Exhibit 4.1

                            ASSET PURCHASE AGREEMENT

      This ASSET PURCHASE  AGREEMENT (this "Agreement") is made and entered into
on this 5 day of December  2004,  by and between,  Teleknowledge  Group Ltd., an
Israeli  Company  ("Parent")  and  Teleknowledge,  Inc. (the  "Subsidiary",  and
together  with Parent,  the  "Seller")  and MER  Telemanagement  Solutions  Ltd.
("Buyer"), an Israeli company.

      WHEREAS   Seller  is  engaged  in  the  research,   design,   development,
engineering,   manufacture,  marketing,  distribution,  sale  and  licensing  of
adaptive billing software products and services; and

      WHEREAS Buyer  desires to purchase from Seller and Seller  desires to sell
to Buyer certain of the assets,  properties,  rights and claims of Seller and to
assume certain liabilities of the Seller related to the assets acquired thereby,
on the terms and conditions set forth herein; and

      NOW, THEREFORE, the Parties agree as follows:

      1. INTERPRETATION

      1.1 Certain Definitions. For purposes of this Agreement (including any and
all Schedules,  Exhibits and amendments made to or incorporated herein now or in
the future), the following capitalized terms shall have the following meaning:.

      1.1.1.  "Affiliate"  shall  mean with  respect  to any Person (i) a Person
directly or indirectly  controlling,  controlled by or under common control with
such Person; (ii) in the case of a limited or general partnership,  any partner,
affiliated  partnerships  managed by the same  management  company  or  managing
(general) partner or by an entity which controls,  is controlled by, or is under
common control with,  such  management  company or managing  (general)  partner;
(iii) a Person  owning  or  controlling  50% or more of the  outstanding  voting
securities of such Person.  For these  purposes,  control means the  possession,
direct  or  indirect,  of the power to  direct  or cause  the  direction  of the
management  and policies of a Person,  whether  through the  ownership of voting
securities, by contract or otherwise.

      1.1.2.  "Assumed  Liabilities" shall mean the following liabilities of the
Seller:  (a)  subject  to  Section  2.4.11  below,  all  unpaid  or  unperformed
obligations and liabilities of the Seller under the Contracts  assigned to Buyer
hereunder, provided that the discharge of such liabilities or the performance of
such  obligations  is due after the Closing Date;  (b) subject to Section 2.4.11
below, all unpaid or unperformed obligations and liabilities of the Seller under
licenses and permits assigned to Buyer hereunder, provided that the discharge of
such liabilities or the performance of such obligations is due after the Closing
Date; (c) all accounts payable of the Seller,  for goods and services  furnished
by a third party in connection with the Purchased Assets and deferred  revenues,
provided  in both cases  that such  liabilities  are  reflected  in the  Closing
Balance  Sheet;  (d) the  performance of all warranty,  maintenance  and support
work,  relating to products of the Seller  manufactured  and sold by the Seller,
provided that all such  obligations  are reflected in the Contracts  assigned to
the Buyer hereunder;  (e) liabilities in connection with the Contracts  assigned
hereunder,  for repair of products or to refund the purchase price therefor as a
result of defects in materials or  workmanship  provided  that no notice of such
defects or damage shall have been given to the Seller prior to the Closing;  and
(f) the Chief Scientist's Rights for the period after the Closing Date.
<PAGE>

      1.1.3.   "Authority"   shall   mean  any   governmental,   regulatory   or
administrative body, agency or authority,  any court of judicial authority,  any
arbitrator  or any public,  private or industry  regulatory  authority,  whether
Israeli, international, national, United States federal, state or local.

      1.1.4.  "Balance  Sheet"  shall mean the balance  sheet  contained  in the
Financial Statements.

      1.1.5. "Balance Sheet Date" shall mean December 31, 2003.

      t 6 0 1.1.6.  "Business"  shall mean Seller's  strategic  adaptive billing
solutions,  including the billing and customer  care platform  known as Total-e,
and multiple applications built on top of it.

      1.1.7.  "Chief Scientist" - has the meaning set forth in the Encouragement
of Industrial Research and Development Law, 5744-1984.

      1.1.8.  "Chief  Scientist's  Rights" - means all the  rights,  powers  and
privileges  of the  Ministry of Industry  and Trade's  Industrial  Research  and
Development  Administration  by virtue of an  instrument  of approval  which the
Chief Scientist, by virtue of his power under Section 17(c) of the Encouragement
of Industrial  Research and  Development  Law,  5744-1984,  awarded to Seller on
28.7.98,  5.9.99 and  1.8.2000  by virtue of the  undertaking  and notice of the
commencement of an approved research and development  scheme,  which Seller gave
to  the   Industrial   Research  and   Development   Administration,   including
restrictions  on certain of the Seller  Intellectual  Property and the rights to
receive  royalty  payments  from  Seller,  which  are  being  assumed  by  Buyer
hereunder.

      1.1.9.   "Closing"  shall  mean  the   consummation  of  the  transactions
contemplated in this Agreement.

      1.1.10. "Closing Date" shall mean the date upon which the Closing occurs.

      1.1.11.  "Confidentiality  Agreement"  shall  mean the  agreement  entered
between Seller and Buyer dated February 25 2004.

      1.1.12. "Contracts" have the meaning set forth in Section 4.8 hereof.

      1.1.13. "Distribution" shall have the meaning set forth in Section 10.3.

      1.1.14.  "Encumbrance"  shall mean any lien,  pledge,  mortgage,  security
interest,  lease, charge,  attachment or any other third party right, other than
the Chief Scientist Rights.

      1.1.15.  "Escrow  Agent" shall mean M.  Zeligman  Trust Holding Co. (1991)
Ltd. who is the person mutually chosen by the Buyer and the Seller to act as the
escrow agent under the Escrow Agreement, or any successor thereof.

      1.1.16. "Escrow Agreement" as defined in Section 3.2.3.


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<PAGE>

      1.1.17.  "Excluded Assets" shall mean (a) the corporate charter,  taxpayer
and other  identification  numbers,  seals,  minute books, stock transfer books,
blank stock  certificates,  and other  documents  relating to the  organization,
maintenance, and existence of the Parent and the Subsidiary as corporations; (b)
tax refunds and tax losses  attributed to periods prior to Closing Date; (c) all
cash and cash  equivalents or any investments,  including any interest  thereon,
and all equity  securities held by Seller;  (d) any security deposits related to
facilities or equipment;  (e) all claims,  causes of action,  rights of recovery
and rights of set-off of any kind with  respect to events  prior to the  Closing
Date; (f) all personnel  records and other records which the Company is required
by law to retain in its possession, provided that a copy thereof is furnished to
Buyer and (g) all cash  collected  by Buyer or Seller  after the  Closing  Date,
provided  that such cash is  derived  solely  from the  collection  of  accounts
receivable, duly recorded by Seller as of the Closing Date, which shall have not
been  reflected in the Closing  Balance Sheet and (h) any real property owned or
leased by Seller.

      1.1.18. "Excluded Liabilities" shall have the meaning set forth in Section
2.4.

      1.1.19.  "Financial  Statements"  shall mean the audited balance sheets of
Seller as of  December  31,  2002 and as of  December  31,  2003 and the related
statements of  operations,  accumulated  deficits and cash flows for the periods
then ended, audited by Seller's independent  certified public accountant,  whose
reports  thereon are included  therewith,  and the  unaudited  balance  sheet of
Seller as of  September  30, 2004,  and the related  statements  of  operations,
accumulated  deficits  and cash flows for the periods  then ended.  Seller shall
cause the unaudited statements as of September 30, 2004 to be reviewed promptly,
but not more  than 14 days from the date  hereof,  by the  Seller's  independent
certified  public  accountant,  whose reports  thereon shall be attached to such
audit and delivered to Buyer.  The Financial  Statements are and will be, as the
case may be, attached hereto as Exhibit D.

      1.1.20. "GAAP" shall mean US generally accepted accounting principles.

      1.1.21.  "Law"  shall  mean  any  applicable  law,  statute,   regulation,
ordinance,  requirement,  announcement or other binding action or requirement of
an Authority.

      1.1.22.  "Losses"  shall mean all  damages,  awards,  judgments  and other
losses, including reasonable attorney's fees.

      1.1.23.  "Material  Adverse Change" or "Material  Adverse Effect" or other
similar  phrases  including  the word  "material"  with respect to the financial
condition, assets, liabilities,  obligations,  business, operations or prospects
of the  respective  Party  shall  mean any  matter  which  would have a material
adverse  effect  on  the  Party's  financial  condition,   assets,  liabilities,
obligations,  business,  operations,  or ability to consummate the  transactions
contemplated  hereby, or a material adverse effect on the value of the Purchased
Assets.

      1.1.24.  "Order"  shall mean any decree,  order,  judgment,  writ,  award,
injunction, rule or consent of or by an Authority.

      1.1.25. "Person" shall mean any entity, corporation, company, association,
limited  liability  company,  joint venture,  joint stock company,  partnership,
trust, organization,  individual (including personal representatives,  executors
and  heirs of a  deceased  individual),  nation,  state,  government  (including
agencies,   departments,   bureaus,   boards,  divisions  and  instrumentalities
thereof), trustee, receiver or liquidator.

      1.1.26. "Preferred Shareholders" shall mean the holders of Seller's Series
A Preferred Shares, as listed in Exhibit A.


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<PAGE>

      1.1.27.  "Purchase  Consideration"  shall have the  meaning  specified  in
Section 2.5 hereof.

      1.1.28.  "Purchased  Assets"  shall have the meaning  specified in Section
2.2.

      1.1.29.  "Seller Disclosure  Schedule" shall have the meaning set forth in
Section 4, and is attached hereto as Exhibit B.

      1.1.30.   "Seller   Intellectual   Property"  shall  mean  all  intangible
properties  owned by Seller or in which  Seller  has any  interest.  The  Seller
Intellectual  Property shall include (i) the name  "Teleknowledge" and all other
registered and unregistered trademarks, service marks, trade names, domain names
and slogans, all applications  therefor,  and all associated goodwill;  (ii) all
registered  copyrights,  all applications  therefor and all associated goodwill;
(iii) all patents and patent applications, all associated technical information,
know-how, trade secrets,  processes,  operating,  maintenance and other manuals,
drawings and  specifications,  process flow diagrams and related  data,  and all
associated goodwill;  (iv) all software and documentation thereof (including all
electronic data  processing  systems and program  specifications,  source codes,
input data and  report  layouts  and  format,  record  file  layouts,  diagrams,
functional  specifications,  narrative  descriptions  and flow charts);  (v) all
other  inventions,  discoveries,  improvements,  processes,  formulae (secret or
otherwise), data, drawings,  specifications,  trade secrets, proprietary rights,
know-how and ideas  (including  those in the  possession of third  parties,  but
which are the property of Seller),  and all  drawings,  records,  books or other
tangible media embodying the foregoing;  (vi) confidential technology (including
know-how and show-how),  manufacturing and production  processes and techniques,
research and development information, drawings, specifications,  designs, plans,
proposals,   technical  data,  copyrightable  works,  financial,  marketing  and
business data,  pricing and cost  information,  business and marketing plans and
customer  and  supplier  lists  and  information,   (vii)  copies  and  tangible
embodiments  of all the  foregoing,  in whatever form or medium,  and (viii) all
rights to obtain and rights to apply for patents, and to register trademarks and
copyrights.

      1.1.31.  "Technology"  means  the  technology  owned by  Seller as such is
described in Section 4.12.3 of the Seller Disclosure Schedule.

      1.1.32.  "Transferred  Employees"  shall  have the  meaning  set  forth in
Section 6.6.2.

      1.2 Construction of Certain  References.  In this Agreement:  (i) words in
the singular include the plural and in the plural include the singular; (ii) the
word "or" is not exclusive;  (iii) the word  "including"  shall mean  including,
without limitation;  and (iv) any reference to any Law is deemed to refer to all
applicable and relevant laws (including case law), statutes, codes or ordinances
and all  rules  and  regulations  promulgated  thereunder,  unless  the  context
otherwise requires.

      1.3 Headings.  The Section and other headings  contained in this Agreement
are for  reference  purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

      1.4  Incorporation of Exhibits and Schedules.  Any references to Sections,
Schedules  and Exhibits are to Sections of, and  Schedules and Exhibits to, this
Agreement unless otherwise  indicated.  The Exhibits and Schedules identified in
this Agreement are incorporated herein by reference and made a part hereof.


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<PAGE>

      2. THE TRANSACTION

      2.1 Purchase and Sale of Assets.  Subject to the terms and  conditions set
forth in this Agreement and in reliance upon the  representations and warranties
of Seller  and Buyer  herein set  forth,  at the  Closing,  Seller  shall  sell,
transfer,  convey,  assign and deliver to Buyer, by appropriate  deeds, bills of
sale, assignments and other instruments reasonably satisfactory to Buyer and its
counsel the Purchased  Assets (other than the Excluded Assets) free and clear of
any  Encumbrance,  and Buyer shall  purchase  from  Seller,  all of the Seller's
right,  title and  interest,  as of the Closing  Date,  in and to the  Purchased
Assets (other than the Excluded Assets).

      2.2  Definition  of Purchased  Assets.  For all purposes of and under this
Agreement,  the term "Purchased Assets" shall mean, refer to and include all the
Business,  goodwill,  assets,  properties  and rights of every nature,  kind and
description,  whether tangible or intangible,  real, personal or mixed, wherever
located  and  whether or not  carried or  reflected  on the books and records of
Seller, which are owned by Seller or in which Seller has any interest (including
the right to use),  as of the date hereof,  or arising from or on account of the
conduct of the Business  prior to the Closing,  but  excluding  (i) the Excluded
Assets,  and (ii) any of the Purchased  Assets sold prior to the Closing Date in
the ordinary course of business,  consistent with past practices.  The Purchased
Assets shall include, but not be limited to, the following (except to the extent
any item below or aspect thereof is defined as an Excluded Asset):

      2.2.1. all Seller Intellectual  Property and Technology,  and the goodwill
associated therewith, licenses and sublicenses granted and obtained with respect
thereto,  rights thereunder,  remedies against infringements thereof, and rights
to  protection  of  interests   therein  under  the   applicable   laws  of  all
jurisdictions;

      2.2.2. all tangible  property,  including without  limitation,  furniture,
office  equipment  and  computers,  inventory,  work in  progress  and  software
licenses,  to the  extent  listed in Section  4.14(a)  of the Seller  Disclosure
Schedule;

      2.2.3. all rights, title or interest in or to the Contracts related to the
Purchased Assets or the Business.

      2.2.4.  originals or true copies of all books,  records,  ledgers,  files,
documents, correspondence, customer, supplier, advertiser- circulation and other
lists (including  subscribers),  invoices and sales data, creative,  advertising
and other promotional materials,  studies, reports, and other printed or written
materials or data;

      2.2.5. Subject to the provision of Section 2.5.3(e), all cash collected by
Seller or Buyer  after the  Closing  Date,  provided  such cash  shall have been
reflected  in the Closing  Balance  Sheet as accounts  receivables,  and for the
avoidance of doubt,  all cash  deriving  from  recognized  revenues  recorded by
Buyer,  in accordance  with GAAP,  after the Closing  Date,  even if paid by any
customer directly to Seller;

      2.2.6. all claims, actions, deposits,  prepayments,  warranties,  refunds,
causes  of  action,  rights  of  recovery,  rights  of set off,  and  rights  of
recoupment of any kind or character.


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<PAGE>

      2.2.7. all permits,  certificates,  licenses,  orders, approvals and other
authorizations of all Authorities  necessary for the ownership,  maintenance and
operation of the Business, to the extent the same may be transferred by Seller.

      2.3  Assumption  of  Liabilities.  As  part of the  Consideration  for the
purchase  and sale of the  Purchased  Assets,  Buyer  shall,  from and after the
Closing Date, assume, perform, discharge and pay all the Assumed Liabilities and
will pay, perform and discharge all such liabilities as they become due.

      2.4  Exclusion  of Certain  Liabilities.  Notwithstanding  anything to the
contrary contained above or elsewhere in this Agreement,  the debts, liabilities
and  obligations  assumed by Buyer hereunder shall not include any of the debts,
liabilities and obligations not specifically  assumed by the Buyer in accordance
with  Section 2.3 above,  without  regard to whether  they are known or unknown,
contingent  or otherwise  and whether they arose before or after the date hereof
(the "Excluded  Liabilities"),  and all such liabilities,  obligations and debts
shall remain the sole obligation of the Seller.  For the avoidance of doubt, the
following liabilities shall be deemed Excluded Liabilities:

      2.4.1. Any liability or obligation in respect of the Excluded Assets;

      2.4.2. All debts, obligations and liabilities of Seller to its Affiliates,
including without  limitation,  accounts payable and accrued  expenses,  and all
interest expense and  indebtedness  for borrowed money or guaranties  thereof or
agreements to be responsible  therefor  (whether with or towards an Affiliate of
Seller or any other third party);

      2.4.3.  Income taxes and any amounts owing under any tax sharing agreement
between Seller and any of its Affiliates;

      2.4.4.  All  liabilities,  if any, in connection with the past and present
employees  of the  Seller  arising  prior to the  Closing  Date,  including  all
liabilities in connection with the Transferred  Employees that have accrued (and
not otherwise  transferred to such Employee by Seller)  through the Closing Date
including, without limitation, salaries, benefits, retention bonus(es), vacation
pay,  payments to  managers'  insurance  policies,  employer's  social  security
matching funds, workman's compensation payments, education funds, pension funds,
provident  funds,  severance pay funds,  and any other funds to which any of the
Transferred  Employees  would be entitled  until the Closing Date (by applicable
law, custom or agreement);

      2.4.5. Any liability with respect to the Seller's share option plans;

      2.4.6.  All liabilities and obligations of Seller under this Agreement and
any agreement executed pursuant hereto or contemplated hereby;

      2.4.7. All legal, accounting,  brokerage,  finder's fees, if any, taxes or
other  expenses  incurred by Seller in  connection  with this  Agreement  or the
consummation of the transactions contemplated hereby;

      2.4.8.  Debts,  liabilities  or obligations of Seller of any nature to any
past or present shareholder of Seller,  including any liability or obligation of
Seller or the Seller's  shareholders  arising or incurred in connection with the
negotiation,  preparation  and execution of this Agreement and the  transactions
contemplated  hereby,  including fees and expenses of counsel,  accountants  and
other experts;


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<PAGE>

      2.4.9. Any Israeli or U.S. federal, state, local, foreign and other taxes,
assessments,  or other  governmental  charges,  including,  without  limitation,
income, estimated income, business, occupation, franchise, property, sales, use,
employment or withholding taxes, including interest,  penalties and additions in
connection therewith ("Taxes") for periods prior to the Closing;

      2.4.10. Any liabilities and obligations of the Seller under any contracts,
agreements,  commitments,  arrangements  or  other  undertakings  which  are not
Contracts;

      2.4.11. Any liability  resulting from the breach of any of the obligations
of Seller under any Contract, occurring prior to the Closing Date;

      2.4.12.  Other than as provided in Section  1.1.2(e) above  (regarding the
repair of products or the refund of the purchase  price  therefor as a result of
defects in materials or workmanship), any claim, suit or proceeding, relating to
or arising from any event occurring prior to the Closing,  whether or not known,
asserted, threatened or pending prior to the Closing.

      2.4.13.  Any  liability  arising  from  accidents,   events,  occurrences,
misconduct,  breach of fiduciary  duty or action taken or omitted to be taken at
or prior to the  Closing,  by the  Seller  or any of its  employees,  directors,
officers  or  representatives,  regardless  of  whether  or not it is covered by
insurance.

      2.4.14.  the Chief Scientist's  Rights for the period prior to the Closing
Date.

      2.4.15.  All other  contingent  liabilities  of Seller,  to the extent not
included in the Assumed Liabilities.

      2.5 Consideration for the Sale and Transfer.

      2.5.1.  Purchase  Consideration.  The consideration to be paid by Buyer to
Seller  for  the  Purchased  Assets  (the  "Purchase  Consideration")  shall  be
comprised  of  the  following  (a)  the  assumption  by  Buyer  of  the  Assumed
Liabilities and (b) payment at Closing of the aggregate  amount of three million
United States dollars (US$ 3,000,000) (the "Initial Consideration") of which two
million three hundred  thousand  United States dollars (US$  2,300,000)  will be
delivered  to Seller and seven  hundred  thousand  United  States  dollars  (US$
700,000)  (the "Escrow  Funds") will be delivered to the Escrow Agent to be held
by the Escrow Agent in accordance  with the Escrow  Agreement (as defined below)
for a period of Twelve (12) months  following the Closing Date. Value Added Tax,
as  required by law,  will be added to the  Purchase  Consideration  and paid by
Buyer at the  Closing by the  delivery  of a check post dated to the next coming
payment due date of the Value Added Tax,  against the issuance of an  applicable
tax  receipt,  unless Buyer shall  provide  Seller with a valid  exemption  with
respect to the payment of such Value Added Tax.

      2.5.2. Adjustment of the Purchase Consideration. The Parties agree that if
Seller's  reviewed but unaudited  statement of income, as provided in accordance
with Section 1.1.19 above,  shows  recognized  revenues  (recorded in accordance
with GAAP, as consistently  applied by Seller in the 24 months prior to the date
hereof) for the first 3 quarters of 2004, of less than US$  1,500,000,  then the
Initial  Consideration  shall be reduced and recalculated in accordance with the
following formula (the "Reduced Initial Consideration"):


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<PAGE>

            RIC = ARR x 3,000,000
                  ---------------
                     1,500,000

            RIC = Reduced Initial Consideration
            ARR = Actual Recognized Revenues during the first 3 quarters of 2004

      If the  Parties  shall be in dispute  as to whether or not the  recognized
      revenues  reflected in the reviewed  Financial  Statements for the first 3
      quarters of 2004 are correctly recorded in accordance with GAAP, then they
      shall  refer the dispute to such  partner of  Deloitte & Touche  Israel as
      shall be  designated  by the managing  partner  thereof (the  "Independent
      Auditor") for the purpose of its resolution. The Independent Auditor shall
      review  this  Agreement  and  each  of the  Party's  arguments  supporting
      evidence  and shall  render,  as promptly  as  possible,  a decision  with
      respect to the dispute. The determination of the Independent Auditor shall
      be final and binding on both  parties.  Each of the Parties shall bear its
      own costs and  expenses  in  connection  with the  resolution  of the said
      dispute and the Parties shall pay the fees of the  Independent  Auditor in
      equal parts, unless the Independent Auditor shall determine otherwise.

            If the Initial Purchase Consideration shall be reduced in accordance
      with the above  formula,  then the amount of the Escrow Funds shall not be
      reduced.

      2.5.3.  Additional  Adjustment of the Initial  Consideration.  The Initial
Consideration or the Reduced Initial Consideration, as the case may be, shall be
adjusted  by the payment of an  additional  amount in cash by Buyer to Seller or
the  deduction  of such  amount from the  Initial  Consideration  or the Reduced
Initial  Consideration,  as the  case  may be,  payable  to  Seller  (the  "Cash
Adjustment"),  which  shall be  calculated  in  accordance  with  the  following
provisions:

            (a)   Prior to the Closing Date, Seller and Buyer shall cooperate in
                  the preparation of a pro-forma  Closing Date balance sheet for
                  the Purchased Assets and Assumed  Liabilities,  to be prepared
                  in  accordance  with  GAAP,  except  as  contemplated  by this
                  Section  2.5.2,  and  reviewed by the Seller's  auditors  (the
                  "Closing Balance Sheet").

            (b)   The Closing Balance Sheet shall be prepared as of a date which
                  is one (1) business day prior to the Closing  Date,  and shall
                  include only the following items: (i) all accounts receivable;
                  (ii) all accounts  payable;  and (iii) all  deferred  revenues
                  arising in respect of work in progress  or products  delivered
                  by  Seller  in  connection  with any  Contract  with  Seller's
                  customers;  provided,  however, that the value of the deferred
                  revenues shall be calculated in accordance with GAAP; and that
                  no  accounts  receivable  shall  be  included  in the  Closing
                  Balance  Sheet if such  accounts  are  older  than 180 days or
                  reflect doubtful debts, pursuant to GAAP.

            (c)   In the event that there is a positive  difference  between the
                  aggregate  value of the accounts  receivable  (in this Section
                  2.5.3, the "assets") minus the aggregate value of the accounts
                  payable and the deferred  revenues (in this Section 2.5.2, the
                  "liabilities"), then at the Closing, Buyer shall pay Seller an
                  additional amount in cash, equal to such positive  difference;
                  if the  difference  between  the  assets  and  liabilities  is
                  negative,  then at the  Closing,  Buyer shall  deduct from the
                  Initial  Consideration or the Reduced Initial Consideration an
                  amount in cash equal to such negative difference.


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<PAGE>

            (d)   In the  event  that the  Parties  are  unable to agree in good
                  faith on any of the items or  amounts  to be  included  in the
                  Closing  Balance  Sheet,  three (3) business days prior to the
                  Closing Date,  then as of the Closing,  Buyer shall pay Seller
                  or vice  versa,  an amount  equal to the  average  between the
                  amount payable in accordance with Seller's calculation and the
                  amount payable in accordance with Buyer's calculation. In such
                  a case, the Parties agree that within fourteen (14) days after
                  the  Closing  Date,  they  shall  refer  the  dispute  to  the
                  Independent  Auditor,  who shall  review this  Agreement,  the
                  disputed  calculations  and each of the Party's  arguments and
                  shall render, as promptly as possible, a decision with respect
                  to the dispute.  The determination of the Independent  Auditor
                  shall be final and  binding on both  parties,  and the Parties
                  shall pay or refund any amount due and  payable in  accordance
                  with such  determination,  plus  interest  at a rate of 5% per
                  annum,  calculated  from the  Closing  Date  until the date of
                  payment.  Each of the  Parties  shall  bear its own  costs and
                  expenses in connection with the resolution of the said dispute
                  and the Parties shall pay the fees of the Independent  Auditor
                  in equal parts, unless the Independent Auditor shall determine
                  otherwise.

            (e)   Notwithstanding  Subsection 2.5.3(c) above, should Buyer fail,
                  following good faith reasonable commercial efforts, to collect
                  any of  the  accounts  receivable  reflected  in  the  Closing
                  Balance  Sheet,  within 120 days of the Closing  Date,  Seller
                  shall pay  Buyer  such  uncollected  amount,  and Buyer  shall
                  assign to Seller  the  rights to  collect  such funds from the
                  applicable customers.

      2.5.4.  Additional  Contingent  Consideration.  In addition to the Initial
Consideration  or the Reduced Initial  Consideration,  as adjusted in accordance
with  Section  2.5.3  above,  Buyer  will pay  Seller an  additional  contingent
consideration of (a) twenty percent (20%) of all  Teleknowledge  Revenues (other
than Renewal  Maintenance  Fees) for a period of three (3) years  following  the
Closing  Date and (b) ten percent  (10%) of all Renewal  Maintenance  Fees for a
period of three (3) years following the Closing Date (the "Additional Contingent
Consideration"), up to a maximum aggregate amount of three million United States
dollars  (US$  3,000,000)  plus the  difference,  if any,  between  the  Initial
Consideration  amount and the Reduced Initial  Consideration  amount, plus Value
Added Tax.  "Teleknowledge  Revenues" means all of Buyer's recognized  revenues,
with respect to the sale, transfer, assignment, license or conveyance of (i) the
Seller  Intellectual  Property or (ii) any product or service which contains any
elements or components of the Seller Technology or a billing solution, including
all service,  customization,  set-up,  license and  maintenance  fees.  "Renewal
Maintenance  Fees"  means  (a) with  respect  to  customers  of Seller as of the
Closing Date, all maintenance  fees received after the maintenance term valid as
of the closing date, (b) with respect to other  customers,  all maintenance fees
received  after  the  first   maintenance   term.   The  Additional   Contingent
Consideration will be paid on a quarterly basis,  within forty five (45) days of
the end of the quarter,  based on proceeds actually  collected by Buyer from the
applicable  customers in each  quarter,  even if received  after three (3) years
following the Closing Date.


                                       9
<PAGE>

      2.6  Allocation  of  the  Consideration.  The  Initial  Consideration,  as
adjusted  pursuant to Section 2.5 and the Additional  Contingent  Consideration,
shall be  allocated,  no later  than 30 days from the date  hereof by the Buyer,
among the types of assets (e.g.  tangible assets,  intangible assets,  know-how,
goodwill  and   non-competition   agreements)  and  among  the  Parent  and  the
Subsidiary.  Once such  allocation  is performed it shall be attached  hereto as
Schedule  2.6. The Seller agrees to prepare and file its federal,  state,  local
and foreign  income Tax returns and other filings  reflecting  the  transactions
contemplated by this Agreement on a basis consistent with such allocation.

      3. THE CLOSING

      3.1 Time and Place.  Subject to the  provisions  of Section 9 hereof , the
Closing shall take place at the offices of Yigal Arnon & Co., 1 Azrieli  Center,
46th Floor,  Round Tower,  Tel Aviv,  Israel,  at 10:00 a.m.  local time, on the
seventh (7)  business day after all the  conditions  set forth in Section 7 have
been satisfied or waived,  provided,  however,  that the Closing shall not occur
later than forty-five (45) days from the date hereof,  or at such other time and
place as Buyer and Seller  mutually agree in writing,  such  transactions  to be
effective as of the Closing Date.

      3.2  Deliveries  and  Transactions  at the Closing.  At the  Closing,  the
following  transactions shall occur  simultaneously and the following  documents
will be delivered (no transaction  shall be deemed to have been completed or any
document  delivered  until all such  transactions  have been  completed  and all
required documents delivered):

      3.2.1. Delivery By Buyer. At or prior to the Closing,  Buyer shall deliver
to Seller:

            (a)   Board Approval. Buyer shall deliver to Seller a duly certified
                  copy of Buyer's  board of  directors  resolution,  in the form
                  attached hereto as Schedule (a).

            (b)   Payment  of the  Initial  Consideration.  Buyer  shall pay the
                  Initial  Consideration,  as adjusted  pursuant to Section 2.5,
                  plus applicable VAT, by wire transfer, banker's check, or such
                  other  form of  payment  as is  mutually  agreed  by Buyer and
                  Seller.

            (c)   Certification. A certificate as contemplated by Section 7.3.4,
                  duly  executed  by the Chief  Executive  Officer  of Buyer and
                  dated as of the Closing Date.

            (d)   Opinion.  An  opinion  of  Danziger,  Klagsbald,  Rosen & Co.,
                  counsel  to Buyer,  in the form  attached  hereto as  Schedule
                  3.2.1(d), dated as of the Closing Date.


                                       10
<PAGE>

            (e)   General.  Any  and all  other  instruments,  certificates  and
                  agreements  contemplated by Section 6 or otherwise required in
                  order to  effectuate  the  transactions  contemplated  by this
                  Agreement.

      3.2.2. Delivery By Seller. At or prior to the Closing Seller shall deliver
to Buyer:

            (a)   Board and Shareholders  Approval. A duly certified copy of the
                  resolutions  of  Sellers'  boards  of  directors  in the  form
                  attached  hereto as  Schedule  3.2.2(a)(1)  and  extraordinary
                  resolutions of the shareholders in the form attached hereto as
                  Schedule 3.2.2(a)(2).

            (b)   IP  Assignment.  Patent and  Trademark  Assignment in the form
                  attached hereto as Schedule 3.22(b1),  accompanied by a letter
                  of Sanford C.T. Colb & Co., as to the status of the patent and
                  the process for its assignment and from Eitan, Pearl, Latzer &
                  Cohen-Zedek, as to the status of the trademarks in the form to
                  be attached hereto as Schedule 3.22(b2).

            (c)   Assignment of Other Purchased  Assets.  A general Bill of Sale
                  and  Assignment & Assumption  of  Liabilities  relating to the
                  Purchased  Assets,  the Business and the Assumed  Liabilities,
                  substantially in the form attached hereto as Schedule (c).

            (d)   General   Assignment.   Any   and   all   other   instruments,
                  certificates and agreements contemplated by Section 6.

            (e)   Certification. A certificate as contemplated by Section 7.3.4,
                  duly  executed  by the Chief  Executive  Officer of Parent and
                  dated as of the Closing Date.

            (f)   Legal  Opinion.  An opinion of Yigal  Arnon & Co.,  counsel to
                  Seller,  substantially in the form attached hereto as Schedule
                  3.2.2(f) dated as of the Closing Date

            (g)   Reviewed Financial  Statements.  the reviewed balance sheet of
                  Seller as of September 30, 2004, and the related statements of
                  operations,  accumulated  deficits  and  cash  flows  for  the
                  periods  then  ended,  reviewed  by the  Seller's  independent
                  certified  public   accountant,   whose  reports  thereon  are
                  included therewith.

      3.2.3.  Escrow  Agreement.  At the Closing,  Buyer,  Seller and the Escrow
Agent  shall enter into,  execute and deliver the escrow  agreement  in the form
attached hereto as Exhibit C (the "Escrow Agreement").

      3.3  Nontransferable  Assets.  To  the  extent  that  any  Contract  to be
conveyed, assigned or transferred, to Buyer pursuant hereto, or any claim, right
or benefit arising  thereunder or resulting  therefrom,  is not capable of being
conveyed, assigned or transferred without the approval, consent or waiver of the
other Party thereto or if such  conveyance,  assignment or transfer or attempted
conveyance,  assignment  or transfer  would  constitute a breach or  termination
right  thereof or a violation of any law,  decree,  order,  regulation  or other
governmental  edict,  then except as expressly  otherwise  provided  herein (and
without  derogating from the provisions of Section 7.2.3 below),  this Agreement
shall not  constitute  a  conveyance,  assignment  or  transfer  thereof,  or an
attempted  sale,   conveyance,   assignment  or  transfer  thereof  absent  such
approvals,  consents or waivers;  provided,  however,  that Seller shall use its
best efforts to obtain all such  approval,  consents or waivers.  From and after
the  Closing,  Seller  shall  promptly  pay to Buyer  when  received  all monies
received by Seller following the Closing Date, which are connected to or arising
from the Purchased  Assets and Seller shall  promptly pay to Buyer when received
all monies  received by Buyer  following the Closing Date which are connected to
or arising from the Excluded Assets.


                                       11
<PAGE>

      4.  REPRESENTATIONS  AND  WARRANTIES OF SELLER.  Parent and the Subsidiary
jointly  and  severally  represent  and  warrant  to Buyer  that the  statements
contained  in this  Section 4 are  correct  and  complete as of the date of this
Agreement,  except as set forth in the Seller disclosure  schedule  accompanying
this  Agreement  (the  "Seller  Disclosure  Schedule").  The  Seller  Disclosure
Schedule  will be arranged  in  paragraphs  corresponding  to the  lettered  and
numbered paragraphs contained in this Section 4.

      4.1  Organization  and  Qualification.  Parent is a private  company  duly
organized  and  validly  existing  under  the laws of the State of  Israel.  The
Subsidiary is duly organized and validly existing under the laws of the State of
Delaware.  Each of Parent and the Subsidiary has all requisite  corporate  power
and  authority to carry on the Business as now  conducted and to own and operate
the Purchased  Assets, is duly qualified to do business as a foreign company and
is in good  standing in each  jurisdiction  where the character of the Purchased
Assets or the nature of the Business makes such qualifications necessary.

      4.2 Subsidiaries.  (a) All of Parent's current or former  subsidiaries are
listed in Section 4.2(a) of the Seller Disclosure Schedule,  which specifies the
percentage of Parent's equity  interest in each subsidiary and the  jurisdiction
of such  subsidiary.  Except  as set  forth  in  Section  4.2(a)  of the  Seller
Disclosure Schedule,  Parent and the Subsidiary do not presently own or control,
directly or indirectly, any interest in any other corporation,  association,  or
other  business  entity,  nor  are  they,  either  directly  or  indirectly,   a
participant in any joint venture, partnership, or similar arrangement. Except as
the context otherwise dictates,  all references to Seller in the representations
and  warranties  set forth in this  Section  4 refer to each of  Parent  and the
Subsidiary.

            (b)  Other  than  as set  forth  in  Section  4.2(b)  of the  Seller
Disclosure Schedule, none of the current or former subsidiaries of Parent listed
on Section  4.2(a) of the Seller  Disclosure  Schedule  (i) have  conducted  any
activity since September 2003, (ii) own or are otherwise in possession of any of
the Technology or any other assets relating to the Business, or assets which may
compete in any way with the Business,  (iii) disposed any assets relating to the
Business or any  Technology  at any time in the past (other than in the ordinary
course of business,  pursuant to license agreements with customers,  through the
entering  into  agreements  substantially  in the form  previously  presented to
Buyer), which disposal may result in the ability of third parties to develop and
market  competing  billing  solutions  products,  and  (iv) are  parties  to any
contract or agreement with any third party the  performance of which has not yet
been completed thereby.

      4.3  Authorization.  All  corporate  action  on the  part of  Seller,  its
officers, directors and shareholders necessary for the authorization,  execution
and delivery of this Agreement and the  performance of all obligations of Seller
hereunder has been taken,  and this Agreement and any  obligations  contemplated
herein  constitute  and will  constitute  as of the  Closing  valid and  legally
binding  obligations of Seller,  enforceable in accordance with their respective
terms,   except   (i)  as   limited  by   applicable   bankruptcy,   insolvency,
reorganization,  moratorium,  and other  laws of general  application  affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the  availability  of  specific  performance,  injunctive  relief,  or  other
equitable remedies.


                                       12
<PAGE>

      4.4 Adequacy and  Sufficiency of Purchased  Assets.  The  instruments  and
documents  to be delivered by Seller to Buyer at or  immediately  following  the
Closing  shall be  adequate  and  sufficient  to vest in Buyer  all of  Seller's
rights, titles and interests in or to the Purchased Assets, which rights, titles
and interests shall be free and clear of any Encumbrances.

      4.5 Financial Statements. The Financial Statements previously furnished to
Buyer have been prepared in accordance  with GAAP applied on a consistent  basis
throughout the periods  indicated and with each other. The Financial  Statements
fairly  present in all material  respects the financial  condition and operating
results of Seller or any material part of the Purchased  Assets as of the dates,
and for the periods, indicated therein.

      4.6 Absence of Certain Changes.  Except as set forth in Section 4.6 of the
Seller Disclosure Schedule, to Seller's best knowledge, after due investigation,
since the Balance Sheet Date, there has not occurred:  (i) any change,  event or
condition  that has  resulted  or is  reasonably  likely to result in a Material
Adverse Effect on Seller; (ii) any acquisition, sale or transfer of any material
asset  of  Seller  or any  material  part of the  Purchased  Assets  (except  as
contemplated  by this  Agreement);  (iii) any  change in  accounting  methods or
practices  by  Seller  or any  revaluation  by  Seller  of any of its  assets or
properties;  (iv) any material  contract entered into by Seller, or any material
amendment  of, or default  under,  any contract to which Seller is a Party or by
which it is bound;  (v) any amendment or change to Parent's or the  Subsidiary's
Articles of Association or other incorporation  documents;  (vi) any increase in
or modification of the  compensation or benefits payable or to become payable by
Seller  to any  of its  directors  or  employees;  (vii)  any  material  damage,
destruction  or other  casualty  loss  (whether  or not  covered  by  insurance)
affecting the Business or any Purchased Asset;  (viii) any capital  expenditure,
or  commitment  for a capital  expenditure,  for  additions or  improvements  to
property,  plant and  equipment not  consistent  with prior  practice;  (ix) the
incurrence of any debt,  liability or  obligation,  whether  direct or indirect,
accrued, absolute, contingent or otherwise, other than in the ordinary course of
business consistent with past practice; (x) a waiver or release of any rights of
material  value,  or a  cancellation,  compromise,  release or assignment of any
indebtedness  owed to it or any claims  held by it,  other than in the  ordinary
course of business,  consistent with past practice;  or (xi) a sale, transfer or
disposition  of any of the  Seller  Intellectual  Property,  other than grant of
licenses in the ordinary course of business to customers of the Seller.

      4.7 Absence of Undisclosed Liabilities. Except as set forth in Section 4.7
of the Seller  Disclosure  Schedule,  Seller has no liabilities  (whether known,
unknown, absolute, accrued, contingent or otherwise) relating to or arising with
respect  to the  Business,  other  than  (i)  those  liabilities  set  forth  or
adequately  provided  for in the  Balance  Sheet;  (ii)  those  liabilities  not
required  to be  set  forth  in  the  Balance  Sheet  under  GAAP;  (iii)  those
liabilities  incurred  in the  ordinary  course  of  business  and  in a  manner
consistent  with past practice  since the Balance Sheet Date which have not had,
and are not likely to have (alone or in  aggregate) a Material  Adverse  Effect;
(iv) those liabilities incurred in connection with the execution and delivery of
this Agreement.


                                       13
<PAGE>

      4.8 Contracts.

      4.8.1.  Section  4.8.1 of the  Seller  Disclosure  Schedule  sets  forth a
complete and accurate list of all material contracts,  agreements,  arrangements
or  understandings,  whether written or oral, to which Seller is a party,  which
relate to or arise from the Business or by which any of the Purchased  Assets or
any part  thereof may be bound (the  "Contracts").  Section  4.8.1 of the Seller
Disclosure  Schedule  also  contains  a  summary  of  all  material  rights  and
obligations of Seller under any oral Contract.

      4.8.2. Each Contract is valid and binding and is in full force and effect.
No event has  occurred  which is or,  after the  giving of notice or  passage of
time, or both, would constitute a material default under or a material breach of
any Contract by Seller or, to Seller's  knowledge,  after due investigation,  by
any other party thereto.

      4.8.3.  Other  than as listed in Section  4.8.3 of the  Seller  Disclosure
Schedule,  all of the Contracts are assignable to Buyer,  in accordance with the
terms of this  Agreement,  without  the need to obtain the  consent of the other
party to the Contract with respect to such assignment, and such assignment shall
not effect the validity, enforceability or any of the Seller's rights under each
such Contract.

      4.9 Compliance with Other Instruments.

      4.9.1.  Parent and each  Subsidiary are not in violation or default of any
provision  of  their  respective   Memorandum  of  Association  or  Articles  of
Association,  or any similar organizational document or, to the best of Seller's
knowledge,  any provision of any statute,  rule or regulation known by Seller to
be  applicable  to Seller or the  Business  which could have a Material  Adverse
Effect or could result in the imposition of any fine or penalty on Seller.

      4.9.2. Seller has all permits,  certificates,  licenses, orders, approvals
and other authorizations of all Authorities that are required for the ownership,
maintenance  or  operation  of the  Purchased  Assets  and  the  conduct  of the
Business,  all of which are included in Section  4.9.2 of the Seller  Disclosure
Schedule,  except where the absence  thereof  would not have a Material  Adverse
Effect.  Seller is not aware of any action,  pending or  threatened,  to cancel,
modify  or refuse to renew any such  permits,  certificates,  licenses,  orders,
approvals and other authorizations as a result of the transactions  contemplated
by this Agreement or otherwise.

      4.9.3.  The  execution,  delivery and  performance  of this  Agreement and
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or  constitute,  with or without the passage of
time  and  giving  of  notice,  either  a  default  under  any  such  provision,
instrument,  Order or Contract or an event that  results in the  creation of any
Encumbrance upon any assets of Seller or the suspension, revocation, impairment,
forfeiture,  or non-renewal of any material permit, license,  authorization,  or
approval  applicable to Seller or the Business,  or the operations or any of its
assets  or  properties   (including  the  Purchased   Assets),   other  than  as
contemplated by Sections 3.3 and 7.2.3, or as would not have a Material  Adverse
Effect.

      4.10  Governmental  Consents.  Except as set forth in Section  4.10 of the
Seller Disclosure Schedule, no consent,  approval, order or authorization of, or
registration,  qualification,  designation,  declaration  or  filing  with,  any
Authority on the part of Seller is required in connection  with the  fulfillment
of the  obligations of Seller under this Agreement or any of the Exhibits hereof
or the consummation of the transactions contemplated hereby or thereby.


                                       14
<PAGE>

      4.11  Litigation.  Except  as set  forth  in  Section  4.11 of the  Seller
Disclosure  Schedule,  there is no legal action, suit, claim or other proceeding
in  any  court  of  law  pending,  or to  the  knowledge  of  Seller  after  due
investigation  threatened  in writing  against  Seller and no notice in any such
respect  has been  submitted  to Seller,  that  questions  the  validity of this
Agreement, or the right of Seller to enter into this Agreement, or to consummate
the transactions  contemplated hereby, or that might result, either individually
or in the aggregate,  in any Material  Adverse Effect on Seller or any change in
the current equity  ownership of Seller or affect any of the Purchased Assets or
any of the  Assumed  Liabilities.  Seller is not a Party to nor is it subject to
the provisions of any Order of any court, Authority or instrumentality. There is
no action,  suit,  proceeding or  investigation  initiated by Seller,  currently
pending or that Seller intends to initiate.

      4.12 Seller Intellectual Property and Technology.

      4.12.1.  Section 4.12.1 of the Seller  Disclosure  Schedule sets forth all
patents, patent applications, service marks, product registrations,  trademarks,
trademark  applications,  trade names, trade rights, and copyrights,  whether or
not  registered,  that relate to or arise from or are used in connection with or
held by the Business or any  Contracts  pursuant to which Seller had  authorized
any person to use any of the Seller Intellectual Property. Section 4.12.1 of the
Seller Disclosure  Schedule also includes any Contracts,  material agreements or
understandings  pursuant to which Seller is  authorized or licensed by others to
use any of the Seller  Intellectual  Property.  Except as otherwise indicated in
Section  4.12.1  of the  Seller  Disclosure  Schedule,  Seller  is the  sole and
exclusive owner of the Seller  Intellectual  Property and Technology and has the
sole and exclusive  right,  except to the extent indicated  therein,  to the use
thereof.  At the  Closing or as promptly  thereafter  as  possible,  Seller will
deliver  original  certificates  of  registration  with  respect  to the  Seller
Intellectual  Property included within the Purchased Assets, the entire interest
in which is being transferred to Buyer.

      4.12.2. Other than as set forth in Section 4.12.1 of the Seller Disclosure
Schedule,  the Seller  Intellectual  Property  does not  infringe  the rights of
others.  To the extent that the above  relates to any standard  software  and/or
hardware, there is no known reason denying Seller the use of these in the course
of its  activities.  Seller has not received any  communications  alleging  that
Seller has violated or, by  conducting  its business as proposed,  would violate
any of the patents, trademarks,  service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.

      4.12.3.  The Technology  installed by the Seller prior to the Closing Date
conforms to the specifications and operational requirements set forth in Section
4.12.3 of the  Seller  Disclosure  Schedule  and to its user  documentation  and
related  materials,  and is free  from  material  defects,  errors,  and  faulty
workmanship in accordance with customary industry practices.

      4.13  Manufacturing  and Marketing Rights.  Except for agreements  entered
into by Seller  within the normal course of business as set out in Section 4.8.1
of the Seller Disclosure Schedule, Seller has not granted rights to manufacture,
produce, assemble, license, market, or sell its products to any other person and
is not bound by any agreement that affects Seller's  exclusive right to develop,
manufacture, assemble, distribute, market, license or sell its products.


                                       15
<PAGE>

      4.14 Title to Property & Assets.  Seller has good and marketable title to,
or a  valid  leasehold  interest  in,  all  personal  property  included  in the
Purchased Assets, free and clear of any Encumbrances. Section 4.14 of the Seller
Disclosure  Schedule contains a list of Seller's material tangible property.  To
the best of Seller's knowledge, its shareholders do not own, hold or possess, in
their individual,  corporate or any other capacity,  property, which is material
to the  financial  condition  and  operations  of Seller or the  conduct  of the
Business.

      4.15 Labor Agreements and Actions; Employee Compensation.

      4.15.1.  Section  4.15.1 of the  Seller  Disclosure  Schedule  contains  a
complete list of the Seller's  employees.  Except as set forth in Section 4.15.1
of the  Seller  Disclosure  Schedule,  Seller  is not a Party to or bound by any
currently effective employment contract,  deferred compensation agreement, bonus
plan, profit sharing plan, retirement agreement,  or other employee compensation
agreement.  The  employment of each officer and employee of Seller is terminable
at the will of  Seller,  subject  to any  provisions  which  are to  apply  upon
termination  of their  employment  and which are listed in Section 4.15.1 of the
Seller Disclosure Schedule.

      4.15.2.  Seller is not bound by or  subject  to (and none of its assets or
properties  is bound by or subject to) any contract,  commitment or  arrangement
with any labor union,  other than  collective  agreements  and Orders of general
application,  and no labor union has requested or has sought to represent any of
the employees,  representatives or agents of Seller. There is no strike or other
labor  dispute  involving  Seller,  pending  or  threatened,  that  could have a
Material Adverse Effect on Seller, nor is Seller aware of any labor organization
activity  involving its  employees.  Each of Seller's  employees is a Party to a
written employment agreement with Seller.

      4.15.3.  Seller has timely paid or as of the Closing  Date shall have paid
all salaries,  severance  payments and other social  benefits due and payable to
all of its  current  employees  for the period  prior to the  Closing  Date,  in
accordance  with  (i)  their  respective  employment  agreements  and  (ii)  all
applicable  labor  Laws,  including  but not  limited  to,  salaries,  benefits,
retention  bonus(es),  vacation pay, payments to managers'  insurance  policies,
employer's  social security  matching funds,  workman's  compensation  payments,
education funds,  pension funds,  provident funds,  severance pay funds, and any
other funds.

      4.16 Books and Records;  Accounting Controls. The books and accounts to be
transferred to Buyer pursuant hereto are complete and correct, are maintained in
accordance with good business practice and accurately present and reflect in all
material respects all of the transactions therein described.

      4.17 Powers of Attorney.  Neither Parent nor any Subsidiary has any powers
of attorney  outstanding in connection with the Purchased Assets or the Business
or operations of the Business which would be or will become binding on Buyer.

      4.18  Obligations to the Chief  Scientist.  Except as set forth in Section
4.18 of the Seller Disclosure Schedule, Seller is in full compliance with all of
its obligations  and  undertakings to the Chief Scientist in accordance with the
Chief Scientist's  Rights and has paid the Chief Scientist all royalties due and
payable  thereto as of the date  hereof.  Prior to the Closing Date Seller shall
have  paid all  royalties  due and  payable  to the  Chief  Scientist  as of the
Closing,  including,  for the  avoidance  of doubt,  the amounts  referred to in
Section 4.18 of the Seller Disclosure Schedule,  including all fines,  penalties
and/or interest payable to the Chief Scientist with respect thereto.


                                       16
<PAGE>

      4.19  Taxes  Paid.  Except  as set  forth in  Section  4.19 of the  Seller
Disclosure  Schedule,  all taxes,  duties and assessments payable or incurred by
Seller prior to the Closing Date that might result in an Encumbrance upon any of
the Purchased Assets have been or will timely be paid by Seller.

      4.20 Insurance and Insurance Requirements

      4.20.1. All physical Purchased Assets material to the Business are covered
by insurance as set forth in Subsection 4.20.1of the Seller Disclosure Schedule.

      4.20.2.  All insurance  policies in effect on the date hereof which relate
to product  liability are listed in Subsection  4.20.2 of the Seller  Disclosure
Schedule.

      4.20.3.  All insurance  referred to in Subsection  4.20.1 and 4.20.2 above
will be in effect  until at least  12:01  A.M.  on the fifth day  following  the
Closing  Date and Seller  shall have timely paid all  premiums  due prior to the
Closing Date with respect to such  policies.  Seller has delivered to Buyer true
and correct copies of all insurance policies currently in effect.

      4.21 Brokers.  Seller has no contract,  arrangement or understanding  with
any  broker,   finder  or  similar  agent  with  respect  to  the   transactions
contemplated by this Agreement.

      5. BUYER'S  REPRESENTATIONS AND WARRANTIES.  Buyer represents and warrants
to Seller  that the  statements  contained  in this  Section 5 are  correct  and
complete as of the date of this Agreement.

      5.1 Due  Incorporation.  Buyer is a duly  organized  and validly  existing
company  under the Laws of the State of Israel and has all  requisite  power and
authority to own,  lease and operate its assets,  properties and business and to
carry on its business as now conducted.

      5.2 Authority to Execute and Perform  Agreements.  Buyer has all requisite
power,  authority and approval required to enter into,  execute and deliver this
Agreement and to perform fully Buyer's obligations hereunder.

      5.3 Due Authorization.  Buyer has taken all actions necessary to authorize
it to enter  into and  perform  its  obligations  under  this  Agreement  and to
consummate the transactions  contemplated herein and therein. This Agreement is,
and as of the Closing Date will be, the legal, valid and binding  obligations of
Buyer,  enforceable  in  accordance  with its  terms,  except  (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application  affecting  enforcement of creditors' rights generally,  and
(ii) as limited by laws relating to the  availability  of specific  performance,
injunctive relief, or other equitable remedies.

      5.4 No Violation. Neither the execution and delivery of this Agreement nor
the  consummation of the transactions  contemplated  herein and therein will (a)
violate any provision of the memorandum or articles of association of Buyer; (b)
violate,  conflict  with,  or  constitute a default  under any contract or other
agreement  or other  instrument  to which Buyer is a Party or by which it or its
property is bound; (c) require the consent of any Party to any material contract
or other  agreement  to which  Buyer is a Party by which it or its  property  is
bound;  or (d)  violate  any Laws or Orders to which  Buyer or its  property  is
subject,  in each case,  other  than such  violation,  conflict  with or default
under, which would not affect the Buyer's ability to consummate the transactions
contemplated hereby.


                                       17
<PAGE>

      5.5  Governmental  Consents.  Except  as set forth in  Schedule  5.5 or as
otherwise  contemplated  by this  Agreement,  Buyer has obtained  all  consents,
approvals,  authorizations and other requirements prescribed by any Law or Order
which must be obtained or  satisfied  by Buyer and which are  necessary  for the
execution and delivery by Buyer of this  Agreement and the  consummation  of the
transactions contemplated in this Agreement.

      5.6 No Broker. No broker,  finder, agent or similar intermediary has acted
for or on  behalf  of  the  Buyer  in  connection  with  this  Agreement  or the
transactions  contemplated  hereby,  and no  broker,  finder,  agent or  similar
intermediary  is  entitled  to any  broker's,  finder's  or similar fee or other
commission  in  connection  therewith  based on any  agreement,  arrangement  or
understanding with the Buyer.

      6. ADDITIONAL AGREEMENTS

      6.1  General.  Each of the Parties  will use its best  efforts to take all
action  and to do all  things  necessary,  proper,  or  advisable  in  order  to
consummate and make effective the  transactions  contemplated  by this Agreement
(including satisfaction,  but not waiver, of the Closing conditions set forth in
Section 7 below). If, at any time, including after the Closing Date, any further
action is necessary or desirable for any Party to carry out the purposes of this
Agreement,  including the filing of this Agreement or any of the Exhibits or the
Schedules attached thereto with any Authority, or to vest Buyer with full right,
title and possession to the Purchased  Assets, or to operate the Business as was
operated prior to the consummation of the transaction contemplated herein, Buyer
and Seller  shall  hereby  agree to the taking of such action by the other party
and shall take all reasonable  action to assist the other party in accomplishing
the foregoing.

      6.2 Business Examinations and Physical Investigations of Purchased Assets.
Prior to the Closing  Date (or the  termination  of this  Agreement  pursuant to
Section  9),  the  Buyer  shall  be   entitled,   through  its   employees   and
representatives,  to make such  investigations and examinations of the Seller as
it may reasonably  request.  Any such  investigations  and examinations shall be
conducted   at   reasonable   times   and   under   reasonable    circumstances.
Notwithstanding  the  foregoing,  Buyer  shall not have any access to  personnel
records  of Seller  relating  to medical  histories  or other  information,  the
disclosure  of which would  subject the Seller to a material  risk of liability.
All  information  furnished  to or  obtained  by Buyer  and its  representatives
pursuant to this Section 6.2 shall be subject to the  Confidentiality  Agreement
and shall be held in confidence in accordance therewith.

      6.3 Conduct of Business. From the date hereof through the Closing Date (or
the  termination of this Agreement  pursuant to Section 9), Seller shall use its
best efforts to conduct the  Business in such a manner that the  representations
and  warranties  contained in Section 4 shall continue to be true and correct in
all material respects as of the Closing Date as if made at and as of the Closing
Date. Without the prior written consent of Buyer,  Seller shall not undertake or
fail to take any  action if such  action or  failure  would  render  any of said
warranties  and  representations  untrue as of the Closing  Date in any material
respect.  Notwithstanding  the  generality of the foregoing,  Seller shall:  (i)
conduct its business  only in the ordinary  course of business  consistent  with
past practice, (ii) refrain from taking any of the actions listed in Section 4.6
above,  (iii)  use  its  best  efforts  to  preserve  any  beneficial   business
relationship with all customers,  suppliers, and others having business dealings
with  the  Business;  (iv)  keep  available  the  services  of  the  Transferred
Employees;  (v)  maintain  all of the  Purchased  Assets in good  condition  and
repair,  ordinary  wear and tear  excepted,  (vi) keep Buyer  informed as to the
Purchased  Assets and the  Business  and  consult  with  Buyer on all  important
matters  pertaining  to such  Business;  and (vii) advise the Buyer  promptly in
writing of any fact which,  if existing or known on the date of this  Agreement,
would have been required to be set forth in this Agreement or disclosed pursuant
to it. All information furnished to or obtained by Buyer and its representatives
pursuant to this Section 6.3 shall be subject to the  Confidentiality  Agreement
and shall be held in confidence in accordance therewith.


                                       18
<PAGE>

      6.4  Notices.  From the  date  hereof  through  the  Closing  Date (or the
termination of this Agreement  pursuant to Section 9), each Party shall give the
other Party prompt  written  notice of the occurrence or existence of any event,
condition or circumstance  which would  constitute a violation or breach of this
Agreement by such Party or which would render inaccurate in any material respect
any of such Party's  representations or warranties  contained herein; and Seller
shall give Buyer notice of any lawsuits,  claims,  proceedings or investigations
which after the date hereof are threatened or commenced  against such party,  or
any officer,  director,  employee,  consultant,  agent or shareholder,  in their
capacities as such.

      6.5  Consents;  Cooperation.  The  Parties  shall  promptly  apply  for or
otherwise seek, and use their  commercially  reasonable  efforts to obtain,  all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated hereby.

      6.6 Employees.

      6.6.1.  From the date hereof through and prior to the Closing,  Buyer will
use its best  commercial  efforts to offer,  subject to Closing,  employment  to
certain of Seller's  employees,  as determined by Buyer,  on terms of employment
relating to base salary,  automobile,  social  benefits,  and commissions as set
forth on Schedule 6.6.1(a),  but not including annual bonuses, early termination
notice  periods,  and the level of options  granted to such  employee at Seller.
Prior to the  Closing,  Buyer  shall  allocate  to each  such  employee  offered
employment  pursuant to the prior sentence an allocation of options  pursuant to
Buyer's  share  option plan in the amounts  which shall be set forth on Schedule
6.6.1(b), and in the aggregate 130,000 options (including,  for the avoidance of
doubt,  those  allocated to the Chief  Executive  Officer of Seller) to purchase
Buyer's  ordinary  shares.  No later than 5 business  days prior to the  Closing
Date,  Buyer shall  deliver to Seller a list of all the employees who shall have
accepted the offer of employment.

      6.6.2.  Immediately  prior to the Closing,  (i) the  employment of all the
Transferred  Employees (as defined below) will be terminated by Seller; and (ii)
Seller shall pay or transfer to each of the  Transferred  Employees  any and all
sums due and payable to such employees in connection  with (A) the employment of
the  Transferred  Employees  up to and  including  the Closing  Date and (B) the
termination  of  their  employment,  including,  without  limitation,  salaries,
benefits,  retention  bonus(es),  vacation pay,  advance notice of  termination,
managers'  insurance  policies,   employer's  social  security  matching  funds,
workman's  compensation  payments,  education  funds,  pension funds,  provident
funds,  severance pay funds, and any other funds to which any of the Transferred
Employees is entitled until the Closing Date, in accordance with any Law, custom
or the personal employment  contract.  Each individual who accepts Buyer's offer
of employment  and executes and delivers (i) an employment  agreement with Buyer
in the form of Schedule 6.6.2(a) or any other form acceptable to Buyer; and (ii)
a release and waiver addressed to both the Seller and the Buyer of any rights he
or she may have under any  agreement  with Seller,  agreeing to the  termination
thereof and  confirming the receipt of all funds due and payable to them for the
period of employment  preceding  the Closing Date and in connection  with his or
her termination,  in the form of Schedule 6.6.2(b),  shall be referred to herein
as a "Transferred Employee".


                                       19
<PAGE>

      6.6.3.  Without  derogating  from the  generality  of Section 6.6.2 above,
Buyer has offered  employment to Mr. Eilon Ginsburg,  Chief Executive Officer of
Seller, in accordance with the terms that have been disclosed to Seller.

      6.6.4.  Notwithstanding any  confidentiality,  non-compete or intellectual
property  ownership  obligations of any Transferred  Employee to Seller,  or any
Affiliate thereof, the Transferred Employees shall be permitted to engage in the
Business on behalf of Buyer.

      6.6.5.  At the Closing,  Seller shall  deposit with the Escrow  Agent,  in
escrow,  US$ 150,000 (the  "Retention  Amount"),  which shall be allocated among
those  employees  who are  Transferred  Employee,  pursuant  to the terms of the
Escrow  Agreement.  All sums remaining after the payment of the Retention Amount
to the Transferred  Employees,  as provided in the previous  sentence,  shall be
returned to Seller.

      6.7 Trademarks;  Trade Names and Name Change. As soon as practicable after
the Closing  but not later than  fourteen  (14) days  thereafter,  Seller  shall
eliminate  the use of all of the  trademarks,  trade  names,  service  marks and
service names used in the Business,  in any of their forms or spellings,  on all
advertising,  stationery, business cards, web sites, checks, purchase orders and
acknowledgments, customer agreements and other contracts and business documents.
As soon as  practicable,  but no later than thirty (30) days after the  Closing,
Parent and each  Subsidiary  shall change their corporate names so as to bear no
resemblance  to their  current names in order to enable full use of such name by
Buyer.

      6.8  Report and Audit.  Buyer  shall  provide  Seller  with the  following
reports with respect to the  calculation of the  Teleknowledge  Revenues and the
payments  actually paid to Buyer:  (a) as soon as practicable,  but in any event
within thirty (30) days after the end of each quarter, a quarterly report, which
shall  include  details  of  all  said  Buyer  revenues,  and  (b)  as  soon  as
practicable,  but in any event within ninety (90) days of the end of each fiscal
year,  an annual  report  which  shall  include  details  of all the said  Buyer
revenue,  which report shall be accompanied by a certification issued by Buyer's
independent public  accountants,  which reports shall be provided by Buyer until
Seller has received all the Additional  Contingent  Consideration to which it is
entitled  pursuant to Section  2.5.4.  Seller shall have the right,  upon thirty
(30) days notice,  during the four (4) years commencing on the Closing,  to have
an  inspection  and audit,  no more  frequently  than  twice a year,  of all the
relevant  records,  agreements  and  accounting  and sales  books of Buyer  (the
"Audit"),  conducted by an independent  certified public accountant  selected by
Seller and acceptable to Buyer, which shall be conducted during regular business
hours at Buyer's  offices  and in such manner as not to  unreasonably  interfere
with Buyer's normal business activities. In the event an Audit reveals a default
in payment of the Additional  Contingent  Consideration,  Buyer will immediately
pay any amount owed to Seller plus interest of 5% per annum,  and if the default
is of more than 10% of the amount paid to Seller,  Buyer shall reimburse  Seller
for the reasonable costs of the Audit, which shall otherwise be borne by Seller.
Should  Seller and Buyer  disagree  as to the  results of any Audit,  they shall
appoint the Independent Auditor to resolve the dispute.  The Independent Auditor
shall review the claims of each Party and the supporting  documents presented by
it and shall render a final and binging determination.


                                       20
<PAGE>

      6.9  Non-Competition.  Without the written consent of Buyer,  Seller shall
not (i) for a  period  of two (2)  years  from  the  date  hereof,  directly  or
indirectly compete with the Business; and (ii) for a period of one (1) year from
the date  hereof,  employ or solicit the  employment  of any person  employed by
Seller,  at any time during the six months  prior to the date hereof with a view
to  inducing  that  person  to  leave  such  employment  and to act for  another
employer.  The  parties  agree that the  duration  and  geographic  scope of the
non-competition  provision set forth in this Section 6.9 are reasonable.  In the
event that any court of competent jurisdiction shall determine that the duration
or the geographic scope, or both, are unreasonable and that such provision is to
that extent unenforceable,  the parties agree that the non-competition provision
shall  remain in full force and effect for the  greatest  time period and in the
greatest area that would not render it  unenforceable,  and in that event Seller
hereby  consents that such provision may be judicially  modified  accordingly in
any  proceeding  brought to enforce the  provisions of this Section 6.9.  Seller
hereby agrees that a breach of its obligations  under this Section may cause the
Buyer  irreparable  damage and therefore agrees in advance that the Buyer should
be  entitled  and  deserves to obtain an  injunction  order in order to keep and
reserve its rights.  It is hereby  clarified that the provisions of this Section
shall  not  apply  to  (a)_Seller's  shareholders,  even  in  the  event  that a
Distribution  was  consummated and (b) in the event of sale of Seller to a third
party,  provided that prior to such sale Seller shall cause the  termination  of
all Contracts not assigned to Buyer hereunder.

      6.10  Removal  of  Pledges.  No later  than 30 days from the date  hereof,
Seller will obtain  consent of all third  parties who have  pledges on assets of
Parent that are registered with the Registrar of Companies (except to the extent
such asset is an  Excluded  Asset,  as agreed in advance by Buyer) to either the
removal of such pledges or the  consummation  of the  transactions  contemplated
hereunder.

      7. CONDITIONS TO OBLIGATION TO CLOSE

      7.1  Conditions  to  Obligations  of  Buyer  and  Seller.  The  respective
obligations  of each  Party to this  Agreement  to  consummate  and  effect  the
transactions  contemplated  hereby shall be subject to obtaining  the consent of
the Chief  Scientist,  the  Investment  Center of the  Ministry of Industry  and
Trade, and all other  approvals,  waivers and consents from any other Authority,
if any,  necessary for  consummation of, or in connection with, the transactions
contemplated hereby.

      7.2  Conditions  to  Obligation  of  Buyer.  The  obligation  of  Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:

      7.2.1.  Accurate  Representations and Warranties.  The representations and
warranties  set  forth in  Section  4 above  shall be true  and  correct  in all
material respects when made and on the Closing Date (as if made on and as of the
Closing Date).


                                       21
<PAGE>

      7.2.2. Compliance with Covenants. Seller shall have performed and complied
with  all of its  covenants  hereunder  in all  material  respects  through  the
Closing.

      7.2.3.  Consents.  Seller shall have procured the third party consents set
forth in Schedule 7.2.3.

      7.2.4. No Action.  No action,  suit, or proceeding  shall be threatened in
writing against Seller or Buyer or pending before any court or quasi-judicial or
administrative agency of any state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction,  judgment,  order, decree, ruling,
or charge could (i) prevent consummation of any of the transactions contemplated
by this  Agreement,  (ii)  cause any of the  transactions  contemplated  by this
Agreement to be rescinded  following  consummation,  (iii) adversely  affect the
right of Buyer to own the Purchased  Assets, to operate the former Businesses of
Seller  or  (iv)  subject  Buyer  to pay  monetary  Losses  as a  result  of the
consummation of the  transaction  contemplated  hereby (and no such  injunction,
judgment, order, decree, ruling, or charge shall be in effect).

      7.2.5.  Compliance  Certificate.  Parent  shall have  delivered to Buyer a
certificate  executed by its Chief Executive  Officer to the effect that each of
the conditions  specified  above in this Section 7.2 are satisfied,  in the form
attached hereto as Schedule 7.2.5.

      7.2.6.  Delivery  of  Documents.  All  actions  to be taken by  Seller  in
connection with  consummation of the  transactions  contemplated  hereby and all
certificates,  opinions, instruments, and other documents required to effect the
transactions  contemplated  hereby will be reasonably  satisfactory  in form and
substance to Buyer.

      7.2.7.  Key  Employees.  The employees  listed on Schedule 7.2.7 (the "Key
Employees") shall be included among the Transferred Employees.

      Buyer may waive any condition specified in this Section 7.2 if it executes
a writing so stating at or prior to the Closing.

      7.3  Conditions  to  Obligation  of Seller.  The  obligation  of Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:

      7.3.1.  Accurate  Representations and Warranties.  The representations and
warranties  set forth in  Section 5 shall be true and  correct  in all  material
respects  when made and on the Closing Date (as if made on and as of the Closing
Date).

      7.3.2. Compliance with Covenants.  Buyer shall have performed and complied
with  all of its  covenants  hereunder  in all  material  respects  through  the
Closing;

      7.3.3. No Action.  No action,  suit, or proceeding  shall be threatened in
writing against Seller or Buyer or pending before any court or quasi-judicial or
administrative agency of any state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction,  judgment,  order, decree, ruling,
or charge could (i) prevent consummation of any of the transactions contemplated
by this  Agreement or (ii) cause any of the  transactions  contemplated  by this
Agreement  to be  rescinded  following  consummation  (and no  such  injunction,
judgment, order, decree, ruling, or charge shall be in effect);


                                       22
<PAGE>

      7.3.4.  Compliance  Certificate.  Buyer shall have  delivered  to Seller a
certificate  executed by its Chief Executive  Officer to the effect that each of
the conditions  specified  above in this Section 7.3 are satisfied,  in the form
attached hereto as Schedule 7.3.4.

      7.3.5.  Employment  Agreement.  Buyer and the Chief  Executive  Officer of
Parent shall have executed and delivered an employment agreement.

      7.3.6.  Delivery  of  Documents.  All  actions  to be  taken  by  Buyer in
connection with  consummation of the  transactions  contemplated  hereby and all
certificates,  opinions, instruments, and other documents required to effect the
transactions  contemplated  hereby will be satisfactory in form and substance to
Seller.

      Seller  may  waive  any  condition  specified  in this  Section  7.3 if it
executes a writing so stating at or prior to the Closing.

      8. REMEDIES FOR BREACHES OF THIS AGREEMENT

      8.1 Survival of Representations and Warranties. All of the representations
and  warranties  of the Parties  contained in this  Agreement  and any document,
certificate,  instrument or agreement  contemplated  hereunder shall survive the
Closing hereunder and continue in full force and effect for eighteen (18) months
following  the Closing.  For the  avoidance of doubt,  if a written  notice of a
claim for  indemnification,  shall be delivered  prior to the  expiration of the
term of the  representations and warranties,  then the relevant  representations
and warranties shall survive as to such claim, until such claim shall be finally
resolved.

      8.2  Indemnification  by Seller.  From and after the Closing Date,  Seller
shall indemnify, defend and hold harmless the Buyer and its directors, officers,
agents and  representatives  (the "Buyer Indemnified  Persons") from and against
any and all Losses  which may be incurred  or suffered by any Buyer  Indemnified
Person and which may arise out of or result from the following:

      8.2.1.  Any breach or  inaccuracy  of any  representation  or  warranty of
Seller  contained in this  Agreement,  provided that Buyer's written notice with
respect to any claim is delivered to Seller within the time period  specified in
Section 8.1 and subject to the  provisions  of this Section 8, and any breach of
covenant or agreement of Seller contained in this Agreement;

      8.2.2.  Any  obligations  or liability of Seller with respect to,  arising
from or in connection with the Excluded Assets and the Excluded Liabilities;

      8.2.3.  Any  liability  of Seller  with  respect  to any tax of any nature
whatsoever  attributable  to the  ownership or operations of the Business or the
Purchased Assets prior to the Closing Date;

      8.2.4.  Any liability and/or Losses which may result from any claim by any
shareholder of Seller or Affiliate thereof, regarding the execution, delivery or
performance  of  this  Agreement  or  the   consummation  of  the   transactions
contemplated thereby;

      8.2.5.  Any claim,  suit or  proceeding  filed by any  employee of Seller,
relating to or arising out of the employment of such employee by Seller prior to
the Closing Date,  the  termination  thereof,  and any funds payable to any such
employee in connection with such employment or such termination;


                                       23
<PAGE>

      8.2.6. Any liability to the Chief Scientist with respect to the payment of
royalties or any other funds payable to the Chief  Scientist in connection  with
the running of the Business prior to the Closing Date,  including the payment of
any royalties on account of sale  transactions  performed by Seller, or revenues
received in connection with any such sales, prior to the Closing Date.

Notwithstanding  the foregoing,  Seller shall be required to indemnify the Buyer
Indemnified  Persons  for Losses  covered by Section  8.2.1  above,  only if the
aggregate  amount of Losses for all claims for which  indemnification  is sought
exceeds  one  hundred  thousand  US dollars  (US$  100,000)  but if and when the
aggregate Losses so exceed one hundred thousand US dollars (US$ 100,000), all of
the Losses shall be subject to indemnification.  Anything else in this Agreement
notwithstanding,  with respect to Losses covered by Section  8.2.1,  Buyer shall
not be entitled to recover any Losses  other than up to an  aggregate  amount of
US$ 700,000 (it being  understood  that during the effective  term of the Escrow
Agreement, the Escrow Funds shall be the first to be used in accordance with the
terms of the Escrow Agreement,  and that the balance shall only be claimed after
the depletion  thereof) ; provided,  however,  that (i) there shall be no cap on
Seller's liability for any intentional breach of the  representations  contained
in Section 4 of this Agreement; (ii) with respect to Losses relating to a breach
of section  4.12 (an "IP  Indemnification  Claim"),  Buyer  shall be entitled to
recover an  additional  amount of Losses up to an  aggregate  of US$ 300,000 (it
being  understood  that during the effective term of the Escrow  Agreement,  the
Escrow Funds shall be the first to be used in  accordance  with the terms of the
Escrow Agreement, and that the balance shall only be claimed after the depletion
thereof.  For the avoidance of doubt it is clarified that any IP Indemnification
Claim in an amount up to US$  300,000  shall not  affect  the Buyer  Indemnified
Persons' right to claim additional  indemnification of up to US$ 700,000 for any
Losses  covered by  Section  8.2.1.,  even if such claim has caused the  partial
depletion of the Escrow Funds. If any IP Indemnification  Claim is for more than
US$ 300,000  then the Buyer  Indemnified  Persons  shall have the right to claim
additional  indemnification  up to an aggregate  amount of US$ 1,000,000 for all
Losses covered by Section  8.2.1.  (including  the IP  Indemnification  Claim));
(iii) with respect to any claim made as to Losses not claimed through the Escrow
Agreement  (whether  during  the  effective  term  of the  Escrow  Agreement  or
thereafter),   Seller's  indemnification  liability  shall  be  subject  to  the
commencement of legal  proceedings  against Seller within 90 days of delivery of
written  notice of any such claim.  Buyer's right to recover  Losses  covered by
Sections  8.2.2  through  8.2.6  shall not be limited by any  minimum or maximum
amount  and  (iv)  there  shall  be  no  limitation  whatsoever  (including  any
limitation contained in Section 10.11 below on Buyer's set-off right) on Buyer's
right to  indemnity  in the event of breach of Seller's  covenant  contained  in
Section 2.5.3(e) to reimburse Buyer for any accounts receivable reflected in the
Closing  Balance Sheet and not collected by Buyer within 120 days of the Closing
Date.

      For the  avoidance  of  doubt,  neither  the  period of  survival  nor the
liability of Seller with respect to the Seller's  representations and warranties
shall be reduced by any investigation made at any time by or on behalf of Buyer.

      The Parties  further agree that in the event a  Distribution  shall occur,
Buyer  shall  have the right to  receive  the  indemnification  with  respect to
Seller's  indemnification  obligations  under  Section  8.2 (and  subject to any
limitation  included therein) from each of Seller's  shareholders  receiving any
portion  of the  consideration  paid  by  Buyer  hereunder  (including,  for the
avoidance of doubt, the Initial Consideration (or Reduced Initial Consideration,
as the case may be) and any Additional Contingent  Consideration) as a result of
a  Distribution  (solely  on a pro-rata  basis  based on the  allocation  to the
shareholders in the  Distribution),  and Seller  undertakes to deliver to Buyer,
prior to and as a condition to the performance of any Distribution,  a letter of
indemnity duly executed by each such shareholder, in the form attached hereto as
Schedule 8.2.6.


                                       24
<PAGE>

      8.3  Indemnification  by Buyer.  Provided  Seller's  written  notice  with
respect to any claim is delivered  by Buyer within the time period  specified in
Section 8.1 above and subject to the  provisions  of this Section 8, Buyer shall
indemnify,  defend and hold harmless Seller,  its directors,  officers,  agents,
representatives  and the Seller's  shareholders  in the event of a  Distribution
(the "Seller Indemnified Persons") from and against any Losses arising out of or
due to a breach of any representation,  warranty, covenant or agreement of Buyer
contained in this Agreement.

      Notwithstanding the foregoing, Buyer shall be required to indemnify Seller
only if the aggregate amount of Losses for all claims for which  indemnification
is sought exceeds one hundred thousand US dollars (US$ 100,000), but if and when
the aggregate  Losses so exceed one hundred  thousand US dollars (US$  100,000),
all of the  Losses  shall be  subject to  indemnification  hereunder;  provided,
however,  that any right to  indemnification  pursuant to this Section 8.3 shall
not be subject to any minimum or maximum amount with respect to liabilities  and
obligations  assumed by Buyer  pursuant to Section 2.3,  payment of the Purchase
Consideration  or other payments to be made by Buyer pursuant to this Agreement.
Anything else in this Agreement notwithstanding, Seller shall not be entitled to
recover any Losses in connection with a breach of any representation or warranty
in excess of $3,000,000 less any actual Additional Contingent Consideration made
by Buyer to Seller pursuant to Section 2.5.2.

      For the  avoidance  of  doubt,  neither  the  period of  survival  not the
liability of Buyer with respect to the Buyer's  representations  and  warranties
shall be reduced by any investigation made at any time or on behalf of Seller.

      8.4 Notice to Indemnifying  Party. If any Party (the "Indemnified  Party")
receives  notice of any claim or other  commencement of any action or proceeding
with respect to which any other Party (or parties) (the "Indemnifying Party") is
obligated  to provide  indemnification  pursuant  to  Sections  8.2 or 8.3,  the
Indemnified  Party shall  promptly give the  Indemnifying  Party written  notice
thereof which notice shall specify,  if known,  the amount or an estimate of the
amount of the  liability  arising  therefrom.  Such notice  shall be a condition
precedent  to  any  liability  of the  Indemnifying  Party  for  indemnification
hereunder.  The Indemnified  Party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification  hereunder,  without the
prior written consent of the Indemnifying Party (which shall not be unreasonably
withheld or delayed) unless suit shall have been  instituted  against it and the
Indemnifying  Party shall not have taken control of such suit after notification
thereof as provided in Section  8.5.  Failure by the  Indemnified  Party to give
notice  promptly  will  not  affect  the  indemnification   obligations  of  the
Indemnifying Party except and to the extent the Indemnifying Party is prejudiced
thereby. Notwithstanding the generality of the foregoing and the limitations set
forth in Section 10.11 below,  Buyer shall have the right to settle any claim or
demand   made  by  the  Chief   Scientist   for  which   Buyer  is  entitled  to
indemnification under Section 8.2.6 above, provided that such claim or demand is
not  settled by Seller  within  120 days of  delivery  of notice to Seller  with
respect thereto. In such event, without derogating from any other right of Buyer
hereunder,  Buyer shall have the right to offset any such claim against any sums
of money or other  consideration  which may be due and  payable to Seller or the
Preferred Shareholders.


                                       25
<PAGE>

      8.5 Defense by  Indemnifying  Party.  In connection  with any claim giving
rise to indemnity  hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this  Agreement,  the  Indemnifying
Party at its sole cost and expense may, upon written  notice to the  Indemnified
Party, assume the defense of any such claim or legal proceeding using counsel of
its choice (subject to the approval of the Indemnified Party, which approval may
not be  unreasonably  withheld  or  delayed).  The  Indemnified  Party  shall be
entitled to participate in the defense of any such action,  with its counsel and
at its own expense;  provided,  however,  that if the Indemnified  Party, in its
sole  discretion,  determines that there exists a conflict of interests  between
the  Indemnifying  Party (or any constituent  party thereof) and the Indemnified
Party, the Indemnified  Party (or such constituent party thereof) shall have the
right to engage  separate  counsel,  the reasonable  costs and expenses of which
shall be paid by the Indemnifying  Party, but in no event shall the Indemnifying
Party be liable to pay for the costs and expenses of more than one such separate
counsel. If the Indemnifying Party does not assume the defense of any such claim
or litigation resulting therefrom, the Indemnified Party may defend against such
claim or litigation,  after giving notice of the same to the Indemnifying Party,
on such terms as the  Indemnified  Party may deem  appropriate,  the  reasonable
costs and  expenses of which shall be paid by the  Indemnifying  Party,  and the
Indemnifying  Party  shall be  entitled  to  participate  in the defense of such
action, with its counsel and at its own expense.  Notwithstanding the foregoing,
however, Buyer shall in all cases be entitled to control the defense of any such
action if it (i) may  result  in  injunctions  or other  equitable  remedies  in
respect of Buyer or the Business;  (ii) may result in liabilities  which,  taken
with other  then-existing  claims by Buyer  under  this  Section 8, would not be
fully indemnified hereunder; (iii) may have an adverse impact on the Business or
the financial  condition of Buyer  (including an effect on the Tax  liabilities,
earnings  or ongoing  business  relationships  of Buyer) even if Seller pays all
indemnification  amounts  in full or (iv) may result in the  rescission  of this
agreement.

      8.6 Subrogation.  Upon making any payment to an Indemnified  Party for any
indemnification  claim pursuant to this Section 8, the Indemnifying  Party shall
be  subrogated,  to the  extent  of  such  payment,  to  any  rights  which  the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnification claim.

      8.7 Exclusive  Remedy.  The provisions of this Section 8 shall be the sole
and exclusive  remedy in respect of any breach of a  representation  or warranty
contained herein.

      9. TERMINATION

      9.1  Termination  of Agreement.  Either of the Parties may terminate  this
Agreement  with the prior  authorization  of its board of  directors as provided
below:

      9.2 Mutual  Consent.  The Parties may terminate  this  Agreement by mutual
written consent at any time prior to the Closing.

      9.2.1.  Termination by Buyer. Buyer may terminate this Agreement by giving
written notice to Seller at any time prior to the Closing: (i) in the event that
Seller has breached any representation,  warranty, or covenant contained in this
Agreement in any material  respect,  provided that Buyer has notified  Seller of
the breach,  and the breach has continued  without cure for a period of fourteen
(14) days  after the  notice of breach;  or (ii) if the  Closing  shall not have
occurred on or before ninety (90) days  following the date hereof,  by reason of
the  failure of any  condition  precedent  under  Section 7 hereof  (unless  the
failure results primarily from Buyer breaching any representation,  warranty, or
covenant contained in this Agreement).


                                       26
<PAGE>

      9.2.2.  Termination  By Seller.  Seller may  terminate  this  Agreement by
giving  written  notice to Buyer at any time  prior to the  Closing:  (i) in the
event Buyer has  breached  any material  representation,  warranty,  or covenant
contained in this  Agreement in any material  respect,  provided that Seller has
notified  Buyer of the breach,  and the breach has continued  without cure for a
period of fourteen (14) days after the notice of breach;  or (ii) if the Closing
shall not have occurred on or before ninety (90) days following the date hereof,
by reason of the  failure  of any  condition  precedent  under  Section 7 hereof
(unless the failure results primarily from Seller breaching any  representation,
warranty, or covenant contained in this Agreement).

      9.2.3.  Effect of  Termination.  If any Party  terminates  this  Agreement
pursuant to Section 9.1,  all rights and  obligations  of the Parties  hereunder
shall terminate without any Liability of any Party to the other Party.

      10. MISCELLANEOUS

      10.1 Press  Releases  and Public  Announcements.  No Party shall issue any
press release or make any public announcement  relating to the subject matter of
this Agreement prior to the Closing,  without the prior written  approval of the
other Party; provided,  however that any Party may make any public disclosure it
believes in good faith is required by  applicable  law or any listing or trading
agreement   concerning  its  publicly-traded   securities  (in  which  case  the
disclosing  Party  will use its  reasonable  commercial  efforts  to advise  and
coordinate with the other Party prior to making the disclosure). Notwithstanding
the foregoing, the parties agree to publish the press release attached hereto as
Schedule 10.1, immediately after the execution of this Agreement

      10.2 No  Third-Party  Beneficiaries.  Except as otherwise  provided,  this
Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns.

      10.3 Succession and  Assignment.  This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted  assigns.  No Party may assign either this Agreement or any of its
rights,  interests,  or obligations hereunder without the prior written approval
of the other Party. Notwithstanding the foregoing, Buyer hereby acknowledges and
agrees that Parent may enter  liquidation  following  the Closing Date, in which
case  all of  Seller's  rights  and  obligations  hereunder,  including  without
limitation under Sections 2.5.2,  2.5.4, 6.6.5, 6.8 and 8 shall be automatically
assigned to the  shareholders  who shall have the right to receive any such part
of the distribution of the Parent's assets (the  "Distribution"),  in accordance
with the allocation set forth on Schedule 10.3.

      10.4  Third  Party  Rights.  Subject  to  the  Closing,  in  the  event  a
Distribution was consummated, the provisions of Sections 2.5.2, 2.5.4, 6.8 and 8
are for the benefit of the Preferred  Shareholders  and such provisions shall be
enforceable by such shareholder against the Buyer,  pursuant to Chapter 4 of the
Contract Law (General Part), 1973.

      10.5  Notices.  All  notices,   requests,   demands,   claims,  and  other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other  communication  hereunder  shall be deemed  duly given if it is sent by
registered or certified mail,  return receipt  requested,  postage prepaid,  and
addressed to the intended recipient as set forth below:


                                       27
<PAGE>

            if to Buyer, to:

            MER Telemanagement Solutions Ltd.
            22 Zarhin Street
            Ra'anana 43662
            Israel
            Tel: +972 (0) 9 762-1777
            Fax: +972 (0) 9 746-6597

            Attention: Mr. Eytan Bar

            With a copy to:

            Danziger, Klagsbald, Rosen & Co., Law Offices
            Gibor Sport Building - 24th floor
            28 Bezalel Street
            Ramat Gan 52521
            Israel
            Tel: +972-3-611-0700
            Facsimile: +972-3-611-0707
            Attention: Oren Shenkar, Adv.

            if to Seller, to:

            TeleKnowledge Group Ltd.
            3 Ha'Tidhar St., P.O. Box 2375
            Raanana 43665
            Israel
            Tel: +972-9-7614000
            Fax: +972-9-7418866
            Attention:

            With a copy to:

            Yigal Arnon & Co.
            1 Azrieli Center
            Tel Aviv, Israel 67021
            Facsimile: 972-3-608-7714
            Telephone: 972-3-608-7726
            Attention: David H. Schapiro, Adv.

            Any  notice  sent in  accordance  with this  Section  10.5  shall be
            effective (i) if mailed, seven (7) business days after mailing, (ii)
            if sent by messenger,  upon  delivery,  and (iii) if sent via fax or
            electronic mail, upon  transmission  and electronic  confirmation of
            receipt or (if transmitted and received on a non-business day on the
            first   business   day   following   transmission   and   electronic
            confirmation of receipt).  Any Party may change the address to which
            notices,   requests,   demands,  claims,  and  other  communications
            hereunder  are to be  delivered  by giving the other Party notice in
            the manner herein set forth.


                                       28
<PAGE>

      10.6   Governing   Law.   This   Agreement,    including   the   validity,
interpretation,  or  performance  of  this  Agreement  and any of its  terms  or
provisions,  and the rights and  obligations of the Parties under this Agreement
shall be governed by, and  construed and  interpreted  in and only in accordance
with,  the domestic  laws of the State of Israel  without  giving  effect to any
choice or conflict of law provision or rule that would cause the  application of
the laws of any jurisdiction other than the State of Israel. The competent court
in Tel Aviv-Jaffa will have the sole jurisdiction over any dispute arising under
this Agreement.

      10.7  Amendments  and  Waivers.  No  amendment  of any  provision  of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. No waiver by any Party of any default, misrepresentation,  or breach
of warranty or covenant  hereunder,  whether intentional or not, shall be deemed
to extend to any prior or subsequent  default,  misrepresentation,  or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.

      10.8 Joint and Several Liability.  Each of Parent and the Subsidiary shall
be  liable   jointly  and   severally   with   respect  to  any  breach  of  any
representation, warranty, covenant or agreement contained herein.

      10.9 Severability. Any term or provision of this Agreement that is invalid
or  unenforceable  in any  situation  in any  jurisdiction  shall not affect the
validity or  enforceability  of the remaining terms and provisions hereof or the
validity or  enforceability  of the  offending  term or  provision  in any other
situation or in any other jurisdiction.

      10.10  Expenses.  Each Party  will bear his or its own costs and  expenses
(including  legal fees and expenses)  incurred in connection with this Agreement
and the transactions contemplated hereby.

      10.11 Right of Setoff.  Buyer shall have the right,  to offset  amounts in
respect  of which  Buyer is  entitled  to  indemnification  in  accordance  with
Sections 8.2.2 through 8.2.6 ("Set Off Sums") against any sums of money or other
consideration  which  may  be  due  and  payable  to  Seller  or  the  Preferred
Shareholders  in the event of a  Distribution,  pursuant to the terms  hereof if
Buyer  informs  Seller,  or  the  Preferred  Shareholders  in  the  event  of  a
Distribution,  of its  intention to set-off such amounts and commences a lawsuit
with respect to the subject  matter of the Set Off Sums within  ninety (90) days
of the date of such notice and the amount  which may be Set Off,  subject to the
outcome of such lawsuit,  shall be no more than the amount specifically  claimed
in such lawsuit.

      10.12  Counterparts.  This  Agreement  may be  executed  in  one  or  more
counterparts,  each of  which  shall  be  deemed  an  original  but all of which
together will constitute one and the same instrument.


                                       29
<PAGE>

      10.13 Entire  Agreement.  This  Agreement sets forth and  constitutes  the
entire  agreement  between the Parties hereto with respect to the subject matter
hereof,  and supersedes any and all prior agreements,  understandings,  promises
and representations made by either Party to the other, written,  electronic,  or
oral, concerning the subject matter hereof and the terms applicable hereto.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       30
<PAGE>

IN WITNESS WHEREOF,  the Parties hereto have executed this Agreement on the date
first above written.


MER Telemanagement Solutions Ltd.             Teleknowledge Group Ltd.

By: _______________________________           By: ______________________________

Name:  ____________________________           Name:  ___________________________

Title:    _________________________           Title:    ________________________


Teleknowledge, Inc.

By: _______________________________

Name:  ____________________________

Title:    _________________________

                  [SIGNATURE PAGE OF ASSET PURCHASE AGREEMENT]


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