Exhibit 10.12

                                                                 EXECUTION COPY



                               SECURITY AGREEMENT
                               ------------------

                   SECURITY AGREEMENT, dated as of April 9, 2002 (this
"Agreement") between PC-EPhone, Inc, a Nevada corporation (the "Company"),
PC-EPhone Ltd., a company formed under the laws of Bermuda, PC-EPhone Canada
Enterprises, Inc., a company formed under the laws of British Columbia, Canada,
PC-ESolutions, Inc., a Delaware corporation, (together with PC-EPhone Ltd. and
PC-EPhone Canada Enterprises, Inc., the "Guarantors") and Process Control
(Holdings) Limited, a corporation formed under the laws of the Republic of
Ireland (hereinafter, the "Lender").

                  WHEREAS, the Company and the Guarantors have entered into a
Credit Agreement dated as of April 9, 2002 (as amended and in effect from time
to time, the "Credit Agreement"), with the Lender, pursuant to which the Lender,
subject to the terms and conditions contained therein, is to make loans to the
Company, and the Guarantors are to guarantee the obligations of the Company
thereunder; and

                  WHEREAS, it is a condition precedent to the Lender's making
any loans to the Company under the Credit Agreement that the Company and the
Guarantors execute and deliver to the Lender this Agreement; and

                  WHEREAS, the Company and the Guarantors wish to grant certain
security interests in favor of the Lender as herein provided;

                  NOW, THEREFORE, in consideration of the promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                   1. Definitions. All capitalized terms used herein without
definitions shall have the respective meanings provided therefor in the Credit
Agreement. The term "State", as used herein, means the State of New York. All
terms defined in the Uniform Commercial Code of the State and used herein shall
have the same definitions herein as specified therein. However, if a term is
defined in Article 9 of the Uniform Commercial Code of the State differently
than in another Article of the Uniform Commercial Code of the State, the term
has the meaning specified in Article 9.

                   2. Grant of Security Interest. The Company and the Guarantors
each hereby grant to the Lender, to secure the payment and performance in full
of all of the Obligations, a security interest in and pledges and assigns to the
Lender the following properties, assets and rights of the Company and each
Guarantor respectively, wherever located, whether now owned or hereafter
acquired or arising, and all proceeds and products thereof (all of the same
being hereinafter called the "Collateral"): all personal and fixture property of
every kind and nature including without limitation all goods (including
inventory, equipment and any accessions thereto), instruments (including




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promissory notes), documents, accounts (including health-care-insurance
receivables), chattel paper (whether tangible or electronic), deposit accounts,
letter-of-credit rights (whether or not the letter of credit is evidenced by a
writing), commercial tort claims, securities and all other investment property,
supporting obligations, any other contract rights or rights to the payment of
money, insurance claims and proceeds, and all general intangibles (including all
payment intangibles). The Lender acknowledges that the attachment of its
security interest in any commercial tort claim as original collateral is subject
to the Company's each Guarantor's compliance with ss.4.7.

                   3. Authorization to File Financing Statements. The Company
and the Guarantors each hereby irrevocably authorize the Lender at any time and
from time to time to file in any filing office in any Uniform Commercial Code
jurisdiction, or in any appropriate recording office of any applicable foreign
jurisdiction, any initial financing statements and amendments thereto that (a)
indicate the Collateral (i) as all assets of the Company or each Guarantor,
respectively, or words of similar effect, regardless of whether any particular
asset comprised in the Collateral falls within the scope of Article 9 of the
Uniform Commercial Code of the State or such jurisdiction, or the applicable
laws of such foreign jurisdiction, or (ii) as being of an equal or lesser scope
or with greater detail, and (b) provide any other information required by part 5
of Article 9 of the Uniform Commercial Code of the State or such other
jurisdiction, or the applicable laws of such foreign jurisdiction, for the
sufficiency or filing office acceptance of any financing statement or amendment,
including (i) whether the Company or each Guarantor, respectively, is an
organization, the type of organization and any organizational identification
number issued to the Company or each Guarantor, and, (ii) in the case of a
financing statement filed as a fixture filing or indicating Collateral as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Company and each Guarantor agrees
to furnish any such information to the Lender promptly upon the Lender's
request.

                   4. Other Actions. Further to ensure the attachment,
perfection and first priority of, and the ability of the Lender to enforce, the
Lender's security interest in the Collateral, the Company and the Guarantors
each agree, in each case at the Company's expense, to take the following actions
with respect to the following Collateral and without limitation on the Company's
and each Guarantor's other obligations contained in this Agreement:

                        4.1. Promissory Notes and Tangible Chattel Paper. If the
Company or any Guarantor shall, now or at any time hereafter, hold or acquire
any promissory notes or tangible chattel paper, the Company or such Guarantor,
as applicable, shall forthwith endorse, assign and deliver the same to the
Lender, accompanied by such instruments of transfer or assignment duly executed
in blank as the Lender may from time to time specify.




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                        4.2. Deposit Accounts. For each deposit account that the
Company or any Guarantor, now or at any time hereafter, opens or maintains, the
Company or such Guarantor, as applicable, shall, at the Lender's request and
option, pursuant to an agreement in form and substance satisfactory to the
Lender, either (a) cause the depositary bank to agree to comply, without further
consent of the Company or such Guarantor, at any time with instructions from the
Lender to such depositary bank directing the disposition of funds from time to
time credited to such deposit account, or (b) arrange for the Lender to become
the customer of the depositary bank with respect to the deposit account, with
the Company or such Guarantor, as applicable, being permitted, only with the
consent of the Lender, to exercise rights to withdraw funds from such deposit
account. The provisions of this paragraph shall not apply to (i) any deposit
account for which the Company or such Guarantor, the depositary bank and the
Lender have entered into a cash collateral agreement specially negotiated among
the Company or such Guarantor, the depositary bank and the Lender for the
specific purpose set forth therein, (ii) a deposit account for which the Lender
is the depositary bank and is in automatic control, and (iii) deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of the Company's or such
Guarantor's salaried employees.

                        4.3. Investment Property. If the Company or the
Guarantors shall, now or at any time hereafter, hold or acquire any certificated
securities, at the request of the Lender the Company or such Guarantor shall
forthwith endorse, assign and deliver the same to the Lender, accompanied by
such instruments of transfer or assignment duly executed in blank as the Lender
may from time to time specify. If any securities now or hereafter acquired by
the Company or any Guarantor are uncertificated and are issued to the Company or
such Guarantor or its nominee directly by the issuer thereof, the Company or
such Guarantor, as applicable, shall immediately notify the Lender thereof and,
at the Lender's request and option, pursuant to an agreement in form and
substance satisfactory to the Lender, either (a) cause the issuer to agree to
comply, without further consent of the Company or such Guarantor or such
nominee, at any time with instructions from the Lender as to such securities, or
(b) arrange for the Lender to become the registered owner of the securities. If
any securities, whether certificated or uncertificated, or other investment
property now or hereafter acquired by the Company or any Guarantor are held by
the Company or such Guarantor or either party's nominee through a securities
intermediary or commodity intermediary, the Company or such Guarantor, as
applicable, shall immediately notify the Lender thereof and, at the Lender's
request and option, pursuant to an agreement in form and substance satisfactory
to the Lender, either (i) cause such securities intermediary or (as the case may
be) commodity intermediary to agree to comply, in each case without further
consent of the Company, such Guarantor or such nominee, at any time, with
entitlement orders or other instructions from the Lender to such securities
intermediary as to such securities or other investment property, or (as the case
may be) to apply any value distributed on account of any commodity contract as
directed by the Lender to such commodity intermediary, or (ii) in the case of
financial assets or other investment property held through a securities
intermediary, arrange for the Lender to become the entitlement holder with
respect to such investment property, with the Company or such Guarantor, as
applicable, being permitted, only with the consent of the Lender, to exercise
rights to withdraw or otherwise deal with such investment property.



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                        4.4. Collateral in the Possession of a Bailee. If any
Collateral is, now or at any time hereafter, in the possession of a bailee, the
Company or the relevant Guarantor, as applicable, shall promptly notify the
Lender thereof and, at the Lender's request and option, shall promptly obtain an
acknowledgement from the bailee, in form and substance satisfactory to the
Lender, that the bailee holds such Collateral for the benefit of the Lender or
such Guarantor and such bailee's agreement to comply without further consent of
the Company or such Guarantor, at any time with instructions of the Lender as to
such Collateral.

                        4.5. Electronic Chattel Paper and Transferable Records.
If the Company or any Guarantor, now or at any time hereafter, holds or acquires
an interest in any electronic chattel paper or any "transferable record," as
that term is defined in Section 201 of the federal Electronic Signatures in
Global and National Commerce Act, or in ss.16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction, the Company or such
Guarantor, as applicable, shall promptly notify the Lender thereof and, at the
request and option of the Lender, shall take such action as the Lender may
reasonably request to vest in the Lender control, under ss.9-105 of the Uniform
Commercial Code, of such electronic chattel paper or control under Section 201
of the federal Electronic Signatures in Global and National Commerce Act or, as
the case may be, ss.16 of the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record.

                        4.6. Letter-of-credit Rights. If the Company or any
Guarantor is, now or at any time hereafter, a beneficiary under a letter of
credit now or hereafter, the Company or such Guarantor, as applicable, shall
promptly notify the Lender thereof and, at the request and option of the Lender,
the Company or such Guarantor, as applicable, shall, pursuant to an agreement in
form and substance satisfactory to the Lender, either (a) arrange for the issuer
and any confirmer or other nominated person of such letter of credit to consent
to an assignment to the Lender of the proceeds of the letter of credit or (b)
arrange for the Lender to become the transferee beneficiary of the letter of
credit.

                        4.7. Commercial Tort Claims. If the Company or any
Guarantor shall, now or at any time hereafter, hold or acquire a commercial tort
claim, the Company or such Guarantor, as applicable, shall immediately notify
the Lender in a writing signed by the Company or such Guarantor, as applicable,
of the particulars thereof and grant to the Lender in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to the
Lender.



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                        4.8. Other Actions as to any and all Collateral. The
Company and each Guarantor further agrees, upon request of the Lender and at the
Lender's option, to take any and all other actions as the Lender may determine
to be necessary or useful for the attachment, perfection and first priority of,
and the ability of the Lender to enforce, the Lender's security interest in any
and all of the Collateral, including, without limitation, (a) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the Uniform Commercial Code, to the extent, if any, that
the Company's or any Guarantor's signature thereon is required therefor, (b)
causing the Lender's name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the Lender to enforce, the Lender's
security interest in such Collateral, (c) complying with any provision of any
statute, regulation or treaty of the United States or any applicable foreign
jurisdiction as to any Collateral if compliance with such provision is a
condition to attachment, perfection or priority of, or ability of the Lender to
enforce, the Lender's security interest in such Collateral, (d) obtaining
governmental and other third party waivers, consents and approvals in form and
substance satisfactory to the Lender, including, without limitation, any consent
of any licensor, lessor or other person obligated on Collateral, (e) obtaining
waivers from mortgagees and landlords in form and substance satisfactory to the
Lender and (f) taking all actions under any earlier versions of the Uniform
Commercial Code or under any other law, as reasonably determined by the Lender
to be applicable in any relevant Uniform Commercial Code or other jurisdiction,
including any foreign
jurisdiction.

                   5. Relation to Other Security Documents. The provisions of
this Agreement supplement the provisions of any real estate mortgage or deed of
trust granted by the Company or any Guarantors to the Lender and which secures
the payment or performance of any of the Obligations. Nothing contained in any
such real estate mortgage or deed of trust shall derogate from any of the rights
or remedies of the Lender hereunder. In addition, to the provisions of this
Agreement being so read and construed with any such mortgage or deed of trust,
the provisions of this Agreement shall be read and construed with the other
Security Documents referred to below in the manner so indicated.

                   6. Representations and Warranties Concerning Company's and
Guarantors's Legal Status. The Company and the Guarantors each has previously
delivered to the Lender a certificate signed by the Company or the Guarantors,
as applicable, and entitled "Perfection Certificate" (the "Perfection
Certificate"). The Company and each Guarantor represents and warrants to the
Lender as follows: (a) the Company's each Guarantor's exact legal names are
those indicated on the applicable Perfection Certificate and on the signature
page hereof, (b) the Company and each Guarantor is an organization of the type,
and is organized in the jurisdiction, set forth in the applicable Perfection
Certificate, (c) the Perfection Certificates accurately set forth the Company's
each Guarantor's organizational identification number or accurately states that
the Company or each Guarantor, as applicable, has none, (d) the Perfection
Certificate accurately sets forth the Company's and each Guarantor's respective
places of business or, if more than one, their respective chief executive
offices, as well as their respective mailing addresses, if different, (e) all
other information set forth on the Perfection Certificates pertaining to the
Company or any Guarantor is accurate and complete and (f) there has been no
change in any of such information since the date on which the Perfection
Certificate was signed by the Company or each Guarantor, as applicable.



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                   7. Covenants Concerning Company's Legal Status. The Company
and each Guarantor covenant with the Lender as follows: (a) without providing at
least 30 days prior written notice to the Lender, neither the Company nor any
Guarantor will change its name, its place of business or, if more than one,
chief executive office, or its mailing address or organizational identification
number if it has one, (b) if the Company or any Guarantor does not have an
organizational identification number and later obtains one, the Company or such
Guarantor, as applicable, will forthwith notify the Lender of such
organizational identification number, and (c) neither the Company nor any
Guarantor will change its type of organization, jurisdiction of organization or
other legal structure.

                   8. Representations and Warranties Concerning Collateral, Etc.
The Company and each Guarantor further represent and warrant to the Lender as
follows: (a) the Company and each Guarantor are the owners of or have other
rights in or power to transfer the Collateral, free from any right or claim of
any person or any adverse lien, security interest or other encumbrance, except
for the security interest created by this Agreement and other liens permitted by
the Credit Agreement, (b) none of the Collateral constitutes, or is the proceeds
of, "farm products" as defined in ss.9-102(a)(34) of the Uniform Commercial Code
of the State, (c) none of the account debtors or other persons obligated on any
of the Collateral is a governmental authority covered by the Federal Assignment
of Claims Act or like federal, state or local statute or rule in respect of such
Collateral, (d) neither the Company nor any Guarantor holds any commercial tort
claim except as indicated on the Perfection Certificate, and (e) the Company and
each Guarantor each have at all times operated their respective businesses in
compliance with all applicable provisions of the federal Fair Labor Standards
Act, as amended, and with all applicable provisions of federal, state and local
statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances, (f) all other information set forth on the
Perfection Certificates pertaining to the Collateral is accurate and complete,
and (g) there has been no change in any of such information since the dates on
which the Perfection Certificates were signed by the Company and each Guarantor,
respectively.

                   9. Covenants Concerning Collateral, Etc. The Company and each
Guarantor further covenant with the Lender as follows: (a) the Collateral, to
the extent not delivered to the Lender pursuant to ss.4, will be kept at those
locations listed on the Perfection Certificates and neither the Company nor any
Guarantor will remove the Collateral from such locations, without providing at
least 30 days prior written notice to the Lender, (b) except for the security
interest herein granted and liens permitted by the Credit Agreement, the Company
or a Guarantor shall be the owner of or have other rights in the Collateral free



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from any right or claim of any other person or any lien, security interest or
other encumbrance, and the Company and such Guarantor shall defend the same
against all claims and demands of all persons at any time claiming the same or
any interests therein adverse to the Lender, (c) neither the Company nor any
Guarantor shall pledge, mortgage or create, or suffer to exist any right of any
person in or claim by any person to the Collateral, or any security interest,
lien or other encumbrance in the Collateral in favor of any person, other than
the Lender except for liens permitted by the Credit Agreement, (d) the Company
and each Guarantor will keep the Collateral in good order and repair and will
not use the same in violation of law or any policy of insurance thereon, (e) the
Company and each Guarantor will permit the Lender, or its designee, to inspect
the Collateral at any reasonable time, wherever located, (f) the Company or each
Guarantor will pay promptly when due all taxes, assessments, governmental
charges and levies upon the Collateral or incurred in connection with the use or
operation of the Collateral or incurred in connection with this Agreement, (g)
the Company and each Guarantor each will continue to operate its respective
business in compliance with all applicable provisions of the federal Fair Labor
Standards Act, as amended, and with all applicable provisions of federal, state
and local statutes and ordinances dealing with the control, shipment, storage or
disposal of hazardous materials or substances, and (h) neither the Company nor
any Guarantor will sell or otherwise dispose, or offer to sell or otherwise
dispose, of the Collateral or any interest therein except for sales of inventory
in the ordinary course of business.

                   10. Insurance.

                         10.1. Maintenance of Insurance. The Company and each
Guarantor will obtain, as soon as practicable after the date hereof, with
financially sound and reputable insurers insurance with respect to their
properties and businesses against such casualties and contingencies as shall be
in accordance with general practices of businesses engaged in similar activities
in similar geographic areas. Such insurance shall be in such minimum amounts
that neither the Company nor any Guarantor will be deemed a co-insurer under
applicable insurance laws, regulations and policies and otherwise shall be in
such amounts, contain such terms, be in such forms and be for such periods as
may be reasonably satisfactory to the Lender. In addition, all such insurance
shall be payable to the Lender as loss payee under a "standard" or "New York"
loss payee clause. Without limiting the foregoing, as soon as practicable after
the date hereof, the Company and each Guarantor each will (a) keep all of its
physical property insured with casualty or physical hazard insurance on an "all
risks" basis, with broad form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and an "agreed
amount" clause in an amount equal to 100% of the full replacement cost of such
property, (b) maintain all such workers' compensation or similar insurance as
may be required by law and (c) maintain, in amounts and with deductibles equal
to those generally maintained by businesses engaged in similar activities in
similar geographic areas, general public liability insurance against claims of
bodily injury, death or property damage occurring, on, in or about the
properties of the Company and each Guarantor; business interruption insurance;
and product liability insurance.



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                         10.2. Insurance Proceeds. The proceeds of any casualty
insurance in respect of any casualty loss of any of the Collateral shall,
subject to the rights, if any, of other parties with an interest having priority
in the property covered thereby, (a) so long as no Default or Event of Default
has occurred and is continuing and to the extent that the amount of such
proceeds is less than $10,000 be disbursed to the Company or the relevant
Guarantor, as applicable, for direct application by the Company or such
Guarantor solely to the repair or replacement of the property so damaged or
destroyed and (b) in all other circumstances, be held by the Lender as cash
collateral for the Obligations. The Lender may, at its sole option, disburse
from time to time all or any part of such proceeds so held as cash collateral,
upon such terms and conditions as the Lender may reasonably prescribe, for
direct application by the Company or such Guarantor, as applicable, solely to
the repair or replacement of the property so damaged or destroyed, or the Lender
may apply all or any part of such proceeds to the Obligations.

                         10.3. Continuation of Insurance. All policies of
insurance shall provide for at least 30 days prior written cancellation notice
to the Lender. In the event of failure by the Company or any Guarantor to
provide and maintain insurance as herein provided, the Lender may, at its
option, provide such insurance and charge the amount thereof to the Company or
such Guarantor. The Company and each Guarantor shall furnish the Lender with
certificates of insurance and policies evidencing compliance with the foregoing
insurance provision.

                  11. Collateral Protection Expenses; Preservation of
Collateral.

                         11.1. Expenses Incurred by Lender. In the Lender's
discretion, if the Company or any Guarantor fails to do so, the Lender may
discharge taxes and other encumbrances at any time levied or placed on any of
the Collateral, make repairs thereto and pay any necessary filing fees or
insurance premiums. The Company and each Guarantor agree to reimburse the Lender
on demand for all expenditures so made. The Lender shall have no obligation to
the Company or any Guarantor to make any such expenditures, nor shall the making
thereof be construed as a waiver or cure of any Default or Event of Default.

                         11.2. Lender's Obligations and Duties. Anything herein
to the contrary notwithstanding, the Company or the relevant Guarantor, as
applicable, shall remain obligated and liable under each contract or agreement
comprised in the Collateral to be observed or performed by the Company or such
Guarantor thereunder. The Lender shall not have any obligation or liability
under any such contract or agreement by reason of or arising out of this
Agreement or the receipt by the Lender of any payment relating to any of the
Collateral, nor shall the Lender be obligated in any manner to perform any of
the obligations of the Company or any Guarantor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Lender in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or



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agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Lender or to which the Lender may be entitled at any time or
times. The Lender's sole duty with respect to the custody, safe keeping and
physical preservation of the Collateral in its possession, under ss.9-207 of the
Uniform Commercial Code of the State or otherwise, shall be to deal with such
Collateral in the same manner as the Lender deals with similar property for its
own account.

                         12. Securities and Deposits. The Lender may at any time
following and during the continuance of a Default or Event of Default, at its
option, transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations. Whether or not any Obligations are
due, the Lender may following and during the continuance of a Default and Event
of Default demand, sue for, collect, or make any settlement or compromise which
it deems desirable with respect to the Collateral. Regardless of the adequacy of
Collateral or any other security for the Obligations, any deposits or other sums
at any time credited by or due from the Lender to the Company or any Guarantor
may at any time be applied to or set off against any of the Obligations then due
and owing.

                         13. Notification to Account Debtors and Other Persons
Obligated on Collateral. If a Default or an Event of Default shall have occurred
and be continuing, the Company and each Guarantor shall, at the request and
option of the Lender, notify account debtors and other persons obligated on any
of the Collateral of the security interest of the Lender in any account, chattel
paper, general intangible, instrument or other Collateral and that payment
thereof is to be made directly to the Lender or to any financial institution
designated by the Lender as the Lender's agent therefor, and the Lender may
itself, if a Default or an Event of Default shall have occurred and be
continuing, without notice to or demand upon the Company or any Guarantor, so
notify account debtors and other persons obligated on Collateral. After the
making of such a request or the giving of any such notification, the Company and
each Guarantor shall hold any proceeds of collection of accounts, chattel paper,
general intangibles, instruments and other Collateral received by the Company or
such Guarantor as trustee for the Lender without commingling the same with other
funds of the Company or such Guarantor and shall turn the same over to the
Lender in the identical form received, together with any necessary endorsements
or assignments. The Lender shall apply the proceeds of collection of accounts,
chattel paper, general intangibles, instruments and other Collateral received by
the Lender to the Obligations, such proceeds to be immediately credited after
final payment in cash or other immediately available funds of the items giving
rise to them.

                  14. Power of Attorney.

                         14.1. Appointment and Powers of Lender. The Company and
each Guarantor each hereby irrevocably constitute and appoint the Lender and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorneys-in-fact with full irrevocable power and authority in the place
and stead of the Company and each Guarantor or in the Lender's own name, for the
purpose of carrying out the terms of this Agreement, to take any and all



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appropriate action and to execute any and all documents and instruments that may
be necessary or useful to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives said attorneys the power
and right, on behalf of the Company and each Guarantor, without notice to or
assent by the Company or any Guarantor, to do the following:

                               (a) upon the occurrence and during the
                   continuance of a Default or an Event of Default, generally to
                   sell, transfer, pledge, make any agreement with respect to or
                   otherwise dispose of or deal with any of the Collateral in
                   such manner as is consistent with the Uniform Commercial Code
                   of the State or the laws of any applicable foreign
                   jurisdiction and as fully and completely as though the Lender
                   were the absolute owner thereof for all purposes, and to do,
                   at the Company's and Guarantors' expense, at any time, or
                   from time to time, all acts and things which the Lender deems
                   necessary or useful to protect, preserve or realize upon the
                   Collateral and the Lender's security interest therein, in
                   order to effect the intent of this Agreement, all no less
                   fully and effectively as the Company or any Guarantor might
                   do, including, without limitation, (i) the filing and
                   prosecuting of registration and transfer applications with
                   the appropriate federal, state or local agencies or
                   authorities with respect to trademarks, copyrights and
                   patentable inventions and processes, (ii) upon written notice
                   to the Company or the relevant Guarantor, as applicable, the
                   exercise of voting rights with respect to voting securities,
                   which rights may be exercised, if the Lender so elects, with
                   a view to causing the liquidation of assets of the issuer of
                   any such securities and (iii) the execution, delivery and
                   recording, in connection with any sale or other disposition
                   of any Collateral, of the endorsements, assignments or other
                   instruments of conveyance or transfer with respect to such
                   Collateral; and

                               (b) to the extent that the Company's and
                   Guarantors' authorization given in ss.3 is not sufficient, to
                   file such financing statements with respect hereto, with or
                   without the Company's or any Guarantor's signature, or a
                   photocopy of this Agreement in substitution for a financing
                   statement, as the Lender may deem appropriate and to execute
                   in the Company's and the Guarantors' names such financing
                   statements and amendments thereto and continuation statements
                   which may require the Company's or any Guarantor's signature.

                         14.2. Ratification by Company and Guarantors. To the
extent permitted by law, the Company and each Guarantor each hereby ratify all
that said attorneys shall lawfully do or cause to be done by virtue hereof. This
power of attorney is a power coupled with an interest and is irrevocable.



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                         14.3. No Duty on Lender. The powers conferred on the
Lender hereunder are solely to protect its interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Lender shall be
accountable only for the amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Company or any Guarantor for any
act or failure to act, except for the Lender's own gross negligence or willful
misconduct.

                   15. Rights and Remedies. If an Event of Default shall have
occurred and be continuing, the Lender, without any other notice to or demand
upon the Company or any Guarantor, shall have in any jurisdiction in which
enforcement hereof is sought, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial Code of the
State and any additional rights and remedies as may be provided to a secured
party in any jurisdiction in which Collateral is located, including, without
limitation, the right to take possession of the Collateral, and for that purpose
the Lender may, so far as the Company or any Guarantor can give authority
therefor, enter upon any premises on which the Collateral may be situated and
remove the same therefrom. The Lender may in its discretion require the Company
or the relevant Guarantor, as applicable, to assemble all or any part of the
Collateral at such location or locations within the jurisdiction(s) of the
Company's or such Guarantor's principal office(s) or at such other locations as
the Lender may reasonably designate. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Lender shall give to the Company or the relevant
Guarantor, as applicable, at least five (5) Business Days prior written notice
of the time and place of any public sale of Collateral or of the time after
which any private sale or any other intended disposition is to be made. The
Company and each Guarantor hereby acknowledge that five (5) Business Days prior
written notice of such sale or sales shall be reasonable notice. In addition,
the Company and each Guarantor each waive any and all rights that it may have to
a judicial hearing in advance of the enforcement of any of the Lender's rights
and remedies hereunder, including, without limitation, its right following an
Event of Default to take immediate possession of the Collateral and to exercise
its rights and remedies with respect thereto.

                   16. Standards for Exercising Rights and Remedies. To the
extent that applicable law imposes duties on the Lender to exercise remedies in
a commercially reasonable manner, the Company and each Guarantor each
acknowledges and agrees that it is not commercially unreasonable for the Lender
(a) to fail to incur expenses reasonably deemed significant by the Lender to
prepare Collateral for disposition or otherwise to fail to complete raw material
or work in process into finished goods or other finished products for
disposition, (b) to fail to obtain third party consents for access to Collateral
to be disposed of, or to obtain or, if not required by other law, to fail to
obtain governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or to
fail to remove liens or encumbrances on or any adverse claims against


                                       11
<PAGE>


Collateral, (d) to exercise collection remedies against account debtors and
other persons obligated on Collateral directly or through the use of collection
agencies and other collection specialists, (e) to advertise dispositions of
Collateral through publications or media of general circulation, whether or not
the Collateral is of a specialized nature, (f) to contact other persons, whether
or not in the same business as the Company or any Guarantor, for expressions of
interest in acquiring all or any portion of the Collateral, (g) to hire one or
more professional auctioneers to assist in the disposition of Collateral,
whether or not the collateral is of a specialized nature, (h) to dispose of
Collateral by utilizing Internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capability of
doing so, or that match buyers and sellers of assets, (i) to dispose of assets
in wholesale rather than retail markets, (j) to disclaim disposition warranties,
(k) to purchase insurance or credit enhancements to insure the Lender against
risks of loss, collection or disposition of Collateral or to provide to the
Lender a guaranteed return from the collection or disposition of Collateral, or
(l) to the extent deemed appropriate by the Lender, to obtain the services of
brokers, investment bankers, consultants and other professionals to assist the
Lender in the collection or disposition of any of the Collateral. The Company
and each Guarantor acknowledge that the purpose of this ss.16 is to provide
non-exhaustive indications of what actions or omissions by the Lender would
fulfill the Lender's duties under the Uniform Commercial Code of the State or
the applicable laws of any other relevant jurisdiction in the Lender's exercise
of remedies against the Collateral and that other actions or omissions by the
Lender shall not be deemed to fail to fulfill such duties solely on account of
not being indicated in this ss.16. Without limitation upon the foregoing,
nothing contained in this ss.16 shall be construed to grant any rights to the
Company or any Guarantor or to impose any duties on the Lender that would not
have been granted or imposed by this Agreement or by applicable law in the
absence of this ss.16.

                   17. No Waiver by Lender, etc. The Lender shall not be deemed
to have waived any of its rights and remedies in respect of the Obligations or
the Collateral unless such waiver shall be in writing and signed by the Lender.
No delay or omission on the part of the Lender in exercising any right or remedy
shall operate as a waiver of such right or remedy or any other right or remedy.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion. All rights and remedies of the Lender
with respect to the Obligations or the Collateral, whether evidenced hereby or
by any other instrument or papers, shall be cumulative and may be exercised
singularly, alternatively, successively or concurrently at such time or at such
times as the Lender deems expedient.

                   18. Suretyship Waivers by Company and Guarantors. The Company
and each Guarantor waives demand, notice, protest, notice of acceptance of this
Agreement, notice of loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect to both the Obligations and the
Collateral, the Company and each Guarantor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the



                                       12
<PAGE>



settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Lender may deem advisable. The Lender shall have no
duty as to the collection or protection of the Collateral or any income
therefrom, the preservation of rights against prior parties, or the preservation
of any rights pertaining thereto beyond the safe custody thereof as set forth in
ss.11.2. The Company and each Guarantor further waive any and all other
suretyship defenses.

                   19. Marshalling. The Lender shall not be required to marshal
any present or future collateral security (including but not limited to the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order, and all of its rights and remedies hereunder and in
respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights and remedies, however existing or
arising. To the extent that it lawfully may, the Company and each Guarantor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the Lender's
rights and remedies under this Agreement or under any other instrument creating
or evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, the Company and each
Guarantor hereby irrevocably waives the benefits of all such laws.

                   20. Proceeds of Dispositions; Expenses. The Company and each
Guarantor shall pay to the Lender on demand any and all expenses, including
reasonable attorneys' fees and disbursements, incurred or paid by the Lender in
protecting, preserving or enforcing the Lender's rights and remedies under or in
respect of any of the Obligations or any of the Collateral. After deducting all
of said expenses, the residue of any proceeds of collection or sale or other
disposition of Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as the
Lender may determine, proper allowance and provision being made for any
Obligations not then due, if any. Upon the final payment and satisfaction in
full of all of the Obligations and after making any payments required by
Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the
State, any excess shall be returned to the Company. In the absence of final
payment and satisfaction in full of all of the Obligations, the Company and each
Guarantor shall remain liable for any deficiency.

                   21. Overdue Amounts. Until paid, all amounts due and payable
by the Company or any Guarantor hereunder shall be a debt secured by the
Collateral and shall bear, whether before or after judgment, interest at the
rate of interest for overdue principal set forth in the Credit Agreement.



                                       13
<PAGE>


                   22. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE. The Company and each
Guarantor agrees that any action or claim arising out of any dispute in
connection with this Agreement, any rights or obligations hereunder or the
performance or enforcement of such rights or obligations may be brought in the
courts of the State or any federal court sitting therein and consents to the
non-exclusive jurisdiction of such court. The Company and each Guarantor hereby
waives any objection that it may now or hereafter have to the venue of any such
suit or any such court or that such suit is brought in an inconvenient court.

                   23. Waiver of Jury Trial. THE COMPANY AND EACH GUARANTOR
WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT
OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THE PERFORMANCE OR ENFORCEMENT OF ANY SUCH RIGHTS OR OBLIGATIONS.
Except as prohibited by law, the Company and each Guarantor waive any right
which it may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages. The Company and each
Guarantor (a) certify that neither the Lender nor any representative, agent or
attorney of the Lender has represented, expressly or otherwise, that the Lender
would not, in the event of litigation, seek to enforce the foregoing waivers or
other waivers contained in this Agreement and (b) acknowledge that, in entering
into the Credit Agreement and the other Loan Documents to which the Lender is a
party, the Lender is relying upon, among other things, the waivers and
certifications contained in this ss.23.

                   24. Miscellaneous. The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof. This Agreement and all rights and obligations hereunder shall be
binding upon the Company, each Guarantor and their respective successors and
assigns, and shall inure to the benefit of the Lender and its successors and
assigns. If any term of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Agreement shall be construed and be enforceable as if
such invalid, illegal or unenforceable term had not been included herein. The
Company and each Guarantor acknowledge receipt of a copy of this Agreement.

                   25. Additional Guarantors. Upon the execution and delivery by
any other Person of a supplement in the form of Annex 1 hereto, such Person
shall become a "Guarantor" hereunder with the same force and effect as if it
were originally a party to this Agreement and named as a Guarantor hereunder.
The execution and delivery of such supplement shall not require the consent of
any other Guarantor hereunder, and the rights and obligations of each Guarantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Guarantor as a party to this Agreement.



                                       14
<PAGE>



                  IN WITNESS WHEREOF, intending to be legally bound, the Company
and the Guarantors have caused this Agreement to be duly executed as of the date
first above written.

                                  PC-EPHONE, INC.

                                  By:      /s/ David Meltzer
                                           -----------------------------------
                                            Name: David Meltzer
                                            Title: CEO, President Director



                                  PC-EPHONE LTD.

                                  By:      /s/ David Meltzer
                                           -----------------------------------
                                            Name: David Meltzer
                                            Title: Vice President, Secretary

                                  PC-EPHONE CANADA ENTERPRISES, INC.

                                  By:      /s / Douglas Yee
                                           -----------------------------------
                                            Name: Douglas Yee
                                            Title: President

                                  PC-ESOLUTIONS, INC.

                                  By:      /s/ David Meltzer
                                           -----------------------------------
                                            Name: David Meltzer
                                            Title: President, Secretary,
                                                   Treasurer & Director


Accepted:

PROCESS CONTROL (HOLDINGS) LIMITED

By: /s/ Brian Flynn
    --------------------------------
     Name: Brian Flynn
     Title: Director




                                       15
<PAGE>





CERTIFICATE OF ACKNOWLEDGMENT

COMMONWEALTH OR STATE OF        California



COUNTY OF          San Diego

Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this 28th day of March, 2002, personally appeared David Meltzer to me known
personally, and who, being by me duly sworn, deposes and says that [s]he is the
President of PC-EPhone, Inc., and that said instrument was signed and sealed on
behalf of said corporation by authority of its Board of Directors, and said he
acknowledged said instrument to be the free act and deed of said corporation.


/s/ Steven N. Maxwell
------------------------------
 Steven N. Maxwell

Notary Public

My commission expires: 10/17/05
                      ---------



                                       16
<PAGE>



CERTIFICATE OF ACKNOWLEDGMENT

COMMONWEALTH OR STATE OF        California


COUNTY OF       San Diego

Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this 4th day of April, 2002, personally appeared David Meltzer to me known
personally, and who, being by me duly sworn, deposes and says that [s]he is the
Vice President of PC-EPhone, Ltd., and that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors, and
said he acknowledged said instrument to be the free act and deed of said
corporation.


/s/ Steven N. Maxwell
------------------------------
 Steven N. Maxwell

Notary Public:

My commission expires: 10/17/05
                      ---------





                                       17
<PAGE>



CERTIFICATE OF ACKNOWLEDGMENT

PROVINCE OF BRITISH COLUMBIA

                                                                 )  ss.

COUNTY OF                  )

Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this 3rd day of April, 2002, personally appeared Douglas Yee to me known
personally, and who, being by me duly sworn, deposes and says that [s]he is the
President of PC-EPhone Canada Enterprises, Inc., and that said instrument was
signed and sealed on behalf of said corporation by authority of its Board of
Directors, and said Douglas Yee acknowledged said instrument to be the free act
and deed of said corporation.


/s/ Stephen F.X. O'Neill
------------------------------
Stephen F.X. O'Neill

Notary Public

My commission does not expire





                                       18
<PAGE>



CERTIFICATE OF ACKNOWLEDGMENT

COMMONWEALTH OR STATE OF        California

                                                                 )  ss.

COUNTY OF       San Diego

Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this 28th day of March, 2002, personally appeared David Meltzer to me known
personally, and who, being by me duly sworn, deposes and says that [s]he is the
President of PC-ESolutions, Inc., and that said instrument was signed and sealed
on behalf of said corporation by authority of its Board of Directors, and said
he acknowledged said instrument to be the free act and deed of said corporation.


/s/ Stephen N. Maxwell
------------------------------
Stephen N. Maxwell

Notary Public

My commission expires: 10/17/05
                      ---------





                                       19
<PAGE>








                                                                        ANNEX I
                                                          to Security Agreement


                  This SUPPLEMENT, dated as of ________ __, ____ (this
"Supplement"), is to the Security Agreement, dated as of April 9, 2002 (as
amended, supplemented, amended and restated or otherwise modified from time to
time, the "Security Agreement"), among each Guarantor (such capitalized term,
and other terms used in this Supplement, to have the meanings set forth in the
preamble and Section 1 of the Security Agreement) from time to time party
thereto, in favor of Process Control (Holdings) Limited, as Lender.

                              W I T N E S S E T H:
                              --------------------

                  WHEREAS, pursuant to the provisions of Section 25 of the
Security Agreement, each of the undersigned is becoming a Guarantor under the
Security Agreement; and

                  WHEREAS, each of the undersigned desires to grant the security
interests under the Security Agreement in order to induce the Lenders to
continue to extend the Loans and issue the Letters of Credit under the Credit
Agreement;

                  NOW, THEREFORE, in consideration of the premises, and for
other consideration (the receipt and sufficiency of which is hereby
acknowledged), each of the undersigned agrees, for the benefit of the Lender, as
follows:


         Party to Security Agreement, etc. In accordance with the terms of the
Security Agreement, by its signature below each of the undersigned hereby
irrevocably agrees to become a Guarantor under the Security Agreement with the
same force and effect as if it were an original signatory thereto and each of
the undersigned hereby (a) agrees to be bound by and comply with all of the
terms and provisions of the Security Agreement applicable to it as a Guarantor
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct in all material respects as of
the date hereof. In furtherance of the foregoing, each reference to the term
"Guarantors" in the Security Agreement shall be deemed to include each of the
undersigned.

         Representations. Each of the undersigned hereby represents and warrants
that this Supplement has been duly authorized, executed and delivered by it and
that this Supplement and the Security Agreement constitute the legal, valid and
binding obligation of each of the undersigned, enforceable against it in
accordance with its terms.

         Full Force of Security Agreement. Except as expressly supplemented
hereby, the Security Agreement shall remain in full force and effect in
accordance with its terms.


                                       20

<PAGE>


         Severability. Wherever possible each provision of this Supplement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Supplement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Supplement or the Security Agreement.

         Indemnity; Fees and Expense, etc. Without limiting the provisions of
any other Loan Document, each of the undersigned agrees to reimburse the Lender
for its reasonable out-of-pocket expenses incurred in connection with this
Supplement, including reasonable attorney's fees and expenses of the Lender's
counsel.

         Governing Law, Entire Agreement, etc. THIS SUPPLEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. This
Supplement and the other Loan Documents constitute the entire understanding
among the parties hereto with respect to the subject matter thereof and
supersede any prior agreements, written or oral, with respect thereto.

         Counterparts. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.


                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Supplement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.

                                            [NAME OF ADDITIONAL GUARANTOR]


                                            By:
                                               ----------------------------
                                         Title:
                                               ----------------------------

ACCEPTED AND AGREED:



Process Control (Holdings) Limited, as
Lender


By:
      ----------------------------------
Title:
      ----------------------------------