated hereby shall be shared by each of the parties in
proportion to the number of Surviving Corporation Shares which are or would be
owned by its shareholders immediately after the Effective Time. By separate
loan documents, the parties have agreed upon the manner and terms of advances to
be made by the Company for such expenses and certain other expenses, and upon
the manner and terms of repayment of such advances in the event of the
termination of this Agreement.

Section 9.09 PUBLICITY. Except as otherwise required by law or the rules
of any national securities exchange, for so long as this Agreement is in effect,
no party shall issue or cause the publication of any press release or other
public announcement with respect to the transactions contemplated by this
Agreement without prior approval of the other parties, which approval shall not
be unreasonably withheld.

Section 9.10 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement, except pursuant to Section 6.09.

[The remainder of this page is intentionally left blank]

30
<PAGE>

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

PAPNET OF OHIO, INC.

By: /s/ David J. Richards
---------------------------------------
David J. Richards, President

CYTOLOGY INDIANA, INC.

By: /s/ S. Trevor Ferger
---------------------------------------
S. Trevor Ferger, President

INDIANA CYTOLOGY REVIEW COMPANY

By: /s/ Cecil J. Petitti
---------------------------------------
Cecil J. Petitti, President

ER GROUP, INC.

By: /s/ Thomas J. Kelley
---------------------------------------
Thomas J. Kelley, President

CAROLINA CYTOLOGY, INC.

By: /s/ Rodney M. Kinsey
---------------------------------------
Rodney M. Kinsey, President

<PAGE>

CCWP PARTNERS, INC.

By: /s/ Rodney M. Kinsey
---------------------------------------
Rodney M. Kinsey, President

32
<PAGE>
EXHIBIT 2.03(a)

CERTIFICATE OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PAPNET OF OHIO, INC.
(adopted ________, 1996)

David J. Richards, President, and John P. Kennedy, Assistant Secretary,
of Papnet of Ohio, Inc. (the "Corporation"), with its principal offices
located at Dublin, Franklin County, Ohio, do hereby certify that at a duly
called meeting of all shareholders of the Corporation, such shareholders
approved by the affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the shares entitled to vote thereon, the below resolution
adopting the below Amended and Restated Articles of Incorporation, pursuant
to Section 1701.72 of the Ohio Revised Code:

RESOLVED, that the Amended and Restated Articles of Incorporation of the
Corporation set forth below are hereby adopted as the amended and restated
articles of incorporation of the Corporation:

AMENDED AND RESTATED ARTICLES OF INCORPORATION
FIRST: The name of said Corporation shall be NetMed, Inc.

SECOND: The place in Ohio where its principal office is to be located
is the City of Dublin, Franklin County, Ohio.

THIRD: The purposes for which it is formed are to engage in any
business or activity for which corporations may be formed under Sections
1701.01 through 1701.99, inclusive, of the Ohio Revised Code, as now enacted
and as the same may hereafter be amended from time to time.

<PAGE>

FOURTH:

A. AUTHORIZED SHARES.
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Twenty Million
Five Hundred Thousand (20,500,000) consisting of:
1. Twenty Million (20,000,000) shares of Common Stock,
without par value (the "Common Stock");
2. Two Hundred Fifty Thousand (250,000) shares of Voting
Preferred Stock, without par value (the "Voting Preferred
Stock"); and

3. Two Hundred Fifty Thousand (250,000) shares of
Non-Voting Preferred Stock, without par value (the
"Non-Voting Preferred Stock").

B. COMMON STOCK

The holders of the Common Stock are entitled at all times to one vote
for each share of Common Stock and to such dividends as the Board of
Directors may in its discretion from time to time legally declare,
subject, however, to the voting and dividend rights, if any, of the
holders of the Voting Preferred Stock and the Non-Voting Preferred
Stock. In the event of any liquidation, dissolution or winding up of
the Corporation, the remaining assets of the Corporation after the
payment of all debts and necessary expenses shall be distributed among
the holders of the Common Stock pro rata in accordance with their
respective holdings, subject, however, to the rights of the holders of
the Voting Preferred Stock and the Non-Voting Preferred Stock then
outstanding. The Common Stock is subject to all of the terms and
provisions of the Voting Preferred Stock and the Non-Voting Preferred
Stock as fixed by the Board of Directors as hereinafter provided.

C. VOTING PREFERRED STOCK

The Board of Directors is hereby expressly authorized to adopt
amendments to the Articles of Incorporation to provide for the
issuance of one or more series of Voting Preferred Stock, and to
establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and
rights of the shares of each such series and any qualifications,
limitations or restrictions

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<PAGE>

thereof, including without limitation the following, and the shares
of each series may vary from the shares of any other series in the
following respects:

(a) the division of such shares into series and the designation
and authorized number of shares of each series;

(b) the annual dividend rate on the shares;

(c) the dates of payment of dividends, whether the dividends
shall be cumulative and, if cumulative, the dates from which
dividends shall accumulate;

(d) the redemption price or prices for the particular series,
if redeemable, and the terms and conditions of such redemption;

(e) sinking fund requirements, if any;

(f) the preference, if any, of the shares of such series in the
event of any voluntary or involuntary liquidation, dissolution,
or winding up of the affairs of the Corporation;

(g) the right, if any, of the shares of such series to be
converted into shares of any other series or class and the terms
and conditions of such conversion; and

(h) any other relative rights, preferences, and limitations of
that series.

The holders of Voting Preferred Stock shall be entitled at all times
to one vote for each share of Voting Preferred Stock, voting as a
class.

D. NON-VOTING PREFERRED STOCK

The Board of Directors is hereby expressly authorized to adopt
amendments to the Articles of Incorporation to provide for the
issuance of one or more series of Non-Voting Preferred Stock, and to
establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and
rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, including without limitation the
following, and the shares of each series may vary from the shares of
any other series in the following respects:

(a) the division of such shares into series and the designation
and authorized number of shares of each series;

-3-

<PAGE>

(b) the annual dividend rate on the shares;

(c) the dates of payment of dividends, whether the dividends
shall be cumulative and, if cumulative, the dates from which
dividends shall accumulate;

(d) the redemption price or prices for the particular series, if
redeemable, and the terms and conditions of such redemption;

(e) sinking fund requirements, if any;

(f) the preference, if any, of the shares of such series in the
event of any voluntary or involuntary liquidation, dissolution,
or winding up of the affairs of the Corporation;

(g) the right, if any, of the shares of such series to be
converted into shares of any other series or class and the terms
and conditions of such conversion; and

(h) any other relative rights, preferences, and limitations of
that series.

Except as otherwise required by law, no holders of Non-Voting
Preferred Stock shall be entitled to vote on any matter submitted to
the shareholders of the Corporation.

FIFTH: The Corporation, through its Board of Directors, shall have the
right and power to repurchase any of its outstanding shares at such times, for
such considerations and upon such terms and conditions as may be agreed upon
between the Corporation and the selling shareholder or shareholders.

SIXTH: No holders of shares of the Corporation shall have any pre-
emptive right to subscribe for or to purchase any shares of the Corporation of
any class, whether now or hereafter authorized.

SEVENTH: The affirmative vote of the holders of the shares entitling
them to exercise two-thirds of the voting power of the Corporation shall be
required for the approval or authorization of any (i) merger or consolidation
or (ii) sale, lease, exchange or other disposition of all or substantially
all of the assets of the Corporation to or with any other corporation, person
or other entity; provided, however, that such two-thirds voting requirement
shall not be applicable if the Board of Directors of the Corporation shall
have approved such a transaction described in clause (i) or (ii) by
resolutions adopted by two-thirds of the members of the Board of Directors.
Except as otherwise expressly provided in this Article Seventh, or elsewhere
in these Articles, or in the Regulations of the Corporation, and
notwithstanding any provision of the Ohio Revised Code now

-4-

<PAGE>

or hereafter in force, requiring for any purpose the vote or consent of the
holders of shares entitling them to exercise two-thirds, or any other
proportion, of the voting power of the Corporation or of any class or classes
of shares thereof, such action may be taken by the vote or consent of the
holders of shares entitling them to exercise a majority of the voting power
of the Corporation or of such class or classes of shares thereof.

EIGHTH: The Board of Directors shall base the response of the
Corporation to any "Acquisition Proposal" on the Board of Directors'
evaluation of what is in the best interest of the Corporation. In evaluating
what is in the best interest of the Corporation, the Board of Directors shall
consider all relevant factors including, without limitation:

(1) The best interest of the shareholders which, for this purpose,
requires the Board of Directors to consider, among other factors, not only
the consideration offered in the Acquisition Proposal in relation to the
then current market price of the Corporation's shares, but also in relation
to the current value of the Corporation in a freely negotiated transaction
and in relation to the Board of Directors' then estimate of the future
value of the Corporation as an independent entity or as the subject of a
future Acquisition Proposal; and

(2) Such other factors as the Board of Directors determines to be
relevant, including, among other factors, the long-term and short-term
interests of the Corporation and its subsidiaries and their businesses and
properties and the social, legal, and economic effects upon the employees,
suppliers, customers, creditors, and other affected persons, firms, and
corporations and on the communities and geographical areas in which the
Corporation and its subsidiaries operate or are located.

"Acquisition Proposal" means any proposal for the consolidation or
merger of the Corporation with or into another corporation, any share
exchange involving the Corporation's outstanding capital stock, any
liquidation or dissolution of the Corporation, any transfer of all or a
material portion of the assets of the Corporation, and any tender offer or
exchange offer for any of the Corporation's outstanding capital stock.

NINTH: The Corporation shall indemnify any director, officer,
incorporator or any former director or officer of the Corporation and any person
who is or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his or her heirs, executors and administrators) against
expenses, including attorney fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him or her by reason of the fact
that he or she is or was such director, officer, incorporator or trustee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative, to the full extent
and according to the procedures and requirements set forth in the Ohio General
Corporation Law as the same may be in effect from time to time. The
indemnification provided herein shall not be deemed to restrict the right of the
Corporation to (i) indemnify employees, agents and others as permitted by law,
(ii) purchase and maintain insurance or provide similar protection on behalf of
the directors, officers or

-5-

<PAGE>

such other persons against liabilities asserted against them or expenses
incurred by them arising out of their service to the Corporation as
contemplated herein, and (iii) enter into agreements with such directors,
officers, incorporators, employees, agents or others indemnifying them
against any and all liabilities asserted against them or incurred by them
arising out of their service to the Corporation as contemplated herein.

TENTH: No shareholder shall have the right to vote cumulatively in the
election of directors pursuant to and in accordance with Section 1701.69(B)(10)
of the Ohio Revised Code.

ELEVENTH: These Articles may be amended by the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power of
the Corporation on the proposal; provided, however, that the provisions set
forth in Articles Eighth, Ninth, and Tenth, and this Article Eleventh, may not
be altered, repealed or amended in any respect, and any new provisions
inconsistent therewith may not be adopted, unless such action is approved by the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of capital stock of the Corporation present in person or
represented by proxy and entitled to vote on such matter at a meeting of
shareholders called for that purpose, except that if the Board of Directors, by
an affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the entire Board of Directors, recommends approval of such amendment to these
Articles to the shareholders, such approval may be effected by the affirmative
vote of the holders of at least a majority of the Corporation's outstanding
shares of capital stock of the Corporation present in person or represented by
proxy and entitled to vote on such matter at a meeting of shareholders called
for that purpose.

TWELFTH: These Amended and Restated Articles of Incorporation take the
place of and supersede the existing Articles of Incorporation of the
Corporation.

-6-

<PAGE>

IN WITNESS WHEREOF, David J. Richards, President, and John P. Kennedy,
Assistant Secretary, acting for and on behalf of the Corporation, have hereunto
subscribed their names this ____ day of ______, 1996.

PAPNET OF OHIO, INC.

By: __________________________________
David J. Richards, President

By: __________________________________
John P. Kennedy, Assistant Secretary

-7-

<PAGE>
Exhibit 2.03(b)

AMENDED AND RESTATED
REGULATIONS
OF
NETMED, INC.
(the "Corporation")
(adopted on ______, 1996)

ARTICLE I

Meetings of Shareholders

Section 1.01. ANNUAL MEETINGS. The annual meeting of shareholders of
the Corporation shall be held at such time and on such business day as the
Board of Directors may determine each year. The annual meeting shall be held
at the principal office of the Corporation or at such other place within or
without the State of Ohio as the Board of Directors may determine. The
directors shall be elected thereat and such other business transacted as may
properly be brought before the meeting.

Section 1.02. SPECIAL MEETINGS. Special meetings of the shareholders
of the Corporation may be called at any time by the Chairman of the Board,
President or Chief Executive Officer or, in cases of such officers' absence
from the United States, death or disability, any Vice President who is
authorized in such circumstances to exercise the authority of the President,
or by the Board of Directors by action at a meeting or by a majority of the
directors acting without a meeting, or by shareholders holding fifty percent
(50%) or more of the voting power of the then-outstanding shares entitled to
vote in an election of directors. Such meetings may be held within or
without the State of Ohio at such time and place as may be specified in the
notice thereof.

Section 1.03. NOTICE OF MEETINGS. Written notice of every annual or
special meeting of the shareholders of the Corporation stating the time,
place and purposes thereof shall be given to each shareholder entitled to
notice as provided by law, not less than seven (7) nor more than ninety (90)
days before the date of the meeting. Such notice may be given by or at the
direction of the Chairman of the Board or Secretary of the Corporation, or
such other officer as is designated by the Board of Directors, by personal
delivery or by mail addressed to the shareholder at his last address as it
appears on the records of the Corporation. Any shareholder may waive in
writing notice of any meeting, either before or after the holding of such
meeting, and, by attending any meeting without protesting the lack of proper
notice prior to or at the commencement of the meeting, shall be deemed to
have waived notice thereof.

<PAGE>

Section 1.04. PERSONS BECOMING ENTITLED BY OPERATION OF LAW OR
TRANSFER. Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every
notice in respect of such shares which previously to the entering of his name
and address on the records of the Corporation shall have been duly given to
the persons from whom he derives his title to such shares.

Section 1.05. QUORUM AND ADJOURNMENTS. Except as may be otherwise
required by law or by the Articles of Incorporation or these Regulations, the
holders of a majority of the shares entitled to vote at a meeting, present in
person or by proxy, shall constitute a quorum; provided that any meeting duly
called, whether a quorum is present or otherwise, may, by vote of the holders
of the majority of the shares represented and entitled to vote thereat,
adjourn from time to time, in which case no further notice of any such
adjourned meeting need be given.

Section 1.06. PRESIDING OFFICER. The Chairman of the Board, or such
other member of the Board or officer as is designated by the Board of
Directors, shall preside over meetings of the shareholders. The Secretary of
the Corporation shall act as Secretary of the shareholders' meeting and shall
record all of the proceedings of such shareholders' meeting provided that, in
the absence of such officer, the presiding officer shall appoint another
officer of the Corporation to act as Secretary of the meeting.

Section 1.07. SHAREHOLDER PROPOSALS. At an annual or special meeting
of shareholders, only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before
such meeting. To be properly brought before a meeting of shareholders,
business must be (i) in the case of a special meeting, specified in the
notice of the special meeting (or any supplement thereto), (ii) properly
brought before the meeting by or at the direction of the Board of Directors,
or (iii) otherwise properly brought before the meeting by a shareholder. For
business to be properly brought before a meeting of shareholders by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than thirty (30) days nor more than sixty
(60) days prior to the meeting of shareholders; provided, however, that, if
less than forty (40) days' notice or prior public disclosure of the date of
the meeting is given or made to the shareholders, notice by the shareholder
to be timely must be so delivered or received not later than the close of
business on the tenth day following the earlier of (i) the day on which such
notice of the date of the meeting was mailed, or (ii) the day on which such
public disclosure was made.

A shareholder's notice to the Secretary shall set forth, as to
each matter the shareholder proposes to bring before a meeting of
shareholders, (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and any shareholders known
by such shareholder to be supporting such proposal, (iii) the class and
number of shares of the Corporation which are beneficially owned by the
shareholder on the date of such shareholder's notice and by any other
shareholders known by

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such shareholder to be supporting such proposal on the date of such
shareholder's notice, and (iv) any material interest of the shareholder in
such proposal.

Notwithstanding anything in these Regulations to the contrary,
no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 1.07. The presiding
officer of the meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that the business was not properly
brought before the meeting in accordance with the procedures prescribed by
these Regulations, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall
not be transacted.

Section 1.08. CONDUCT OF VOTING. At all meetings of shareholders,
unless the voting is conducted by inspectors, the proxies and ballots shall
be received, and all questions relating to the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be
decided, by the presiding officer of the meeting. If demanded by
shareholders, present in person or by proxy, entitled to cast ten percent
(10%) in number of votes entitled to be cast, or if ordered by the presiding
officer of the meeting, the vote upon any election or question shall be taken
by ballot and, upon like demand or order, the voting shall be conducted by
two inspectors appointed by the presiding officer, in which event the proxies
and ballots shall be received, and all questions relating to the
qualification of voters, the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded
or ordered, no vote need be by ballot and voting need not be conducted by
inspectors. No candidate for election as a director at a meeting shall serve
as an inspector.

Section 1.09. ACTION WITHOUT A MEETING. Anything contained in the
Regulations to the contrary notwithstanding, any action which may be
authorized or taken at a meeting of the shareholders may be authorized or
taken without a meeting with the affirmative vote, or approval, and in a
writing or writings signed by, all of the shareholders who would be entitled
to notice of a meeting of the shareholders held for such purpose, which
writings shall be filed with or entered upon the records of the Corporation.

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ARTICLE II

Directors

Section 2.01. AUTHORITY. The business and affairs of the Corporation
shall be managed by and under the direction of the Board of Directors. The
Board of Directors may exercise all such authority and powers of the
Corporation and do all such lawful acts and things as are not by statute or
these Regulations directed or required to be exercised or done by the
shareholders.

Section 2.02. NUMBER. The number of directors may be determined by the
vote of the holders of a majority of the voting power of the shares
represented at any annual meeting or special meeting called for the purpose
of electing directors or by resolutions adopted at a meeting of the Board of
Directors by affirmative vote of a majority of the directors then in office,
provided that: (i) the number of directors shall in no event be fewer than
six (6) nor more than fifteen (15); (ii) no decrease in the number of
directors shall have the effect of shortening the terms of any incumbent
director and the class of directors to which he is elected; and (iii) no
action shall be taken (whether through amendment of these Regulations or
otherwise) to increase the number of directors provided in these Regulations
from time to time unless at least sixty-six and two-thirds percent (66-2/3%)
of the entire Board of Directors shall concur in such action.

Section 2.03. CLASSES AND TERMS OF DIRECTORS. The directors shall be
classified in respect of the time for which they severally hold office by
dividing them into three (3) classes, each class consisting of one-third of
the whole number of the board of directors with any number not evenly
divisible by three (3) assigned to such class as the board of directors may
direct. At the first election at which directors are divided into three (3)
classes, the directors of the first class shall be elected for a term of one
(1) year, the directors of the second class shall be elected for a term of
two (2) years, and the directors of the third class shall be elected for a
term of three (3) years. At each annual meeting thereafter, a class of
directors shall be elected to serve a term of three years to succeed the
class of directors whose term expired in that year so that the term of office
of only one class of directors shall expire in each such year provided,
however, that each director elected at any time shall hold office until his
successor is duly elected and qualified or until his earlier resignation,
removal from office, or death.

If at any time the full authorized board of directors should consist of
less than nine (9) persons, the directors shall be classified into two (2)
classes, each class consisting of one-half of the whole number of the board
of directors, with a number not evenly divisible by two (2) assigned to such
class as the board of directors may direct. At the first election at which
directors are divided into two (2) classes, the directors of the first class
shall be elected for a term of one (1) year and the directors of the second
class shall be elected for a term of two (2) years. At each annual meeting
thereafter, a class of directors shall be elected to serve a term of two
years to succeed the class of directors whose term expired in that year so
that the term of office of only one class of directors shall expire in each
such year provided, however, that each director elected at any time shall
hold office until his successor is duly elected and qualified or until his
earlier resignation, removal from office, or death.

At each annual election thereafter at which directors are elected
by class, the successors to the directors of the class whose terms expire in
that year shall be elected to hold office for a term of years equal to the
number of classes that there are to be, so that the term of office of one
class of directors expires in each year. Each director shall serve until his
successor shall be elected, or until his earlier resignation, removal from
office or death.

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In the event a change in the authorized number of directors causes a
disparity to exist in the number of persons in the classes of directors, the
board of directors shall designate the classes to which directors shall be
elected so as to equalize the classes as nearly as feasible.

Section 2.04. NOMINATION. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nominations of persons for election as directors of the Corporation may be
made at a meeting of shareholders by or at the direction of the directors, by
any nominating committee or person appointed by the directors, or by any
shareholder of the Corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section 2.04. Such nominations, other than those made by or at the direction
of the directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days
prior to the meeting; provided, however, that ,in the event that less than
forty (40) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must
be so received not later than the close of business on the tenth day
following the earlier of the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such shareholder's
notice shall set forth (i) as to each person who is not an incumbent director
whom the shareholder proposes to nominate for election as a director, (a) the
name, age, business address and residence address of such person; (b) the
principal occupation or employment of such person; (c) the class and number
of shares of the Corporation which are beneficially owned by such person; and
(d) any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, or any
successor provision; and (ii) as to the shareholder giving the notice, (a)
the name and record address of such shareholder and (b) the class and number
of shares of the Corporation which are beneficially owned by such
shareholder. Such notice shall be accompanied by the written consent of each
proposed nominee to serve as a director of the Corporation, if elected. The
Corporation may require any proposed nominee to furnish such other
information as may be reasonably required by the Corporation to determine the
qualifications of such proposed nominee to serve as a director of the
Corporation.

The presiding officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 2.04; and if he should so
determine, the defective nomination shall be disregarded.

Section 2.05. REMOVAL OF DIRECTORS. Notwithstanding any other provision
of the Articles of Incorporation or these Regulations (and notwithstanding the
fact that some lesser percentage may be specified by the General Corporation
Law of the State of Ohio, the Articles of Incorporation or these Regulations),
any director or the entire Board of Directors of the Corporation may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least eighty percent (80%) of the outstanding shares of
capital stock of the Corporation present in person

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or represented by proxy and entitled to vote on the election of directors at
a meeting of shareholders called for that purpose, except that if the Board
of Directors, by an affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the entire Board of Directors, recommends removal of a
director to the shareholders, such removal may be effected by the affirmative
vote of the holders of at least a majority of the outstanding shares of
capital stock of the Corporation present in person or represented by proxy
and entitled to vote on the election of directors at a meeting of
shareholders called for that purpose.

Section 2.06. VACANCIES AND NEWLY-CREATED DIRECTORSHIPS. Vacancies and
newly-created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office for a term expiring at the annual
meeting of shareholders at which the term of the class to which they have
been elected expires and until their successors are duly elected and
qualified. If there are no directors in office, then an election of
directors may be held in the manner provided by the General Corporation Law
of the State of Ohio.

Section 2.07. QUORUM AND ADJOURNMENT. A majority of the directors in
office at the time shall constitute a quorum, provided that any meeting duly
called, whether a quorum is present or otherwise, may, by vote of a majority
of the directors present, be adjourned. At any meeting at which a quorum is
present, all questions and business shall be determined by the affirmative
vote of not less than a majority of the directors present, except as
otherwise provided in the Articles of Incorporation or these Regulations or
as otherwise authorized by law. Any action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if a
unanimous written consent which sets forth the action is signed by each
member of the Board of Directors and filed with the minutes of the
proceedings of the Board of Directors.

Section 2.08. REGULAR MEETINGS. After each annual meeting of
shareholders at which directors shall have been elected, the Board of
Directors shall meet as soon as practicable for the purpose of organization
and the transaction of other business. Such first regular meeting shall be
held at any place as may be designated by the Chairman of the Board or by
action of the Board of Directors, or in default of such designation at the
place of the holding of the immediately preceding meeting of shareholders.
Any other regular meeting of the Board of Directors shall be held on such
date and at any place as may be designated from time to time by the Chairman
of the Board or by action of the Board of Directors. No notice of such
regular meetings shall be necessary if held as hereinabove provided.

Section 2.09. SPECIAL MEETINGS. Special meetings of the directors may
be held at any time within or without the State of Ohio upon call by the
Chairman of the Board, President, or Chief Executive Officer or, in the case
of such officers' absence from the United States, death or disability, such
other officer who is authorized in such circumstances to exercise the
authority of the President, or by action of the Board of Directors or any
three (3) members thereof.

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Section 2.10. NOTICE OF MEETING. Except as provided in Section 2.09,
the Secretary shall give or cause to be given to each director notice of each
regular and special meeting of the Board of Directors. The notice shall
state the time and place of the meeting. Notice is given to a director when
it is delivered personally to him, left at his residence or usual place of
business, or sent by telegraph or telephone or via overnight delivery, at
least three (3) days before the time of the meeting or, in the alternative,
by mail to his address as it shall appear on the records of the Corporation,
at least five (5) days before the time of the meeting; provided, however,
that notice of a special meeting which is called by the Chairman of the
Board, President or Chief Executive Officer is given to a director when it is
delivered personally to him or sent by telegraph or telephone at least
twenty-four (24) hours before the time of the meeting. Unless these
Regulations or a resolution of the Board of Directors provides otherwise, the
notice need not state the business to be transacted at or the purposes of any
regular or special meeting of the Board of Directors. No notice of any
meeting of the Board of Directors need be given to any director who attends,
or to any director who, in a writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice.
Any regular or special meeting of the Board of Directors may be adjourned
from time to time and be reconvened at the same or some other place and no
notice need be given of any such adjourned meeting.

Section 2.11. MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.

Section 2.12. COMPENSATION. The Board of Directors shall have the
authority to fix the compensation of the directors. The directors may be
paid their expenses, if any, of attendance at each regular and special
meeting of the Board of Directors or committees thereof. In addition, by
resolution of the Board of Directors, a stated annual retainer and/or a fixed
sum for attendance at each regular or special meeting of the Board of
Directors or committees thereof, and other compensation for their services as
such, may be paid to directors. A director who serves the Corporation in any
other capacity also may receive compensation for such other services if
approved by the Board of Directors.

ARTICLE III

Committees

Section 3.01. COMMITTEES. The Board of Directors may appoint from
among its members an executive committee and other committees composed of
three (3) or more directors and delegate to these committees any of the
powers of the Board of Directors, except the power to declare dividends or
other distributions on stock, elect directors or members of any committee,
recommend to the shareholders any action which requires shareholder approval,
or approve any merger or share exchange.

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Section 3.02. COMMITTEE PROCEDURE. The Board of Directors shall have
the power to prescribe the manner in which proceedings of each committee
shall be held. Unless the Board of Directors shall otherwise provide, the
actions of each committee shall be governed by the following rules of
procedure. A majority of the members of a committee shall constitute a
quorum for the transaction of business and the act of a majority of those
present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of
a committee may be taken without a meeting, if a unanimous written consent
which sets forth the action is signed by each member of the committee and
filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at
the same time. Participation in a meeting by these means constitutes
presence in person at a meeting. In the absence of any prescription by the
Board of Directors or any applicable provision of these Regulations, each
committee may prescribe the manner in which its proceedings shall be
conducted.

Section 3.03. DELEGATION. The Board of Directors may delegate to
officers, employees or agents the performance of duties not specifically
required by law or these Regulations to be performed by the Board of
Directors.

ARTICLE IV

Officers

Section 4.01. ELECTION. The officers of the Corporation shall include
a Chairman of the Board, a President, a Chief Executive Officer (who shall
also be either the Chairman of the Board or President of the Corporation), a
Secretary, a Treasurer, and such number of Vice Presidents (which may include
one or more Executive Vice Presidents and/or Senior Vice Presidents),
Assistant Secretaries, Assistant Treasurers, and other officers as are, in
the judgment of the Board, required to transact the business of the
Corporation. All officers of the Corporation shall be elected and the
compensation of all such officers may be fixed by the Board. Any two or more
offices may be held by the same person. Any officers may, but no officer
except the Chairman of the Board must, be chosen from among the Board of
Directors. The officers of the Corporation shall have the authority, perform
the duties and exercise the powers in the management of the Corporation
usually incident to the offices held by them respectively, and/or such other
authority, duties and powers as may be assigned to them from time to time by
the Board of Directors or the Chief Executive Officer.

Section 4.02. TERM. The officers of the Corporation shall be elected
annually at the organizational meeting of the Board of Directors, or
otherwise as determined by the Board of Directors, and shall hold office at
the discretion of the Board of Directors. Any officer may be removed at any
time, with or without cause, by the Board of Directors. A vacancy in any
office, however created, may be filled by the Board of Directors at any
regular or special meeting.

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Section 4.03. CHAIRMAN OF THE BOARD. The Chairman of the Board, who
shall be a member of the Board of Directors, shall be such officer who from
time to time is so designated by the Board of Directors. The Chairman of the
Board shall preside at all meetings of the shareholders and the Board of
Directors and shall perform all duties incident to the office. He may sign
and execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts, licenses and other instruments of every description. The
Chairman of the Board shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.

Section 4.04. PRESIDENT. The President shall have the authority,
perform the duties and exercise the powers usually incident to the office of
President and/or assigned to him from time to time by the Board of Directors,
the Chairman of the Board or the Chief Executive Officer. In the absence of
the Chairman of the Board and the Chief Executive Officer, the President
shall preside at all meetings of the shareholders and the Board of Directors.
He may sign and execute, in the name of the Corporation, all authorized
deeds, mortgages, bonds, contracts, licenses and other instruments of every
description.

Section 4.05. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer,
who shall be either the Chairman or President of the Corporation, shall have
full right, authority and power to control the personnel of the Corporation,
and, except to the extent that the duties of an elected officer are
prescribed or otherwise limited by the Board of Directors, by law or by these
Regulations, to prescribe the duties of all officers of the Corporation, with
such limitations thereon as he deems proper. He may sign and execute, in
the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts, licenses and other instruments of every description. In the
absence of the Chairman of the Board, the Chief Executive Officer shall
preside at all meetings of the shareholders and the Board of Directors. The
Chief Executive Officer shall perform all duties incident to the office of
Chief Executive Officer and such other duties as are assigned to him by the
Board of Directors.

Section 4.06. VICE PRESIDENTS. The Vice President or Vice Presidents,
at the request of the Chairman of the Board, President or Chief Executive
Officer, or in the President's absence or during his inability to act, shall
perform the duties and exercise the functions of the President, and when so
acting shall have the powers of the President. If there be more than one
Vice President, the Board of Directors may determine which one or more of the
Vice Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors,
Chairman of the Board, President or Chief Executive Officer may make such
determination. The Vice President or Vice Presidents shall have such other
powers and perform such other duties, and have such additional descriptive
designations in their titles, if any, as are from time to time assigned to
them by the Board of Directors, Chairman of the Board, President or Chief
Executive Officer.

Section 4.07. SECRETARY. The Secretary shall have the authority, perform
the duties and exercise the powers usually incident to the office of the
Secretary and/or assigned to him from time to time by the Board of Directors,
the Chairman of the Board or the Chief Executive Officer. The

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Secretary or such other officer of the Corporation as is designated by the
Chairman of the Board or the Chief Executive Officer shall record the
proceedings of the meetings of the shareholders and of the directors in a
minute book maintained for such purpose. The Secretary shall see that all
notices are duly given in accordance with the provisions of these Regulations
or as required by law; and he shall be the custodian of the records of the
Corporation and may witness any document on behalf of the Corporation, the
execution of which is duly authorized. The Secretary shall see that the
corporate seal is affixed to any document where required or desired.

Section 4.08. TREASURER. The Treasurer shall have the authority,
perform the duties and exercise the powers usually incident to the office of
the Treasurer and/or assigned to him from time to time by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer. The
Treasurer shall have charge of and be responsible for all funds, securities,
receipts and disbursements of the Corporation, and shall deposit, or cause to
be deposited, in the name of the Corporation, all monies or other valuable
effects in such banks, trust companies or other depositories as shall, from
time to time, be selected by the Board of Directors, Chairman of the Board,
Chief Executive Officer or President. The Treasurer shall render to the
Board of Directors, Chairman of the Board, President or Chief Executive
Officer, whenever requested, an accounting of the financial condition of the
Corporation.

ARTICLE V

Capital Stock

Section 5.01. STOCK CERTIFICATES. The shares of the Corporation shall
be represented by certificates signed by the Chairman of the Board, the
President or a Vice President and by a second officer who may be the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer,
certifying the number of shares evidenced thereby. Such certificates may be
sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers of the Corporation upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or by a
registrar other than the Corporation itself or its employee. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue. Each certificate shall set forth
such information as is required by law.

Section 5.02. SHARE LEDGER. The Corporation shall maintain a share
ledger which contains the name and address of each shareholder and the number
of shares of stock of each class which the shareholder holds. The share
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The
original or a duplicate of the share ledger shall be kept at the offices of a
transfer agent for the particular class of stock, or, if none, at the
executive offices of the Corporation.

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Section 5.03. TRANSFERS. The shares of the Corporation shall be
transferable in the manner prescribed by law. Transfers of shares shall be
made on the share transfer books of the Corporation only by the person named
in the certificate or by attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be canceled when the
new certificate shall be issued. The Board of Directors shall have the power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.

Section 5.04. NEW CERTIFICATES. The Corporation may issue a new
certificate representing a share or shares of the Corporation in the place of
any certificate theretofore issued by it alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify the Corporation and any transfer agent and/or
registrar against any claim that may be made against it or them on account of
the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate. A new certificate may be issued without
requiring any bond when it is proper to do so.

Section 5.05. UNCERTIFICATED SHARES. Anything contained in this
Article V to the contrary notwithstanding, the directors may provide by
resolution that some or all of any or all classes and series of shares of the
Corporation shall be uncertificated shares, provided that such resolution
shall not apply to (i) shares of the Corporation represented by a certificate
until such certificate is surrendered to the Corporation in accordance with
applicable provisions of Ohio law or (ii) any certificated security of the
Corporation issued in exchange for an uncertificated security in accordance
with applicable provisions of Ohio law. The rights and obligations of the
holders of uncertificated shares and the rights and obligations of the
holders of certificates representing shares of the same class and series
shall be identical, except as otherwise expressly provided by law.

ARTICLE VI

Finances

Section 6.01. CHECKS, DRAFTS. ETC. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in
the name of the Corporation, shall be signed by such agents as may be
designated from time to time by the Board of Directors or authorized officers
of the Corporation.

Section 6.02. ANNUAL STATEMENT OF AFFAIRS. The Chairman of the Board,
Chief Executive Officer, President, a Vice President or Treasurer shall
prepare or cause to be prepared annually a full and correct statement of the
affairs of the Corporation, including a balance sheet and a financial
statement of operations for the preceding fiscal year.

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Section 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
a calendar year end, with such fiscal year ending each year on December 31,
unless otherwise provided by the Board of Directors.

Section 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Articles of
Incorporation.

ARTICLE VII

Miscellaneous

Section 7.01. BOOKS AND RECORDS. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes
of the proceedings of its shareholders and Board of Directors and of any
executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of the Corporation may be in written form
or in any other form which can be converted within a reasonable time into
written form for visual inspection. Minutes shall be recorded in written
form but may be maintained in the form of a reproduction. The original or a
certified copy of these Regulations shall be kept at the principal office of
the Corporation.

Section 7.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal
to place the word "Seal" adjacent to the signature of the person authorized
to sign the document on behalf of the Corporation.

Section 7.03. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations which is registered in the name of, or beneficially owned by,
the Corporation may be voted by the Chairman of the Board, the President, any
Vice President, or a proxy appointed by any of them. The Board of
Directors, however, may by resolution appoint some other person to vote such
shares, in which case such person shall be entitled to vote such shares upon
the production of a certified copy of such resolution.

Section 7.04. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.

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Section 7.05. PROVISIONS IN ARTICLES OF INCORPORATION. These
Regulations are at all times subject to the provisions of the Articles of
Incorporation of the Corporation as the same may be in effect from time to
time.

Section 7.06. RECORD DATES. For any lawful purpose, including, without
limitation, the determination of the shareholders who are entitled to: (i)
receive notice of or to vote at a meeting of shareholders; (ii) receive
payment of any dividend or distribution; (iii) receive or exercise rights of
purchase of or subscription for, or exchange or conversion of, shares or
other securities, subject to contract rights with respect thereto; or (iv)
participate in the execution of written consents, waivers, or releases, the
directors may fix a record date, which shall not be a date earlier than the
date on which the record date is fixed and, in the cases provided for in
clauses (i), (ii) and (iii) above, shall not be more than ninety (90) nor
fewer than seven (7) days, unless the Articles of Incorporation or these
Regulations specify a shorter or a longer period for such purpose, preceding
the date of the meeting of the shareholders, or the date fixed for the
payment of any dividend or distribution, or the date fixed for the receipt or
the exercise of rights, as the case may be.

Section 7.07. AMENDMENTS. These Regulations may be altered, changed or
amended in any respect or superseded by new Regulations, in whole or in part,
by the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Corporation on the proposal; provided,
however, that: (i) the provisions set forth in this Section 7.07 (except with
respect to clause (ii)) and in Sections 1.02, 1.07, 2.02, 2.03, 2.04, and
2.12 herein may not be repealed or amended in any respect unless such action
is approved by the affirmative vote of the holders of shares entitling them
to exercise at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of the Corporation on the proposal; and (ii) the provisions set forth
in this Section 7.07 (with respect to this clause (ii) only) and in Section
2.05 may not be repealed or amended in any respect unless such action is
approved by the affirmative vote of the holders of shares entitling them to
exercise at least eighty percent (80%) of the voting power of the Corporation
on the proposal.

-13-

<PAGE>
APPENDIX B

SECTION 1701.85 OF THE OHIO GENERAL CORPORATION LAW

@ 1701.85 QUALIFICATION AND PROCEDURES FOR DISSENTING SHAREHOLDERS

(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with
this section.

(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of
the shares of the corporation as to which he seeks relief as of the date
fixed for the determination of shareholders entitled to notice of a meeting
of the shareholders at which the proposal is to be submitted, and such shares
shall not have been voted in favor of the proposal. Not later than ten days
after the date on which the vote on the proposal was taken at the meeting of
the shareholders, the dissenting shareholder shall deliver to the corporation
a written demand for payment to him of the fair cash value of the shares as
to which he seeks relief, which demand shall state his address, the number
and class of such shares, and the amount claimed by him as the fair cash
value of the shares.

(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to
section 1701.80 of the Revised Code and a dissenting shareholder entitled to
relief under division (E) of section 1701.84 of the Revised Code in the case
of a merger pursuant to section 1701.801 [1701.80.1] of the Revised Code
shall be a record holder of the shares of the corporation as to which he
seeks relief as of the date on which the agreement of merger was adopted by
the directors of that corporation. Within twenty days after he has been sent
the notice provided in section 1701.80 or 1701.801 [1701.80.1] of the Revised
Code, the dissenting shareholder shall deliver to the corporation a written
demand for payment with the same information as that provided for in division
(A)(2) of this section.

(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the
new entity, whether the demand is served before, on, or after the effective
date of the merger or consolidation.

(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting

B-1

<PAGE>

shareholder within twenty days after the lapse of the fifteen-day period,
unless a court for good cause shown otherwise directs. If shares represented
by a certificate on which such a legend has been endorsed are transferred,
each new certificate issued for them shall bear a similar legend, together
with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the
record holder of uncertificated securities, the corporation shall make an
appropriate notation of the demand for payment in its shareholder records. If
uncertificated shares for which payment has been demanded are to be
transferred, any new certificate issued for the shares shall bear the legend
required for certificated securities as provided in this paragraph. A
transferee of the shares so endorsed, or of uncertificated securities where
such notation has been made, acquires only such rights in the corporation as
the original dissenting holder of such shares had immediately after the
service of a demand for payment of the fair cash value of the shares. A
request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.

(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving
or new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of
the county in which the principal office of the corporation that issued the
shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other
dissenting shareholders, within that three-month period, may join as
plaintiffs or may be joined as defendants in any such proceeding, and any two
or more such proceedings may be consolidated. The complaint shall contain a
brief statement of the facts, including the vote and the facts entitling the
dissenting shareholder to the relief demanded. No answer to such a complaint
is required. Upon the filing of such a complaint, the court, on motion of the
petitioner, shall enter an order fixing a date for a hearing on the complaint
and requiring that a copy of the complaint and a notice of the filing and of
the date for hearing be given to the respondent or defendant in the manner in
which summons is required to be served or substituted service is required to
be made in other cases. On the day fixed for the hearing on the complaint or
any adjournment of it, the court shall determine from the complaint and from
such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if
so, the number and class of such shares. If the court finds that the
dissenting shareholder is so entitled, the court may appoint one or more
persons as appraisers to receive evidence and to recommend a decision on the
amount of the fair cash value. The appraisers have such power and authority
as is specified in the order of their appointment. The court thereupon shall
make a finding as to the fair cash value of a share and shall render judgment
against the corporation for the payment of it, with interest at such rate and
from such date as the court considers equitable. The costs of the proceeding,
including reasonable compensation to the appraisers to be fixed by the court,
shall be assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal

B-2

<PAGE>

pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or
proceeding is or has been instituted to enjoin or otherwise to prevent the
carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only
upon and simultaneously with the surrender to the corporation of the
certificates representing the shares for which the payment is made.

(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined
as of the day prior to the day on which the vote by the shareholders was
taken and, in the case of a merger pursuant to section 1701.80 or 1701.801
[1701.80.1] of the Revised Code, fair cash value as to shareholders of a
constituent subsidiary corporation shall be determined as of the day before
the adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes of
this section is the amount that a willing seller who is under no compulsion
to sell would be willing to accept and that a willing buyer who is under no
compulsion to purchase would be willing to pay, but in no event shall the
fair cash value of a share exceed the amount specified in the demand of the
particular shareholder. In computing such fair cash value, any appreciation
or depreciation in market value resulting from the proposal submitted to the
directors or to the shareholders shall be excluded.

(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to
pay the fair cash value of them terminates if any of the following applies:

(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;

(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their adoption
of the action involved;

B-3

<PAGE>

(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B) of
this section within the period provided in that division.

(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or
the comparable representatives of any other surviving or new entity.

(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in
substitution for such shares, an amount equal to the dividend, distribution,
or interest which, except for the suspension, would have been payable upon
such shares or securities, shall be paid to the holder of record as a credit
upon the fair cash value of the shares. If the right to receive fair cash
value is terminated other than by the purchase of the shares by the
corporation, all rights of the holder shall be restored and all distributions
which, except for the suspension, would have been made shall be made to the
holder of record of the shares at the time of termination.

B-4

<PAGE>
APPENDIX C
PAPNET OF OHIO, INC.

PROXY FOR SPECIAL MEETING

___________, 1996

The undersigned hereby appoints David J. Richards or John P. Kennedy, and
each of them, with full power of substitution, in the name, place and stead of
the undersigned, to vote at the Special Meeting of Shareholders of Papnet of
Ohio, Inc. on September __, 1996 at ______.m. Eastern Standard Time, or at any
adjournment thereof, the number of votes that the undersigned would be entitled
to vote if personally present, upon the following matters:

NOTE: The Merger will not be consummated if the amended and restated Articles of
Incorporation and the amended and restated Regulations are not approved by
the Shareholders. Further, Mr. Kinsey and Mr. Blue will remove their
names from consideration for election to the Board of Directors if the
Merger is not approved.

1. Approval of the Agreement and Plan of Merger, dated July 5, 1996
among the Company and Cytology Indiana, Inc., Indiana Cytology
Review Company, ER Group, Inc., CCWP Partners, Inc., and Carolina
Cytology, Inc. (the "Merger Agreement").

( ) For approval of the Merger Agreement

( ) Against approval of the Merger Agreement

( ) Abstain

2. Approval of the Amended and Restated Articles of Incorporation (the
"Articles") in the form provided in the Proxy Statement.

( ) For approval of the Articles

( ) Against approval of the Articles

( ) Abstain

3. Approval of the Amended and Restated Regulations ("Regulations") in
the form provided in the Proxy Statement.

( ) For approval of the Regulations

( ) Against approval of the Regulations

( ) Abstain

4. Election of Directors To Class I and Class II

( ) For all nominees listed below (except as marked to the
contrary)

( ) Withhold Authority to vote for all nominees listed below

Nominees: Class I -- Michael S. Blue, Trevor M. Ferger, Cecil J. Pitti
and David J. Richards
Class II -- John P. Kennedy, Rodney M. Kinsey and Bryan Whipp

(Instruction: To withhold authority to vote for any nominee, write that
nominee's name here:_______________________________________________________.

<PAGE>

5. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or
any adjournments thereof.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. This proxy will be
voted in accordance with the instructions given above. If no instructions are
given, this proxy will be voted FOR the matters described in Items 1, 2, 3 and
FOR all nominees listed in Item 4.

Dated: ________________, 1996 _____________________________________________
Signature

_____________________________________________
Print Name

NOTE: THIS INSTRUMENT MUST BE SIGNED BY THE REGISTERED HOLDER AND THE SIGNATURE
SHOULD CORRESPOND EXACTLY WITH THE NAME AS IT IS SHOWN HEREON. WHEN SIGNING AS
AN ATTORNEY, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH. IN CASE OF JOINT TENANCY, CO-EXECUTORS, OR CO-TRUSTEES, BOTH SHOULD SIGN.

<PAGE>

Registration No. 333-8199

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

PAPNET OF OHIO, INC.

EXHIBITS

<PAGE>

EXHIBIT INDEX

EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
2(a) Agreement and Plan of Merger,
dated as of July 5, 1996,
among the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., CCWP Partners,
Inc., and Carolina Cytology,
Inc.

3(a) Articles of Incorporation of
the Registrant.

3(b) Code of Regulations of the
Registrant.
3(c) Proposed Amended and Restated
Articles of Incorporation of
the Registrant, (filed as part
of Appendix A hereto, and
incorporated herein by
reference).

3(d) Proposed Amended and Restated
Regulations of Registrant,
(filed as part of Appendix A
hereto, incorporated herein by
reference).

3(e) Form of Specimen Stock
Certificate.

4(a) Articles FOURTH and FIFTH of
the Registrant's Articles of
Incorporation (contained in
the Registrant's Articles of
Incorporation filed as Exhibit
3(a) hereto) and Articles II,
VII and XI of the Registrant's
Code of Regulations (contained
in the Registrant's Code of
Regulations filed as Exhibit
3(b) hereto).

4(b) Articles FOURTH, SIXTH,
SEVENTH, EIGHT, TENTH, and
ELEVENTH, of the Registrant's
Restated Articles of
Incorporation (contained in
the Registrant's Restated
Articles of Incorporation
filed as part of Appendix A hereto
and Articles I, V, and VII of
the Registrant's Amended and
Restated Regulations
(contained in the Registrant's
Amended and Restated
Regulations filed as part of
Appendix A hereto.

5 Opinion of Porter, Wright,
Morris & Arthur regarding
legality.

8 Opinion of Porter, Wright,
Morris & Arthur regarding tax
matters.

<PAGE>

10(a) Settlement Agreement among
Neuromedical Systems, Inc. and
the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., Cytology West,
Inc., Carolina Cytology
Licensing Company, Papnet
Utah, Inc., Carolina Cytology
Warrant Partnership and GRK
Partners dated as of
December 5, 1995.

10(c) Voting Agreement among the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., and certain
shareholders of these entities
dated July 5, 1996.

10(d) Loan Agreement between the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., dated July 5,
1996, and the Side Letter thereof,
dated July 16, 1996.
10(e) Loan Agreement between the
Registrant and Cytology West,
Inc. and Papnet Utah, Inc.
dated March 14, 1996.

10(f) Promissory Note and Security
Agreement among Cytology West,
Inc. and the Registrant dated
April 5, 1996 and April 4,
1996 respectively.

10(g) Guaranty executed by Carl
Genberg, guaranteeing all
obligations of Cytology West,
Inc., dated April 4, 1996.

10(h) Security Agreement, granting a
security interest in
Neuromedical Systems, Inc.
stock to the Registrant,
executed by Carl Genberg on
April 4, 1996.

10(i) Amended and Restated 1995
Stock Option Plan of the
Registrant.

10(j) * Registrant Office Lease

<PAGE>

23(a) Consent of Porter, Wright,
Morris & Arthur (included in
Exhibits 5 and 8(a)).
23(b) Consent of Ernst & Young, LLP.
24 * Powers of Attorney.
27 Financial Data Schedule.

- -----------------------
* Filed hereto with this Pre-Effective Amendment No. 3 to this Registration
Statement.

<PAGE>
POWER OF ATTORNEY

Each of the undersigned officers and directors of Papnet of Ohio, Inc.,
an Ohio corporation (the "Company"), hereby appoints David J. Richards, as
his true and lawful attorney-in-fact, with power to act without the others,
as his true and lawful attorney-in-fact, in his name and on his behalf, and
in any and all capacities stated below, to sign and to cause to be filed with
the Securities and Exchange Commission the Company's Registration Statement
on Form S-4 (the "Registration Statement") to register under the Securities
Act of 1933, as amended, a maximum of 7,000,000 authorized and unissued
shares of common stock, no par value (the "Common Stock"), of the Company (as
such number of shares may be adjusted from time to time for stock dividends,
stock splits, or similar transactions affecting the Common Stock of the
Company generally), in connection with the Agreement and Plan of Merger,
dated July 5, 1996, and all amendments thereto, among the Company, Cytology
Indiana, Inc., Indiana Cytology Review Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina Cytology, Inc., and any and all amendments,
including post-effective amendments, to the Registration Statement, hereby
granting unto such attorney-in-fact, full power and authority to do and
perform in the name and on behalf of each of the undersigned, in any and all
such capacities, every act and thing whatsoever necessary to be done in and
about the premises as fully as the undersigned could or might do in person,
hereby granting to each such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that any such attorney-in-fact or his
substitute may do by virtue hereof.

IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of July,
1996.

Signature: Title:

/s/ John P. Kennedy Director, Treasurer and Assistant Secretary
- -------------------------------
John P. Kennedy

/s/ S. Trevor Ferger Director
- -------------------------------
S. Trevor Ferger

/s/ Cecil J. Petitti Director
- -------------------------------
Cecil J. Petitti

/s/ Bryan Whipp Director
- -------------------------------
Bryan Whipp

<PAGE>

POWER OF ATTORNEY

The undersigned officer of Papnet of Ohio, Inc., an Ohio corporation (the
"Company"), hereby appoints David J. Richards, as his true and lawful
attorney-in-fact, with power to act without the others, as his true and
lawful attorney-in-fact, in his name and on his behalf, and in any and all
capacities stated below, to sign and to cause to be filed with the Securities
and Exchange Commission the Company's Registration Statement on Form S-4 (the
"Registration Statement") to register under the Securities Act of 1933, as
amended, a maximum of 7,000,000 authorized and unissued shares of common
stock, no par value (the "Common Stock"), of the Company (as such number of
shares may be adjusted from time to time for stock dividends, stock splits,
or similar transactions affecting the Common Stock of the Company generally),
in connection with the Agreement and Plan of Merger, dated July 5, 1996, and
all amendments thereto, among the Company, Cytology Indiana, Inc., Indiana
Cytology Review Company, ER Group, Inc., CCWP Partners, Inc., and Carolina
Cytology, Inc., and any and all amendments, including post-effective
amendments, to the Registration Statement, hereby granting unto such
attorney-in-fact, full power and authority to do and perform in the name and
on behalf of each of the undersigned, in any and all such capacities, every
act and thing whatsoever necessary to be done in and about the premises as
fully as the undersigned could or might do in person, hereby granting to each
such attorney-in-fact full power of substitution and revocation, and hereby
ratifying all that any such attorney-in-fact or his substitute may do by
virtue hereof.

IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of November,
1996.

Signature: Title:

/s/ Kenneth B. Leachman Vice President-Finance
- -------------------------
Kenneth B. Leachman