ESCROW AGREEMENT

THIS AGREEMENT (this "Agreement") dated for reference the 22nd day of May, 2002

AMONG:

MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.

, a corporation incorporated under the laws of the State of Nevada

(the "Pledgor")

AND:

NARRAGANSETT I, L.P.

, a limited partnership formed under the laws of the State of Delaware

("Narragansett")

AND:

NARRAGANSETT OFFSHORE LTD.

, a corporation incorporated under the laws of the Cayman Islands

("Narragansett Offshore")

AND:

PEQUOT SCOUT FUND, L.P.

, a limited partnership formed under the laws of the State of Delaware

("Pequot")

AND:

SDS MERCHANT FUND, L.P.

, a limited partnership formed under the laws of the State of Delaware

("SDS", together with Narragansett, Narragansett Offshore and Pequot, the
"Holders")

AND:

KANE KESSLER, P.C.,

Attorneys-at-Law, a professional corporation incorporated under the laws of the
State of New York, with an address at 1350 Avenue of the Americas, New York,
N.Y. 10019 (herein called the "Escrow Agent")

WITNESSESTH THAT WHEREAS:

A. Pursuant to a Securities Purchase Agreement, dated as of May 22, 2002 (the
"Purchase Agreement"), among the Pledgor and each of the Holders, the Holders
have agreed to purchase from the Pledgor Series B-1 Notes, Series B-2 Notes,
Series C Notes (collectively, the "Notes"), Series B Warrants, and Exchange
Warrants (each as defined in the Purchase Agreement) subject to the terms and
conditions in the Purchase Agreement;

B. Pursuant to the Purchase Agreement, the Pledgor has entered into an Amended
and Restated Pledge Agreement ("Pledge Agreement") of even date therewith
providing for the pledge of all of the Pledged Stock (as hereinafter defined),
to secure, among things, the prompt payment of all obligations of the Pledgor
under the Notes; and

C. The Pledgor and each of the Holders desire to appoint the Escrow Agent, and
the Escrow Agent has agreed to act as escrow agent, to hold the Pledged Stock in
accordance with the terms hereof;

NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained and other good and valuable consideration (the receipt and sufficiency
of which are hereby acknowledged), the parties covenant and agree as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 Wherever used in this Agreement, unless the context otherwise requires, the
following words and terms will have the meanings shown:

(a) "Agreement" means this Agreement;

(b) "Event of Default" has the meaning assigned in the Pledge Agreement;

(c) "Pledged Stock" means all issued and outstanding fully paid and
non-assessable shares of common stock and preferred stock in the capital of the
Subsidiary;

(d) "Secured Obligations" has the meaning assigned in the Pledge Agreement;

(e) "Securities" means the Pledged Stock and the Transfer Documents, and, if the
Securities are sold upon the occurrence of an Event of Default pursuant to and
in compliance with Section 4 of the Pledge Agreement, the proceeds of the sale
of the Securities as the context requires; and

(f) "Transfer Documents" means stock transfer power of attorney forms with
respect to the Pledged Stock, duly executed by the Pledgor in blank to permit
transfer of the Pledged Stock to the Holders or their respective nominee(s).

1.2 Any capitalized term not defined herein shall have the meaning ascribed
thereto in the Pledge Agreement.

1.3 In this Agreement:

(a) the headings have been inserted for convenience of reference only and in no
way define, limit, or enlarge the scope or meaning of the provisions of this
Agreement;

(b) all references to any party, whether a party to this Agreement or not, will
be read with such changes in number and gender as the context or reference
requires; and

(c) when the context hereof makes it possible, the word "person" includes in its
meaning any firm and any body corporate or politic.

2. DEPOSIT OF SECURITIES

2.1 The Pledgor will cause the Securities to be delivered to the Escrow Agent
for deposit in escrow with the Escrow Agent on the terms of this Agreement on
the Closing Date (as defined in the Purchase Agreement).

3. ESCROW PROVISIONS

3.1 The Pledgor hereby directs the Escrow Agent to retain the Securities, and
not to do or cause anything to be done to release the same from escrow except in
accordance with this Agreement. The Escrow Agent accepts its responsibilities
hereunder and agrees to perform them in accordance with the terms hereof.

3.2 The Escrow Agent will hold the Securities in escrow and:

(a) will deliver the Securities to the Pledgor when satisfactory evidence, as
determined by the Escrow Agent in its sole discretion, has been presented to the
Escrow Agent that the Notes have been paid in full, and all obligations among
the Pledgor and each of the Holders and of the Escrow Agent will thereupon
cease; or

(b) upon the receipt of notice from all of the Holders that an Event of Default
has occurred, will deliver the Securities to the Holders.

4. THE ESCROW AGENT

4.1 The obligations of the Escrow Agent are limited to those specifically
provided in this Agreement and no other, and the Escrow Agent shall have no
liability under, and no duty to inquire into the terms and provisions of, any
agreement between the parties hereto. The Escrow Agent is acting hereunder as an
accommodation to the parties hereto. The duties of the Escrow Agent are purely
ministerial in nature, and it shall not incur any liability whatsoever, except
for its willful misconduct or gross negligence. The Escrow Agent may consult
with counsel of its choice (which may be a member of its own firm), and shall
not be liable for following the advice of such counsel. The Escrow Agent may act
on the advice of counsel but will not be responsible for acting or failing to
act on the advice of counsel.

4.2 The Holders and the Pledgor jointly and severally covenant and agree from
time to time and at all times hereafter well and truly to save, defend and hold
harmless and fully indemnify the Escrow Agent, its successors, and assigns, from
and against all loss, costs, charges, suits, demands, claims, damages, fees and
expenses (including reasonable attorney's fees and expenses either paid to
retained attorneys or amounts representing the fair value of legal services,
based on its customary billing rates, rendered to itself) which the Escrow
Agent, its successors or assigns may at any time of times hereafter bear,
sustain, suffer or be put unto for or by reason arising out of or in connection
with the performance of its obligations in accordance with the provisions of
this Agreement or anything in any manner relating thereto or by reason of the
Escrow Agent's compliance with the terms hereof. The foregoing indemnities in
this Section 4.2 shall survive the resignation or substitution of the Escrow
Agent and the termination of this Agreement.

4.3 In case proceedings should hereafter be taken in any court respecting the
Securities, the Escrow Agent will not be obliged to defend any such action or
submit its rights to the court until it has been indemnified by other good and
sufficient security in addition to the indemnity given in Section 4.2 against
its costs of such proceedings.

4.4 The Escrow Agent will have no responsibility in respect of the physical loss
of the Securities.

4.5 The Escrow Agent will not be bound in any way by any contract between the
parties hereto whether or not it has notice thereof or of its terms and
conditions and the only duty, liability and responsibility of the Escrow Agent
will be to hold the Securities as herein directed and to deliver the same to
such persons and other such conditions as are herein set forth. The Escrow Agent
will not be required to pass upon the sufficiency of any of the Securities or to
ascertain whether or not the person or persons who have executed, signed or
otherwise issued or authenticated the said documents have authority to so
execute, sign or authorize, issue or authenticate the said documents or any of
them, or that they are the same persons named therein or otherwise to pass upon
any requirement of such instruments that may be essential of their validity, but
it shall be sufficient for all purposes under this Agreement insofar as the
Escrow Agent is concerned that the said documents are deposited with it as
herein specified by the parties executing this Agreement with the Escrow Agent.

4.6 The Escrow Agent shall not have any responsibility for the genuineness or
validity of any document or other item deposited with it or of any signature
thereon or for the identity, authority or right of any person executing or
depositing the same and shall not have any liability for acting in accordance
with any written instructions or certificates given to it hereunder signed by
the proper parties.

4.7 In no event will the Escrow Agent be deemed to have assumed any liability or
responsibility for the sufficiency, form and manner of making any notice or
demand provided for under this Agreement or of the identity of the persons
executing the same, but it shall be sufficient if any writing purporting to be
such a notice, demand or protest is served upon the Escrow Agent in any manner
sufficient to bring it to its attention.

4.8 In the event that the Securities are attached, garnished or levied upon
under any court order, or if the delivery of such property is stayed or enjoined
by any court order or if any court order, judgment or decree is made or entered
affecting such property or affecting any act by the Escrow Agent, the Escrow
Agent may, in its sole discretion, obey and comply with all writs, orders,
judgments or decrees so entered or issued, whether with or without jurisdiction,
notwithstanding any provision of this Agreement to the contrary. If the Escrow
Agent obeys and complies with any such writs, order, judgment or decrees it will
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding that such writs,
orders, judgments or decrees may be subsequently reversed, modified, annulled,
set aside or vacated.

4.9 The Escrow Agent is authorized and directed to disregard in its sole
discretion any and all notices and warnings which may be given to it by any of
the parties hereto or by any other person, firm, association or corporation. It
will, however, obey the order, judgment or decree of any court of competent
jurisdiction, and it is hereby authorized to comply with and obey such orders,
judgments or decrees and in case of such compliance, it shall not be liable by
reason thereof to any of the parties hereto or to any other person, firm,
association or corporation, even if thereafter any such order, judgment or
decree may be reversed, modified, annulled, set aside or vacated.

4.10 If protest is made to any action, contemplated by the Escrow Agent under
this Agreement, the Escrow Agent may continue to hold the Securities until the
right to the documents is legally determined by a court of competent
jurisdiction or otherwise.

4.11 If written notice of protest is made by any of the Holders or the Pledgor
to the Escrow Agent to any action contemplated by the Escrow Agent under this
Agreement, and such notice sets out reasons for such protest the Escrow Agent
will be entitled to continue to hold the Securities until the right to the
documents is legally determined by a court of competent jurisdiction or
otherwise.

4.12 This Agreement may be terminated at any time by and upon the receipt by the
Escrow Agent of ten (10) days' written notice of termination executed by the
Holders and the Pledgor, directing the distribution of all property then held by
the Escrow Agent under and pursuant to this Agreement. In the event that a
dispute arises in connection with the release of the Securities, the Escrow
Agent shall have the sole and absolute right to resign in accordance with the
provisions of this Section 4.12. The Escrow Agent may resign and be discharged
from its duties hereunder at any time by giving at least ten (10) days' prior
written notice of such resignation to the Holders and Pledgor and specifying a
date upon which such resignation shall take effect. Upon receipt of such notice,
a successor escrow agent shall jointly be appointed by the Holders and Pledgor,
such successor escrow agent to become the Escrow Agent hereunder on the
resignation date specified in such notice. If no successor Escrow Agent is
appointed prior to the date specified, the Escrow Agent shall have the right at
any time to deposit the Securities with a court of competent jurisdiction, as
specified in Section 6.5 hereof, and the Escrow Agent shall have no further
obligation with respect thereto. The Holders and Pledgor, acting jointly, may at
any time substitute a new escrow agent by giving ten (10) days' notice thereof
to the Escrow Agent then acting and paying all fees and expenses of such Escrow
Agent. In the alternative, in the event of a dispute in relation to the release
of the Securities, the Escrow Agent may resign fifteen (15) days after giving
written notice of such resignation to the parties hereto and depositing the
Securities with an appropriate court, as specified in Section 6.5 hereof, and
the Escrow Agent shall have no further obligation with respect hereto or under
this Agreement, in any manner. This Agreement shall automatically terminate if
and when all of the Securities shall have been distributed by the Escrow Agent
in accordance with the terms of this Agreement.

4.13 Notwithstanding anything herein to the contrary, the Escrow may act upon
any written instructions given by the Pledgor and all of the Holders jointly.

4.14 If any dispute should arise with respect to the ownership or right of
possession of the Securities, or should the Escrow Agent, in its sole judgement,
receive conflicting instructions with respect to the instructions contained in
this Agreement or to any distribution of the Securities, the Escrow Agent is
authorized and directed to retain in its possession, without liability to
anyone, all or any portion of the Securities until such dispute shall have been
settled either by agreement of the parties concerned by filing of written
directions signed by the Holders and Pledgor to the Escrow Agent or by a final
decree, but the Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings. Notwithstanding anything to the contrary contained
herein, in the event of any dispute arising between any of the Holders and the
Pledgor or between any other persons or between any of them with respect to the
Pledge Agreement, this Agreement or any matters arising thereto, or with respect
to the Pledged Stock, the Escrow Agent may in its sole discretion deliver and
interplead the Securities into court, as specified in Section 6.5 hereof, and
such delivery and interpleading will be an effective discharge to the Escrow
Agent.

4.15 The Escrow Agent shall be promptly reimbursed, jointly and severally by the
Holders and Pledgor, for reasonable expenses incurred by the Escrow Agent in the
performance of services pursuant to this Agreement including, but not limited
to, legal fees, including all fees and expenses incurred in connection with its
resignation pursuant to Section 4.12.

4.16 The parties hereto hereby expressly agree, acknowledge and consent that the
Escrow Agent has served as legal counsel for the Holders and shall be permitted
to provide legal counsel to any and all parties to this Agreement, in the
future, notwithstanding the agreements set forth herein including, without
limitation, any controversy or dispute arising out of this Agreement and waive
any claims of conflict of interest relating thereto.

4.17 The Holders and Pledgor shall each bear all of their own fees and expenses
incurred by them in resolving any dispute arising under this Agreement. The
Holders and Pledgor shall jointly and severally reimburse the Escrow Agent for
any costs incurred by the Escrow Agent in connection with any dispute arising
under this Agreement. The Holders and Pledgor shall jointly and severally
reimburse the Escrow Agent for any costs incurred in the performance of its
duties hereunder.

5. COUNTERPARTS

5.1 This Agreement may be executed in several counterparts, each of which will
be deemed to be an original and all of which will together constitute one and
the same instrument.

6. GENERAL

6.1 Except as herein otherwise provided, no subsequent alteration, amendment,
change or addition to this Agreement will be binding upon the parties hereto
unless reduced to writing and signed by the parties.

6.2 This Agreement will enure to the benefit of and be binding upon the parties
and their respective heirs, executors, administrators, successors, and assigns.

6.3 The parties will execute and deliver all such further documents, do or cause
to be done all such further acts and things, and give all such further
assurances as may be necessary to give full effect to the provisions and intent
of this Agreement.

6.4 This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts executed, and to be fully
performed, in such state.

6.5 Each party hereby expressly and irrevocably agrees and consents that any
suit, action or proceeding arising out of or relating to this Agreement and the
transactions contemplated herein may be instituted in any state or federal court
sitting in the county of New York, state of New York, United States of America
and, by the execution and delivery of this Agreement, expressly waives any
objection that it may have now or hereafter to the laying of the venue or to the
jurisdiction of any such suit action or proceeding, and irrevocably submits
generally and unconditionally to the jurisdiction of any such court in any such
suit, action or proceeding.

6.6 Any notice required or permitted to be given under this Agreement will be in
writing and may be given by delivering, sending by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy, or sending by prepaid registered mail posted in Canada and the
United States, the notice to the addresses set forth in the Pledge Agreement (or
to such other address or facsimile number as any party may specify by notice in
writing to another party). Any notice delivered or sent by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy on a business day will be deemed conclusively to have been
effectively given on the day the notice was delivered, or the transmission was
sent successfully, as the case maybe. Any notice sent by prepaid registered mail
will be deemed conclusively to have been effectively given on the third business
day after posting; but if at the time of posting or between the time of posting
and the third business day thereafter there is a strike, lockout, or other
labour disturbance affecting postal service, then the notice will not be
effectively given until actually delivered.

6.7 Time is of the essence of this Agreement.

6.8 Delivery of an executed copy of this Agreement by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy will be deemed to be execution and delivery of this Agreement on
the date of such communication by the party so delivering such copy, subject to
delivery of an originally executed copy of this Agreement to the other party
hereto within two weeks of the date of delivery of the copy sent via the
electronic communication.

6.9 It is understood and agreed by the parties to this Agreement that the only
duties and obligations of the Escrow Agent are those specifically stated herein
and no other.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed and
delivered as of the date first above written.

PLEDGOR:

MERLIN SOFTWARE TECHNOLOGIES
INTERNATIONAL, INC.

Signature: /s/ Trevor McConnell
Name: Trevor McConnell
Title: Chief Financial Officer
Date: 22 May 2002

HOLDERS:

SDS MERCHANT FUND, L.P.

, a Delaware limited partnership
By: SDS Capital Partners, L.L.C., its Managing Member
Signature: /s/ Steven Derby
Name: Steven Derby
Title: Managing Member
Date: 23 May 2002

NARRAGANSETT I, L.P.

, a Delaware limited partnership
Signature: /s/ Joseph L. Dowling, III
Name: Joseph L. Dowling, III
Title: Managing Member
Date: 23 May 2002

 

NARRAGANSETT OFFSHORE LTD.

, a Cayman Island corporation
By: Leo Holdings, L.L.C., its Investment Manager
Signature: /s/ Joseph L. Dowling, III
Name: Joseph L. Dowling, III
Title: Managing Member
Date: 23 May 2002

PEQUOT SCOUT FUND, L.P.

, a Delaware limited partnership
By: Pequot Capital Management, Inc., its Investment Advisor
Signature: /s/ Kevin E. O'Brien
Name: Kevin E. O'Brien
Title: General Counsel
Date: 23 May 2002

ESCROW AGENT:

KANE KESSLER, P.C.,

Attorneys-at-Law, a professional corporation incorporated under the laws of the
State of New York
Signature: /s/ signed
Name:
Title: Partner
Date: