Document:

Exhibit 10.01

                           MEDICAL CAPITAL CORPORATION
                            MASTER SERVICE AGREEMENT

     THIS MASTER  SERVICE  AGREEMENT,  including  the  Exhibits  and  Appendices
attached  hereto   ("Agreement"),   is  entered  into  among:   MEDICAL  CAPITAL
CORPORATION  ("Company"),  and  MEDICAL  TRACKING  SERVICES,  INC.  ("Servicer")
effective _____________.

                              STATEMENT OF PURPOSE

     The Company desires to engage Servicer to provide certain  services related
to the processing and servicing  Healthcare and other types of Business Accounts
Receivable,  pursuant to the First Amended Note Issuance and Security  Agreement
between Company and Zions First National Bank ("Trustee").

                                   ARTICLE I

                                    AGREEMENT

     In consideration of the mutual covenants set forth below and other good and
valuable   consideration,   the  receipt  and   adequacy  of  which  are  hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:

                                   ARTICLE II

                                      SCOPE

     SECTION 2.01. MASTER SERVICE AGREEMENT. This Agreement outlines the overall
responsibilities  and  relationships  between the  Company  and the  Servicer as
regards the acquisition by Company of accounts  receivables and the provision of
specific  functions  and services by Servicer as outlined in detail under one of
the following Component Agreements, as may be entered into from time to time.

     SECTION  2.02.   ADMINISTRATIVE  SERVICES  AGREEMENT.   Agreement  covering
determination   of  the  Expected  Net  Receivable,   reporting  of  anticipated
reimbursement  and  issuance  of  checks on new work  referred  to  Servicer  by
Company.

                                  ARTICLE III

                                   DEFINITIONS

     SECTION 3.01. GENERAL.  Except as otherwise specified or as the context may
otherwise  require,  the following terms have the respective  meanings set forth
below for all purposes of this Agreement,  and the definitions of such terms are
equally applicable to all genders of such terms.

     "Affiliate of Any Specified Person" means any person directly or indirectly
controlling  or  controlled by or under direct or indirect  common  control with
such  specified  person.  Control means the power to direct the  management  and
policies of such person.
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     "Agreement"  means this Master Service  Agreement  dated as of ________ __,
2003,  between the Company and Servicer,  as amended,  supplemented or otherwise
modified from time to time.

     "Asset"  shall have the  meaning  set forth in Section  3.01(b) of the Note
Issuance and Security Agreement.

     "Batch" means a group of Receivables purchased by the Company from a single
Client on a particular date.

     "Business" means any for-profit or not-for-profit commercial organization.

     "Business  Account Client" means a Business which is acceptable to Servicer
and which has entered into a Purchase Agreement.

     "Business Account Obligor" means any payor or obligor which in the ordinary
course  of its  business  or  activities  agrees to pay for  business  goods and
services received by a Business or individuals.

     "Business Account Receivables" means, with respect to each Business Account
Client,  the business  accounts  existing or hereafter created on the records of
such Business  Accounts  Client,  any and all rights to receive  payments due on
such  accounts  from any Business  Account  Obligor  under or in respect of such
account and all proceeds in any way  derived,  whether  directly or  indirectly,
from any of the foregoing.

     "Business Day" means each Monday, Tuesday,  Wednesday,  Thursday and Friday
which is a day on which banking institutions in the city of Reno, Nevada, or the
city where the corporate trust office or the corporate trust  operations  office
for the Trustee are located and are  authorized or obligated by law or executive
order to close.

     "Cash   Percentage"  or  "Advance  Rate"  means  a  designated   percentage
established  for a Client in the Purchase  Agreement  or other  agreement by and
between the Company and its Client(s)  which  percentage  shall be identified by
the Company to Servicer for each such Client(s).

     "Cash  Portion" or "Cash  Advance"  with respect to a Receivable  means the
Cash  Percentage  multiplied by the Expected Net Receivable with respect to each
such Receivable.

     "Client" means either a Health Care Client or a Business Account Client.

     "Collateral"  has the meaning set forth in the Note  Issuance  and Security
Agreement.

     "Compensable  Receivables"  means all Receivables  purchased by the Company
and  submitted by the Company to the  Servicer for  servicing or as described in
the  Purchase  Agreement  as Eligible  Receivables  (as defined in the  Purchase
Agreement).  However,  with respect to a skilled  nursing  facility or a nursing
home, room and board charges for each patient during any calendar month shall be
deemed to be a single Compensable  Receivable  notwithstanding  purchases by the
Company  of such  Healthcare  Receivables  on a weekly  basis  during a calendar
month.

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     "Component  Agreements" means the Administrative  Services Agreement by and
between Medical Capital Corporation and the Company.

     "Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.

     "Effective  Date"  means  the  date  of  execution  and  delivery  of  this
Agreement.

     "Event of Default" by Servicer has the meaning specified in Section 7.01.

     "Event of Default" by the  Company  has the  meaning  specified  in Section
7.02.

     "Expected  Net  Receivable  (ENR)" with respect to a  Receivable,  means an
amount for such Receivable which shall be calculated by Servicer by: multiplying
the Advance Rate determined by the Company,  or its  Administrator or authorized
agent(s), by the gross amount of such Receivable.

     "Federal  and/or  State  Client  Identification  Number"  means the Federal
Employer  Identification  Number as issued to the Client by the Internal Revenue
Service and/or the Client's  corresponding  Medicare or Medicaid  identification
number and/or the Client's state issued vendor or payee identification number.

     "Government Entity" means the United States of America,  any state, and any
agency or  instrumentality of the United States of America or any state which is
obligated to make any payment with respect to  Medicare,  CHAMPUS,  Medicaid,  a
State Health Title Program and any other type of Receivable representing amounts
owing under any program  established by federal or state law,  including CHAMPUS
as set forth in Title 10,  U.S.C.  Section  1071 et.  seq.,  and the program set
forth in Title 3, I.S.C Section 1713.

     "Health Care Client" means a hospital, medical practitioner,  nursing home,
professional service corporation,  clinic,  medical group or any other client of
healthcare  goods or  services,  each of  which is  acceptable  to  Servicer  as
identified by a Federal and/or State Client Identification Number, or a separate
geographic location and which has entered into a Purchase Agreement.

     "Healthcare  Receivables"  means,  with respect to each Health Care Client,
the patient accounts existing or hereafter created on the records of such Health
Care Client,  any and all rights to receive  payments due on such  accounts from
any Healthcare Insurer or Healthcare Obligor under or in respect of such account
and all proceeds in any way derived, whether directly or indirectly, from any of
the foregoing.

     "Healthcare  Insurer" or  "Healthcare  Obligor"  means any payor or obligor
which in the  ordinary  course of its business or  activities  agrees to pay for
healthcare  goods and services  received by individuals,  including a commercial
insurance company, a nonprofit insurance company (such as Blue Cross/Blue Shield
entity),  an employer or union which  self-insures for employee or member health
insurance and a health  maintenance  organization  approved by the Company other
than a  Governmental  Entity  which is  responsible  for  payment  of all or any

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portion of a Healthcare Receivable.  An Insurer includes any insurance companies
issuing  health,  personal  injury,  workmen's  compensation  or other  types of
insurance, but does not include any individual guarantors or obligors.

     "Lockbox  Account" means a lockbox  account  established by pursuant to the
Note Issuance and Security  Agreement between the Company,  the Trustee,  or the
Servicer on behalf of the Company,  for the collection of Receivables  purchased
by the Company.

     "Medicare  and  Medicaid   Receivables"   means  a  Healthcare   Receivable
representing  a claim  against a  Governmental  Entity  pursuant to the Medicare
program (as set forth in Title 42 U.S.C.  Section 1395 et. seq.) or the Medicaid
Program (as set forth in Title 42 U.S.C. Section 1396 et. seq.).

     "Note Issuance and Security Agreement" means the Note Issuance and Security
Agreement  dated as of  ________  __,  2003 by and between the Company and Zions
First National Bank, as Trustee, as amended from time to time.

     "Obligor"  includes  either a  Healthcare  Obligor  or a  Business  Account
Obligor.

     "Officer"  means,  with  respect to any entity,  the Chairman of the Board,
President,  or a Vice  President,  the Treasurer,  an Assistant  Treasurer,  the
Secretary or an Assistant Secretary of the applicable corporation.

     "Officer's  Certificate" means a certificate that has been signed on behalf
of the Servicer by an individual  who is identified  in that  certificate  as an
Officer of the Servicer.

     "Participation  Interest" with respect to a Receivable,  means a percentage
which  will be  identified  by the  Company  to  Servicer  with  respect to such
Receivable  purchased by the Company or its designee  which  percentage  will be
used pursuant to the Purchase  Agreement to determine the amount  collected with
respect to such  Receivables  in excess of the Sharing  Breakpoint to be paid to
the Client.

     "Person" means any  individual,  corporation,  partnership,  joint venture,
association,   joint  stock   company,   trust,   limited   liability   company,
unincorporated organization or government or any agency or political subdivision
thereof.

     "Purchase  Agreement" means the agreement  between the Company and a Client
pursuant  to which  the  Client  agrees  to sell  the  Company  its  Receivables
substantially in the form set forth in Exhibit A hereto.

     "Purchased  Account File" means, with respect to each Receivable  purchased
by the Company,  the related  billing and invoicing  forms,  patient  consent to
payment and all other medical documents and  authorizations  necessary to obtain
payment from any Obligor.

     "Receivable"   means  any   Healthcare   Receivable  or  Business   Account
Receivable.

     "Repurchase Price" with respect to an Unacceptable Account, means an amount
equal to (a) the  Sharing  Breakpoint  for such  Unacceptable  Account  plus (b)
interest  equal to 18% per annum or such lesser rate  identified  to Servicer by

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the Company on such  difference  from and including the date that payment of the
Repurchase Price is demanded to the date the Repurchase Price is paid.

     "Sharing Breakpoint" with respect to a Receivable, means an amount equal to
the Expected Net Receivable for such  Receivable,  multiplied by a fraction (the
numerator of which is the Cash  Percentage  and the  denominator of which is the
Participation  Interest);  provided,  however,  that  after a Client  has ceased
selling  Receivables  to  the  Company  or the  Company  has  ceased  purchasing
Receivables  from a Client,  the Company shall combine all Receivables for which
there has been no final  settlement,  and  treat  such  Receivables  as a single
Receivable,  at which time the Sharing Breakpoint will become the total Expected
Net Receivable of all previously unpaid  Receivables of such Client,  multiplied
by a fraction (the numerator of which is the Cash Percentage and the denominator
of which is the weighted average of the  Participation  Interest for all of such
combined  Receivables of such Client).  The Company shall give Servicer  written
notice  indicating  when the above provision is to be used in the preparation of
reports by Servicer.

     "State Health Title Program" means any Medicare or other state-administered
or state-funded program that provides health care services.

     "Trustee"  means the  designated  entity  acting as trustee  under the Note
Issuance  and  Security  Agreement  pursuant to which the Company is  purchasing
Receivables.

     "Unacceptable  Account"  means a  Receivable  purchased  by the Company for
which there has been an uncured  breach of a  representation  or warranty by the
client pursuant to the terms of the Purchase Agreement and a Receivable which is
not  included  in any of the  collateral  coverage  ratios set forth in the Note
Issuance and Security Agreement.

                                   ARTICLE IV

   SERVICES PROVIDED BY SERVICER RELATED TO: PURCHASE OF HEALTHCARE AND OTHER
 TYPES OF BUSINESS ACCOUNTS RECEIVABLE AND SERVICING, TRACKING AND REPORTING ON
                           OTHER FORMS OF COLLATERAL

     SECTION 4.01.  OBTAINING  HEALTHCARE  AND OTHER TYPES OF BUSINESS  ACCOUNTS
RECEIVABLE  DATA RECORDS.  The Company or its designee will instruct each Client
to furnish  Servicer with all information and data relating to each  Compensable
Receivable  which is  necessary  for the  Servicer  to  perform  its  duties  as
described in the relevant Exhibits attached to this Agreement for each Component
Agreement.  In the event  the  information  or data  provided  by the  Client to
Servicer  requires  clarification,  Servicer will communicate  directly with the
Client to obtain such clarification.

     SECTION 4.02. REPORTING ON RECEIVABLES.  In addition to the information set
forth and described in the relevant Exhibit for each Component  Agreement to the
extent required (a) for the  preparation of the required  reports (to the extent
that  such  information  is  different  from  prior  information   submitted  to
Servicer);  (b) for Servicer to identify the Client and its  receivables  and to
set it up on its systems;  and (c) for Servicer to identify the parameters  that
the Company utilizes for entering into  transactions  with such Client,  Company
will assure the required  information is timely  supplied to Servicer by Company
or Client.

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     SECTION  4.03.  POSSESSION  OF  RECEIVABLE   DOCUMENTS.   Unless  otherwise
specified herein,  for two years from the resolution of the claim represented by
the respective  Compensable Receivable for which Servicer has provided servicing
or billing services, servicer shall maintain, for the benefit of the Company and
the Trustee on behalf of the trust  created under the Note Issuance and Security
Agreement,  physical  possession  of good and legible  copies  (which copies may
consist of or electronic  media) of the  Purchased  Account File with respect to
each Compensable  Receivable purchased by the Company,  together with such other
instruments or documents  that modify or supplement  the Purchased  Account File
and all  other  instruments  and  documents  generated  by or  coming  into  the
possession of Servicer that are required to document or service such Receivable;
including,  but not limited to,  insurance  claim files,  ledger showing payment
records,  the  premium  receipts,  correspondence  and  current  and  historical
computerized  data files,  whether developed or originated by Servicer or others
who have delivered such items to Servicer.  No earlier than the end of 24 months
from the date on which the  respective  Compensable  Receivable was purchased by
the Company, Servicer will notify the Company of the proposed destruction of the
foregoing documents and electronic media and, if requested by the Company within
10  days  of the  Company's  receipt  of such  notification,  transfer  physical
possession of the foregoing documents and electronic media to the Company or the
applicable  Client.  Any such transfer  shall be at the  Company's  cost. If the
Company does not request such transfer within such 10-day periods,  Servicer may
destroy  such  documents  and  electronic  media.  Prior  to  destruction,  each
Purchased  Account File shall remain the property of the Company  regardless  of
whether Servicer or the Company has physical possession.

     SECTION 4.04. DATA PROCESSING OF INFORMATION  SUPPLIED  PURSUANT TO SECTION
4.01 AND SECTION 4.02. Servicer shall enter into the applicable tracking system,
either by electronic data  interchange or manually the accounts  receivable data
necessary  to  adequately  and  properly  service,  monitor  and  report  on the
receivables  delivered to Servicer pursuant to Section 4.01 above. Servicer will
make every effort to maintain  data in a manner that  complies  with all federal
and state requirements regarding maintaining the confidentiality of the contents
of the receivables files.

     SECTION 4.05.  IMPLEMENTATION OF PROCEDURES AT CLIENT'S LOCATION.  Company,
or its assigns, assisted by Servicer, shall use reasonable efforts and resources
to cause  Clients to implement  appropriate  procedures  and  processes in their
offices  for the  purpose of  maintaining  adequate  records  of the  collateral
pledged to the Company.  The Company will also make reasonable  demands to cause
the Clients to exercise due care and  custodianship  of the  collateral so as to
ensure it is adequately insured and that adequate safekeeping measures are taken
to preserve its value.

     SECTION 4.06.  SERVICER'S FEES. Servicer shall be compensated for providing
a variety of services in the method outlined below:

          (a) Servicer is to be paid a fee of $1,500 (one thousand five hundred)
     per new client for  establishing  a new  claims  management  account in its
     claims management computer system.

          (b) Servicer is to be paid a fee of $1,500 (one thousand five hundred)
     per new client for establishing a new electronic data interface between the
     new client's billing system and the tracking system of Servicer.

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          (c)  Servicer  is to be paid a fee of $2.00  per  claim  posted on its
     tracking system. This posting process includes the entering on the tracking
     system of the billing  charges and also entering on the tracking system the
     payments  received from the various payors.  This charge is the same if the
     entries are facilitated  manually, or by electronic data interface posting.
     This charge also applies if the client  provides the Servicer  with billing
     claims that duplicate the claims that have been previously  provided to the
     Servicer.

          (d) Servicer is to be paid $.15 per page copied of various  documents,
     reports or information.

          (e) Servicer is to be paid a fee of a minimum charge of $200 per month
     for tracking and reporting on each individual  client.  This minimum fee is
     to cover the Servicer's administrative, equipment and other overhead costs.

                                   ARTICLE V

                                    COVENANTS

     SECTION 5.01.  CORPORATE EXISTENCE:  SERVICER.  Servicer shall keep in full
force and effect its existence and good standing as a corporation under the laws
of the State of Nevada and will  obtain and  preserve  its  qualification  to do
business  as  a  foreign   corporation  in  each   jurisdiction  in  which  such
qualification  is or shall be necessary to enable Servicer to perform its duties
under this Agreement.

     SECTION 5.02. SERVICER'S AGREEMENT NOT TO TERMINATE.

          (a) Except as provided in Section 5.02(b), in event of Company Default
     and  failure  to cure that  Default  within 30 days of  receipt  of written
     notification  from Servicer,  Servicer shall not resign from the duties and
     obligations hereby imposed on it except upon the consent of the Company and
     the Trustee.

          (b) Servicer  shall give written notice to the Company and the Trustee
     within  30 days of an  occurrence  and  continuance  of an event  for which
     notice was given to the Company and the proper cure period expired, and now
     constitutes an Event of Default of the Company. It is agreed by the parties
     that the period of time for Servicer to discontinue performance of services
     shall be 30 days,  which shall begin to run at such time as notice is given
     to the Company and Trustee.

     SECTION 5.03. COVENANTS OF COMPANY:  CORPORATE EXISTENCE. The Company shall
keep in full force and effect its  existence  and good standing as a corporation
under  the laws of the  State  of  Nevada  and  will  obtain  and  preserve  its
qualification  to do business as a foreign entity in each  jurisdiction in which
such qualification is or shall be necessary to enable the Company to perform its
duties under this Agreement.

     SECTION 5.04. NO DEFAULT CERTIFICATION.  Within thirty (30) days after each
twelve  (12)  month  interval  beginning  with the date of this  Agreement,  the
Servicer  will  deliver to the  Company or the  Trustee,  as the case may be, an
Officer's  Certificate  of Servicer  certifying  that (a) no Default or Event of
Default  exists under this  Agreement,  or if such a Default or Event of Default
exists, the Officer's  Certificate shall identify same and specify actions being

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taken to cure same; and (b) all  representations and warranties made by Servicer
in Section 6.01 of this Agreement remain true and correct as of the date of such
Officer's  Certificate  or if such  representation  and warranties do not remain
true and correct,  the Officer's  Certificate shall identify which do not remain
true and  correct,  and shall  specify  actions  being  taken to cure  same.  In
accordance with the above referenced time interval,  upon the Trustee's request,
the Company shall deliver to the Servicer or the Trustee, as the case may be, an
Officer's Certificate of the Company certifying both (a) and (b) above.

                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

     SECTION 6.01.  REPRESENTATIONS AND WARRANTIES OF SERVICER.  Servicer hereby
represents,  warrants and  covenants to the Company and the Trustee  that, as of
the date hereof:

          (a) Servicer is a corporation duly organized, and validly existing and
     in good standing under the laws of the State of Nevada with corporate power
     and  authority  to conduct  its  business  as  currently  conducted  and as
     contemplated by this Agreement:

               (i) All necessary  corporate  action has been taken by Company to
          authorize  and empower  Servicer and its officers or  representatives,
          acting on  Servicer's  behalf,  to ensure  Servicer has full power and
          authority to execute, deliver and perform this Agreement.

               (ii) The execution and delivery of this Agreement by Servicer and
          its  performance  and compliance with the terms of this Agreement will
          not  violate  Servicer's  organization  and  regulatory  documents  or
          constitute a default (or an event which, with notice or lapse of time,
          or both,  would  constitute a default)  under, or result in the breach
          of, any material  contract,  indenture,  loan, credit agreement or any
          other  agreement or instrument  to which  Servicer is a party or which
          may be applicable to Servicer or any of its assets.

               (iii)  Servicer is not in  violation  of, and the  execution  and
          delivery  of  this  Agreement  by  Servicer  and its  performance  and
          compliance  with the terms of this  Agreement  will not  constitute  a
          violation  with  respect  to,  any order or decree of any court or any
          order,  regulation  or  demand of any  federal,  state,  municipal  or
          governmental  agency,  which  violation might have  consequences  that
          would  materially  and adversely  affect the  condition  (financial or
          other)  or  options  of  Servicer  or its  properties  or  might  have
          consequences  that would affect the  performance  or its properties or
          might have  consequences  that would  affect  the  performance  of its
          duties hereunder; provided, however, that Servicer is not representing
          or warranting whether its performance and compliance with the terms of
          this  Agreement  will  constitute  a violation  under the  Medicare or
          Medicaid  laws or other  federal or state laws  referenced  in Section
          6.02(g) below.

               (iv) To the  knowledge of Servicer,  no  proceeding  of any kind,
          including,   but  not   limited   to,   litigation,   arbitration   or

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          administrative,  is pending or threatened  against or  contemplated by
          Servicer  which  would  have  any  material   adverse  effect  on  the
          execution, delivery, performance or enforceability of this Agreement.

               (v)  No  information,   certificate  of  an  officer,   statement
          furnished in writing or report delivered to the Company or the Trustee
          by Servicer  regarding  this  Agreement  or the duties or  obligations
          contemplated  by the  Agreement  has, to the  knowledge  of  Servicer,
          contained  any  untrue  statement  of a  material  fact or  omitted  a
          material  fact  necessary  to  make  the   information,   certificate,
          statement or report not misleading.

          (b)  It  is  understood  and  agreed  that  the   representations  and
     warranties set forth in this Section 6.01 shall inure to the benefit of the
     Company and the Trustee.

     SECTION 6.02.  REPRESENTATIONS  AND WARRANTIES OF THE COMPANY.  The Company
hereby  represents,  warrants  and  covenants to Servicer  that,  as of the date
hereof and as of the date of each  delivery  of a Purchased  Account  File for a
Healthcare  Receivable  and  other  types of  Business  Accounts  Receivable  to
Servicer:

          (a) The Company is a corporation duly organized,  and validly existing
     and in good standing under the laws of the State of Delaware with power and
     authority  to  conduct  its  business  as   currently   conducted   and  is
     contemplated by this Agreement.

          (b) All necessary partnership,  regulatory or other similar action has
     been  taken to  authorize  and  empower  the  Company  and the  officer  or
     representatives  acting on the Company's  behalf,  and the Company has full
     power and authority to execute, deliver and perform this Agreement.

          (c) The  execution  and delivery of this  Agreement by the Company and
     its  performance  and compliance  with the terms of this Agreement will not
     violate the Company's organization and regulatory documents or constitute a
     default (or an event which,  with notice of lapse of time,  or both,  would
     constitute  a default)  under,  or result in the  breach  of, any  material
     contract,  indenture,  loan  credit  agreement  or any other  agreement  or
     instrument  to which the Company is a party or which may be  applicable  to
     the Company or any of its assets.

          (d) This Agreement  constitutes a valid,  legal and binding obligation
     of the  Company,  enforceable  against  it in  accordance  with  the  terms
     thereof,  subject to  applicable  bankruptcy,  insolvency,  reorganization,
     moratorium  and other laws affecting the  enforcement of creditor's  rights
     generally and to general  principles or equity,  regardless of whether such
     enforcement is considered in a proceeding in equity or at law.

          (e) The Company is not in violation of and the  execution and delivery
     of this Agreement by the Company and its  performance  and compliance  with
     the terms of this  Agreement  will not  constitute a violation with respect
     to,  any law,  order or  decree of any court or any  order,  regulation  or
     demand of any federal,  state,  municipal  or  governmental  agency,  which

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     violation  might have  consequences  that would  materially  and  adversely
     affect the  condition  (financial or other) or operations of the Company or
     its properties or might have consequences that would affect the performance
     of its duties hereunder.

          (f) To the  knowledge  of the  Company,  no  proceeding  of any  kind,
     including,  but  not  limited  to,  litigation,  arbitration,  judicial  or
     administrative,  is pending or threatened  against or  contemplated  by the
     Company which would under any circumstance have any material adverse effect
     on  the  execution,   delivery,   performance  or  enforceability  of  this
     Agreement.

          (g) The  Company's  purchase of  Healthcare  Receivables  representing
     claims  under the Medicare  and  Medicaid  programs and any other  programs
     established by  Governmental  Entities,  as  contemplated by the respective
     Purchase  Agreements,  will not violate any  provisions of the Medicare Act
     (42  U.S.C.  Sections  1395-1396)  or the  Medicaid  Program  of the Social
     Security Act (42 U.S.C.  Sections  1396-1396p)  or any other  provisions of
     federal or state law which provide for payment for  healthcare  services to
     be made to the Clients of such services.

          (h) No information,  certificate of an officer, statement furnished in
     writing or report delivered to Servicer by the Company, to the knowledge of
     the Company,  contains any untrue  statement of a material  fact or omits a
     material fact necessary to make the information,  certificate, statement or
     report not misleading.

     It is understood  and agreed that the  representations  and  warranties set
forth in this  Section  6.02 shall inure to the benefit of the  Servicer and the
Trustee.

                                  ARTICLE VII

                                     DEFAULT

     SECTION 7.01. EVENTS OF DEFAULT--SERVICER.  Any act or occurrence described
in this Section 7.01 shall constitute an Event of Default by Servicer under this
Agreement.

          (a) Any failure to deposit in the Lockbox Account any payment required
     to be so deposited by Servicer under the terms of this Agreement other than
     a failure that does not continue for more than two Business  Days after the
     earlier of (i)  discovery  of such failure by an Officer of the Servicer or
     (ii) delivery of written notice of such failure to Servicer by or on behalf
     of the Company or the Trustee.

          (b) Any failure on the part of Servicer  duly to observe or perform in
     any material  respect any of the other  covenants or agreements on the part
     of Servicer to be performed under this Agreement,  which failure  continues
     unremedied  for a period  of (i) five  Business  Days with  respect  to the
     delivery  of  reports  required  by a  Component  Agreement;  and (ii) with
     respect to all other  covenants or  agreements,  30 calendar days after the
     date on which  written  notice of such  failure,  requiring  the same to be
     remedied,  shall have been given to Servicer by or on behalf of the Company
     or the Trustee.

          (c) The entry of a decree  or order for  relief by any court or agency
     or supervisory  authority having  jurisdiction in respect of Servicer in an
     involuntary  case under any present or future federal or state  bankruptcy,
     insolvency or similar law, or appointing a receiver, liquidator,  assignee,
     trustee,   custodian,   conservator  or  other  similar   official  in  any
     insolvency,  readjustment of debt, marshalling of assets and liabilities or

                                       10
<PAGE>
     similar proceedings,  ordering the winding up or liquidation of the affairs
     of Servicer shall have been entered against Servicer and the continuance of
     any such  decree  or  order  unstayed  and in  effect  for a  period  of 60
     consecutive days.

          (d) Servicer  shall consent to the  appointment  of a  conservator  or
     receiver or liquidator in any bankruptcy, insolvency, readjustment of debt,
     marshalling of assets and liabilities or similar proceedings of or relating
     to Servicer or relating to all or substantially all of its property.

          (e) Servicer shall (i) admit in writing its inability to pay its debts
     generally  as they become  due;  (ii)  commence a voluntary  case under the
     federal  bankruptcy laws, as now or hereafter in effect,  or any present or
     future federal or state bankruptcy, insolvency or similar law; (ii) consent
     to the  appointment  of or taking  possession  by a  receiver,  liquidator,
     assignee,  trustee,  custodian,  sequestrator or other similar  official of
     Servicer or of a substantial part of its property; (iii) make an assignment
     for the benefit of its  creditors;  (iv) fail generally to pay its debts as
     such debts become due; or (v) take  corporate  action in furtherance of any
     of the foregoing.

          (f) Any  material  representation,  warranty or  statement of Servicer
     made  herein  or in any  certificate,  report  of other  writing  delivered
     pursuant  hereto shall prove to be incorrect in any material  respect as of
     the time when the same shall have been made and,  within 30  calendar  days
     after  written  notice  thereof  shall have been given to Servicer by or on
     behalf of the Company or the  Trustee,  the  circumstance  or  condition in
     respect of which such  representation,  warranty or statement was incorrect
     shall not have been  eliminated or otherwise  cured and the adverse effects
     thereof shall not have been cured.

     SECTION 7.02. EVENTS OF  DEFAULT--COMPANY.  Any act or occurrence described
in this Section 7.02 shall  constitute an Event of Default by Company under this
Agreement.

          (a) Any  failure by the Company to timely make any payment to Servicer
     required to be made by the Company  pursuant to this Agreement other than a
     failure that does not  continue  for more than two Business  Days after the
     earlier of (i)  discovery  of such  failure by an Officer of the Company or
     (ii)  delivery  of written  notice of such  failure to the Company by or on
     behalf of the Servicer shall  constitute an Event of Default by the Company
     under  this  Agreement.  If any fees or  expenses  are not paid  when  due,
     Company  agrees to pay a late  charge on the past due  amount  equal to the
     lower of 1 1/2% of such amount per month,  or the maximum  rate  allowed by
     law.

          (b)  Failure of the  Company to  provide  information  or to use their
     influence  and  authority  to cause  information  required  for  Servicer's
     processing  to be furnished by the Company or Client  within the time frame
     stipulated in the Component Agreement.

          (c) The entry of a decree  or order for  relief by any court or agency
     or supervisory  authority having  jurisdiction in respect of the Company in
     an  involuntary   case  under  any  present  or  future  federal  or  state
     bankruptcy,   insolvency   or  similar  law,  or   appointing  a  receiver,
     liquidator,  assignee,  trustee,  custodian,  conservator  or other similar

                                       11
<PAGE>
     official in any insolvency, readjustment of debt, marshalling of assets and
     liabilities or similar proceedings,  ordering the winding up or liquidation
     of the affairs of Servicer shall have been entered  against the Company and
     the  continuance  of any such decree or order  unstayed and in effect for a
     period of 60 consecutive days

          (d) The Company shall  consent to the  appointment  of a  conservator,
     receiver or liquidator in any bankruptcy, insolvency, readjustment of debt,
     marshalling of assets and liabilities or similar proceedings of or relating
     to the Company or relating to all or substantially all of its property.

          (e) The Company  shall (i) admit in writing its  inability  to pay its
     debts  generally as they become due; (ii)  commence a voluntary  case under
     the federal  bankruptcy laws, as now or hereafter in effect, or any present
     or future  federal or state  bankruptcy,  insolvency or similar law;  (iii)
     consent  to  the  appointment  of  or  taking  possession  by  a  receiver,
     liquidator,  assignee,  trustee,  custodian,  sequestrator or other similar
     official of the Company or of a substantial part of its property; (iv) make
     an assignment for the benefit of its  creditors;  (v) fail generally to pay
     its  debts as such  debts  become  due;  or (vi) take  corporate  action in
     furtherance of any of the foregoing.

     SECTION  7.03.  REMEDIES  FOR EVENT OF DEFAULT BY  COMPANY.  If an Event of
Default  by the  Company  shall  have  occurred  and be  continuing  under  this
Agreement  for a period of 30 days from the time of notice in writing,  Servicer
shall be entitled to terminate this Agreement pursuant to notifications outlined
in Section  5.02,  subject  to Section  5.02(a),  and cease all  Servicing  with
respect to Purchased Accounts in its possession,  in which event it shall return
the  Purchased  Accounts to the Company and shall be entitled to retain all fees
previously paid by the Company to Servicer as per Section 5.02(b).

     SECTION  7.04.  REMEDIES FOR EVENT OF DEFAULT BY  SERVICER.  If an Event of
Default  by the  Servicer  shall  have  occurred  and be  continuing  under this
Agreement  for a period of 30 days from the time of notice in  writing,  Company
shall be entitled to (a) appoint a successor  Servicer,  subject to the approval
of the  Trustee;  (b) enter the  premises of the  Servicer for any or all of the
following purposes:  (i) assuming control of management of the servicing duties;
(ii) replacing  date-entry and posting staff;  (iii)  redirection of mail to the
Client;  or (iv) removal of all database  containing  equipment,  computers  and
servers; and (c) a right of offset of fees for any uncorrected servicing related
errors in an amount equal to the costs incurred correcting such errors.

                                  ARTICLE VIII

                            INDEMNITY AND EXCULPATION

     SECTION 8.01. INDEMNIFICATION OF COMPANY AND SERVICER.

          (a) INDEMNIFICATION BY SERVICER.  Servicer shall indemnify, defend and
     hold  harmless the Company,  the Trustee and trust  created  under the Note
     Issuance  and  Security  Agreement,  from and  against  any and all losses,
     costs, expenses,  damages and liabilities,  including,  without limitation,
     reasonable  attorney's fees and court costs,  directly  attributable to any
     claim  by any  third  party  that  Servicer  committed  any  act  involving
     negligence,  willful misconduct, or breach of this Agreement; provided that
     as to third-party  claims a court of competent  jurisdiction has determined
     that Servicer's actions involved  negligence,  willful misconduct or breach

                                       12
<PAGE>
     of this Agreement (a "Servicer Adjudication"), and; provided, further, that
     Servicer is given prompt written notice of such third-party claim after the
     Company or the Trustee  becomes  aware of the same,  reasonable  assistance
     from the Company and sole  authority to defend or settle such claim subject
     to Section 8.02.  Servicer  shall have no obligation  under this Section if
     such claim arises from Servicer's or a  subcontractor's  compliance with or
     reliance upon the Company's,  Trustee's or the Lockbox  Account bank's data
     specification   or   instructions,   policies  or  procedures  or  if  such
     third-party claim is the direct result of the negligence of Trustee.

          (b)  INDEMNIFICATION BY COMPANY.  Company shall indemnify,  defend and
     hold  harmless  the  Servicer  from and against any and all losses,  costs,
     expenses, damages and liabilities including, without limitation, reasonable
     attorney's fees and court costs,  directly attributable to any claim by any
     third-party that Company  committed any act involving  negligence,  willful
     misconduct, or breach of this Agreement; provided that a court of competent
     jurisdiction has determined that the Company's actions involved negligence,
     willful  misconduct or breach of this Agreement (a "Company  Adjudication")
     and, provided further,  that Company is given prompt written notice of such
     third-party  claim after the Servicer or the Trustee  becomes  aware of the
     same,  reasonable assistance from the Servicer and sole authority to defend
     or settle  such  claim  subject  to  Section  8.03.  Company  shall have no
     obligation  under this  Section if such claim  arises from  Company's  or a
     subcontractor's  compliance  with or reliance  upon the  Servicer's  or the
     Lockbox Account bank's data,  specification  or  instructions,  policies or
     procedures.

     SECTION 8.02. PROCEDURE FOR THIRD PARTY CLAIM INDEMNIFICATION. In the event
any third party  asserts any claim:  (a) against the Company with respect to any
matter to which  the  indemnification  of  Section  8.01(a)  may  eventually  be
applicable;  or (b) against Servicer with respect to any matters as to which the
indemnification of Section 8.01(b) may eventually be applicable, then the Person
seeking indemnification (the "Indemnified Party") shall give notice to the other
Person (the "Indemnifying Party") of such claim and the Indemnifying Party shall
have the right at its  election to take over the defense or  settlement  of such
claim at its own  expense by giving  notice of such  election  in writing to the
Indemnified  Party. If the Indemnifying  Party does not give notice and does not
proceed to diligently  defend such third-party claim within 30 days after notice
from the Indemnified  Party, the Indemnifying  Party shall have no further right
to defend  such  third-party  claim or  participate  in the  negotiation  of any
settlement  but shall  reimburse the  Indemnified  Party for all losses,  costs,
expenses,  damages and liabilities,  including  without  limitation,  reasonable
attorney's  fees and court costs  related to the defense or  settlement  of such
third-party  claim. The  Indemnifying  Party shall be entitled to participate in
and,  upon notice to the  Indemnified  Party,  assist in the defense of any such
action  or claim  in  reasonable  cooperation  with,  and  with  the  reasonable
cooperation of, the Indemnified Party .The Indemnified Party will have the right
to employ its own  counsel in any such  action in addition to the counsel to the
Indemnifying  Party,  but the fees and  expenses of such  counsel will be at the
expense of such Indemnified  Party,  unless (i) the employment of counsel by the
Indemnified  Party  at  its  expense  has  been  authorized  in  writing  by the
Indemnifying Party; (ii) the Indemnifying Party has not in fact employed counsel
to assume the defense of such action  within a reasonable  time after  receiving
notice of the commencement of the action; or (iii) the named parties to any such
action  or  proceeding  (including  any  impleaded  parties)  include  both  the

                                       13
<PAGE>
Indemnifying  Party and one or more  Indemnified  Parties,  and the  Indemnified
Parties  shall have been  advised by counsel that there may be one or more legal
defenses  available  to them which are  different  from or in  addition to those
available to the  Indemnifying  Party (it being  understood,  however,  that the
Indemnifying  Party  shall  not,  in  connection  with  any one such  action  or
proceeding  or  separate  but  substantially   similar  or  related  actions  or
proceedings in the same jurisdiction arising out of the same general allegations
or  circumstances,  be liable for the reasonable  fees and expenses of more than
one separate firm of attorneys at any time for the Indemnified  Party). The fees
and expenses of counsel,  except for the Indemnified  Party's  separate  counsel
retained  under  circumstances  that are not set  forth in (i),  (ii) and  (iii)
above,  will be at the expense of the Indemnifying  Party, and all such fees and
expenses will be reimbursed promptly as they are incurred.  No settlement of any
such claim or action,  including an admission of liability or the  imposition of
duties of  performance  or payment of fines or other  monetary  amounts upon the
Indemnified  Party or the  Indemnifying  Party shall be entered into without the
prior written consent of the Indemnified Party or, if the Indemnifying  Party is
not controlling  the  proceedings,  the  Indemnifying  Party.  Any failure by an
Indemnified  Party to comply with the  provisions  of this Section shall relieve
the  Indemnifying  Party of liability only if such failure is prejudicial to the
position  of the  Indemnifying  Party  and  then  only  to the  extent  of  such
prejudice.

     SECTION  8.03.  OTHER  PROVISIONS  LIMITING  LIABILITY.  In no event  shall
Servicer  or Company be liable to each other or to any third  party for any lost
profits,  lost business  opportunities or any other  consequential or incidental
damages arising out of or related to this Agreement or the Processing  Services.
This  limitation  of liability  shall apply even if Servicer or Company has been
advised of the possibility of such damages. Servicer shall not be liable for any
action taken or omitted by the Company or the Trustee. Servicer may rely in good
faith and shall be protected in acting upon (a) any document or  information  of
any kind  respecting  any matter  arising  hereunder  believed by Servicer to be
genuine and correct and to have been signed or sent by the proper person and (b)
any  instructions,  consents,  notices,  or waivers  given by the Company or the
Trustee.  Notwithstanding  Section 8.01(a) or 8.01(b),  the indemnity obligation
owed to an  Indemnified  Party shall be reduced to the extent of an  Indemnified
Party's  comparative  negligence  as determined  by a Servicer  Adjudication  or
Company Adjudication as the case may be.

                                   ARTICLE IX

                        TERM AND TERMINATION OF AGREEMENT

     SECTION 9.01. TERM AND TERMINATION OF AGREEMENT.

          (a) The  initial  term of  this  Agreement  shall  commence  upon  the
     Effective  Date and  expire  at  midnight  on the  first  anniversary  date
     thereof,  unless  terminated  pursuant to the terms  hereof.  Assuming  the
     parties  elect not to  terminate  the  agreement by giving  written  notice
     thereof at least 90 days in advance of the initial  anniversary  date, then
     the agreement shall automatically renew for an additional  five-year period
     from the initial  anniversary  date.  Thereafter,  the five-year term shall
     renew automatically,  and perpetually, in successive five-year terms unless
     prior written notice is given to the non-terminating party at least 90 days
     prior to the applicable expiration date.

                                       14
<PAGE>
          (b) Absent an Event of Default of this Agreement, this Agreement shall
     not be  terminated  solely  as a result  or an Event of  Default  under the
     Indenture (unless such action or omission is also an Event of Default under
     the terms of this Agreement) or any action taken by the Trustee  thereafter
     with respect thereto, and any liquidation or preservation of the Collateral
     by the  Trustee  thereafter  shall be subject to the rights of  Servicer to
     service the Receivables and to collect  servicing  compensation as provided
     hereunder.

          (c) All rights accrued and obligations  incurred by any party prior to
     termination of this Agreement shall continue to exist  notwithstanding such
     termination.

     SECTION  9.02.  TRANSFER OF  SERVICING.  In the event  servicing  performed
hereunder is terminated by Company,  Servicer  shall (a) pay over to the Trustee
or any other  Person  entitled  thereto  all other  moneys  with  respect to the
Receivables  held by Servicer  less any amounts then due to Servicer  under this
Agreement;  (b) subject to Section  7.02,  release the servicing and deliver all
the Purchased Account Files then in the possession of Servicer to the Company or
any other  person or entity as  designated  by the  Company  and (c) perform all
steps required of the Servicer of accounts receivable to transfer such servicing
under  applicable  law,  provided  that all costs and expenses of such  transfer
shall be paid by the Company.

     SECTION 9.03.  Without  limitation to the foregoing,  and to facilitate the
transfer of servicing to the  successor  Servicer,  the Servicer  shall,  at the
Company's sole expense  (except as provided in the provisions  above),  promptly
deliver to the  Company,  from time to time,  upon  request of the  Company  and
provided that at the time of such request all amounts owing Servicer pursuant to
this  Agreement  have been paid, a  computer-generated  magnetic  test tape (the
"Tape") in a form  acceptable  to the Company and with  programming  adjustments
containing  any  information   regarding  the  Receivables   which  the  Company
reasonably requests in good faith. Upon transfer of servicing, the Company shall
certify to the Trustee that all Purchased Account Files are in the possession of
the successor  Servicer.  The Servicer and the Company shall  cooperate with one
another to facilitate an orderly transfer of servicing.

     SECTION 9.04. Following the transfer of servicing by Servicer,  all amounts
relating to the Receivables collected by Servicer shall be received in trust for
the benefit of the Company and the  Trustee  and  immediately  forwarded  to the
Trustee within two Business Days after the date of receipt of such amounts.

                                   ARTICLE X

                            MISCELLANEOUS PROVISIONS

     SECTION 10.01.  AMENDMENT.  Except as provided  herein under Section 10.07,
this  Agreement  may only be amended by the  written  agreement  of the  parties
hereto;  provided that the Trustee shall have given its prior written consent to
such  amendment.  Servicer  may  amend the terms  and  conditions  of  Component
Agreements if necessary to conform to the  requirements of applicable law or the
policies  or  requirements  of payors by giving  Company  prior  written  notice
thereof.

                                       15
<PAGE>
     SECTION 10.02.  WAIVERS. The failure of either party at any time to require
performance  by the other of any  provision  of this  Agreement  shall in no way
affect that  party's  right to enforce such  provision,  nor shall the waiver by
either party of any breach of any  provision of this  Agreement be taken or held
to be a  waiver  of any  further  breach  of the  same  provision  or any  other
provision.

     SECTION  10.03.  NOTICES.  All  notices,   requests,   consents  and  other
communications hereunder shall be in writing and shall be sufficiently given and
shall be deemed given when delivered  personally or mailed by first-class  mail,
postage  prepaid,  or sent by  telegram,  telex or  telecopy,  or other  similar
facsimile communication,  or when given by telephone, confirmed in writing, sent
by any of the above  methods  on the same day,  addressed  as  follows or to any
other address designated in writing by the applicable Party:

               To Servicer:         Medical Tracking Services, Inc.
                                    5190 Neil Road, Suite 205
                                    Reno, NV 89502
                                    Telephone: (800) 818-1102
                                    Facsimile: (775) 825-8822

               To Company:          Medical Capital Corporation
                                    5190 Neil Road, Suite 205
                                    Reno, NV 89502
                                    Telephone: (800) 818-1102
                                    Facsimile: (775) 825-8822

     SECTION 10.04.  SEVERABILITY OF PROVISION.  If one or more of provisions of
this Agreement  shall be for any reason  whatever held invalid,  such provisions
shall  be  deemed  severable  from  the  remaining  covenants,   agreements  and
provisions  of this  Agreement  and  shall  in no way  affect  the  validity  or
enforceability of such remaining provisions or the rights of any parties hereto.
To the extent  permitted by law, the parties  hereto waive any provision of law,
which renders any provision of this Agreement prohibited or unenforceable in any
respect.

     SECTION 10.05. RIGHTS CUMULATIVE.  Except as specifically set forth herein,
all rights and  remedies  from time to time  conferred  upon or  reserved to the
Company,  the  Trustee,  or  Servicer  or to any or  all  of the  foregoing  are
cumulative,  and  none is  intended  to be  exclusive  of  another.  No delay or
omission in insisting upon the strict observance of performance of any provision
of this Agreement,  or in exercising any right or remedy shall be construed as a
waiver or  relinquishment  of such provision,  nor shall it impair such right or
remedy.  Except as specifically set forth herein,  every right and remedy may be
exercised from time to time as often as deemed expedient.

     SECTION 10.06. INSPECTION AND AUDIT RIGHTS.

          (a) Servicer  agrees that, upon prior written notice and to the extent
     permitted  under laws  relating to the  privacy  rights of  patients,  will
     permit the Company or independent  certified public accountants selected by
     the  Company,  during  Servicer's  normal  business  hours,  to examine the
     Purchased  Account Files,  all the books of account,  records,  reports and
     other  papers in the  possession  of Servicer  relating to the  Receivables

                                       16
<PAGE>
     purchased by the Company and to make copies and extracts  therefrom such as
     to cause such books to be audited  for the purpose of (i)  confirming  that
     nothing has come to their  attention  that causes them to believe  that the
     servicing has not been conducted in substantial  compliance  with the terms
     and conditions set forth in Exhibit B and (ii)  reconciling on a test basis
     the information  contained in the weekly reports  delivered by the Servicer
     with information contained in the accounts, records and computer systems of
     Servicer.

          (b) Servicer  shall,  upon the prior  written  request of the Trustee,
     permit the Trustee or its designated  representatives  to inspect the books
     and records of Servicer as they may relate to the  Receivables  (other than
     the books and records relating to the profits or losses of Servicer) to the
     extent permitted under laws relating to the private rights of patients.

     SECTION 10.07. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF, THE OBLIGATION
OF SERVICER.  Nothing in this Agreement shall prevent (a) any  consolidation  or
merger of Servicer with or into any other  corporation,  or any consolidation or
merger of any other corporation with or into Servicer;  or (b) any assignment by
Servicer of its rights and  obligations  hereunder  to any  Affiliate  or to any
corporation  which is the surviving  corporation  of any such  consolidation  or
merger  or which  acquires  all or  substantially  all of its  assets.  Servicer
covenants and agrees that the consolidation,  merger or assignment shall be upon
the  conditions  that the due and timely  performance  and observance of all the
terms,  covenants and  conditions  of this  Agreement to be kept or performed by
Servicer shall, by an agreement  supplemental hereto,  executed and delivered to
the Trustee,  be assumed by the Affiliate which is the assignee  hereunder or by
the successor  corporation (if other than Servicer)  formed by or resulting from
any such  consolidation or merger,  or which shall have received the transfer of
all or substantially all of the property and assets of Servicer and to which the
assignee  hereunder or successor  corporation  shall  succeed to such rights and
obligations,  just as fully and effectually as if such successor corporation had
been the original Servicer.  Upon the effectiveness of such consolidation merger
or assignment, the assigning Servicer shall cease to be obligated hereunder.

     SECTION  10.08.  MUTUAL  COVENANTS  NOT TO  COMPETE.  Company is not in the
business of computerized servicing,  tracking, billing, invoicing, or collecting
medical  receivables  for third parties,  nor does Company have any intention of
doing so.  Rather,  Company is in the business of financing the  acquisition  or
factoring of Receivables.  Also, Servicer is not in the business of acquiring or
factoring receivables,  and has no intention of doing so. Rather, Servicer is in
the business of utilizing computer technology to service,  track, bill, invoice,
and  collect  receivables.  The  intention  of this  Agreement  is to  create  a
strategic alliance of the parties for the benefit of both parties,  without fear
or threat of competition  from each other's business  activities.  To the extent
permitted by  applicable  law, the parties  agree not to compete with each other
during the terms, or extended terms, of this Agreement, as applied to the United
States of America. In the event this Agreement is terminated,  this covenant not
to  compete  shall  continue  in full force and effect for a period of 18 months
after the date of termination.

     SECTION 10.09.  BINDING  EFFECT.  All provisions of this Agreement shall be
binding upon and inure to the benefit of the  respective  successors and assigns
of the parties hereto.

                                       17
<PAGE>
     SECTION  10.10.  CAPTIONS.  The  article,   paragraph  and  other  headings
contained in this Agreement are for reference  purposes only and shall not limit
or otherwise affect the meaning hereof.

     SECTION  10.11.  LEGAL  HOLIDAYS.  In the case  where the date on which any
action  required  to be taken,  documents  required to be  delivered  or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on such date, but may be made on the next succeeding Business Day.

     SECTION 10.12. COUNTERPARTS.  This Agreement may be executed simultaneously
in any number of counterparts,  each of which counterparts shall be deemed to be
an  original,  and  such  counterparts  shall  constitute  but one and the  same
instrument.

     SECTION 10.13.  GOVERNING LAW. This Agreement  shall be deemed entered into
with and shall be governed by and interpreted in accordance with the laws of the
State of Nevada.  The rights and  liabilities  of the  parties  hereto  shall be
determined  in  accordance  with the laws of the State of  Nevada  except to the
extent that it is mandatory that the laws of some other jurisdiction apply.

     SECTION 10.14.  TRUSTEE A THIRD-PARTY  BENEFICIARY.  The parties  recognize
that the  Trustee  (for the benefit of the  Company's  client,  Medical  Capital
Management,   Inc.)  is  intended  to  be  a  third-party   beneficiary  of  the
representations,   warranties,  covenants  and  agreements  set  forth  in  this
Agreement.

     SECTION 10.15. MUTUAL COVENANTS  REGARDING  MARKETING EFFORTS.  The parties
covenant that upon entering into this  Agreement  each will use its best efforts
to establish and implement a joint marketing effort whereby Servicer and Company
will each facilitate access to officers and other management and decision making
personnel  of the  other's  clientele  in order  that  each may make  known  its
respective servicing and financing capabilities.

                                       18
<PAGE>
     IN WITNESS WHEREOF,  Servicer and the Company have caused this Agreement to
be duly executed by their  respective  officers  thereunto duly authorized as of
the day and year first above written.

                                        MEDICAL CAPITAL CORPORATION

                                        By______________________________________
                                        Name____________________________________
                                        Title___________________________________

                                        MEDICAL TRACKING SERVICES, INC.

                                        By______________________________________
                                        Name____________________________________
                                        Title___________________________________

     Zions First National Bank, as Trustee, hereby acknowledges that the Company
has  assigned  its rights  under this  Agreement  to the Trustee and the Trustee
accepts such assignment;  provided however the Trustee shall not have any of the
obligations or liabilities  hereunder by reason of such assignment or otherwise.
The Company shall remain solely liable for all  obligations  and  liabilities of
the Company hereunder and under the Note Issuance and Security Agreement.

                                        ZIONS FIRST NATIONAL BANK, as Trustee

                                        By______________________________________
                                        Name____________________________________
                                        Title___________________________________

                                       19
<PAGE>
                                    EXHIBIT A

                               PURCHASE AGREEMENT

                                      A-1

<PAGE>
                                    EXHIBIT B

                             DUTIES OF THE SERVICER

DATABASE MAINTENANCE:

1.   The Receivables database is to be maintained by the Servicer.
2.   Servicer  grants user and copy  license to the Company for all  proprietary
     software used for the processing and maintenance of the Receivables.
3.   Receive   copies  of  all  lockbox   payments  from  the   Client/Company's
     corresponding Lockbox Account banks.
4.   Copy and forward to Client all Lockbox Account receipts.
5.   Post all payments and corresponding  balance  write-offs against individual
     Receivables on a line-item basis.
6.   Post all balance write-offs against Receivables on a line-item basis.
7.   Reconcile all postings to cash deposits on a daily basis.
8.   Interact with the Company's staff for all posting questions and errors.
9.   Submit all reports and report  corrections within the same business day (or
     four hours into the subsequent business day)

RELATIONSHIP WITH COMPANY'S CLIENTS:

1.   Intake of all Receivables in any of the following formats:
     a.   HCFA-1500 (and related versions)
     b.   UB-82/92 (and related versions)
     c.   Invoice (common format)
     d.   National Standard Format for Healthcare Claims
     e.   Spreadsheet or comma separated values
2.   Servicer shall accept Receivables in various forms including:
     a.   Electronic mail
     b.   File acceptance
     c.   File printer form
     d.   Facsimile
     e.   Paper
3.   Servicer must be able to re-assemble the Receivables into a form acceptable
     to Company.
4.   Servicer  shall be able to identify and flag  duplicate  Receivables  based
     upon criteria set forth between Servicer and Company.

REPORTS:

The Servicer will utilize the terms,  definitions and  descriptions  pursuant to
the Purchase  Agreement and in accordance to the Company's requests which may be
adjusted  from time to time.  The reports are to be  furnished to the Company as
described:

                                       B-2
<PAGE>
PROVIDER SUMMARY REPORT- AS REQUESTED BY COMPANY

The  Client  summary  report  is a  management  report  that may be  ordered  by
relationship,  provider or corporation. This report provides the relationship's,
provider's  or  corporation's  activity  for a given  time  period.  The  report
includes outstanding,  net owed, reserve,  collections,  disbursements and fees.
The report is time  dependent  therefore,  it cannot be  ordered  for back dated
reports.

COLLECTION REPORT-MONTHLY OR AS REQUESTED BY COMPANY

The  collection  report is a summary  report that can be printed daily to report
and be used to verify posted transactions.  The report is ordered by provider or
by   corporation.   The   collection   report   provides  a  detailed   list  of
transactions/payments  that have a post date within the period  requested.  This
report provides a detailed line for each payment that includes post date,  claim
number, batch number of the claim, payor, check number, Estimated Net Receivable
amount and the transaction/payment  amount. The collection report should be kept
with the settlement  reports.  The daily collection report used to verify posted
payments should be kept with the payment control folder.

PURCHASE  REPORT/CLAIM  APPRAISAL REPORT PART OF EACH PURCHASE  TRANSACTION ON A
PRE-DETERMINED FREQUENCY AS SET FORTH BY EACH PROVIDER DESCRIPTION

The purchase  report is a final report that can be requested by each  individual
provider after all edits are completed.  The report can only be requested  after
the merge  process.  This report  provides  data on claims  that were  imported,
appraised and considered for purchase during the settlement  period.  The report
groups claims into the categories of purchased, rejected or pending. Claims that
are rejected or pending will be  identified  with and error code for  reference.
The purchases  report should be filed with the settlement  reports in the claims
control file.  The  appraisal  process  calculates  and assigns an Estimated Net
Receivable  amount to a claim.  The Estimated Net Receivable is calculated based
on the reimbursement rates established on the account.

PURCHASE-PENDING-REJECTION  REPORT  PART  OF  EACH  PURCHASE  TRANSACTION  ON  A
PRE-DETERMINED FREQUENCY AS SET FORTH BY EACH PROVIDER DESCRIPTION

The  purchase-pending-rejection  report  shows what  claims were  purchased  and
rejected.

SETTLEMENT  STATEMENT  PART OF EACH  PURCHASE  TRANSACTION  ON A  PRE-DETERMINED
FREQUENCY AS SET FORTH BY EACH PROVIDER DESCRIPTION

The  settlement  statement is a summary report that is issued by provider and by
corporation on the date of purchase. The settlement statement includes a summary
of the advanced  amount for the batch during the current  period.  The statement
contains a summary of the activity that occurred  during the  settlement  period
collectively  arriving at the net due  provider  for  settlement.  The  period's
summarized  activity includes  collections,  previous reserve  disbursements and
open and the  balance.  The advance for the current  batch should be verified to
the  purchase  report.  The amount  due the  provider  for the period  should be

                                      B-3
<PAGE>
verified to the reserve account report. The settlement  statement should be kept
with the purchase reports filed in the claims control file.

AGED REPORT BY PAYOR - WEEKLY

The aged  report by payor  provides a summary  for a client  aging the claims by
payor.

BATCH REPORT WITH AGING-WEEKLY

The batch report with aging  contains a summary for a client aging the claims by
batches.

OUTSTANDING CLAIMS REPORT-MONTHLY

The outstanding claims report is a summary of all outstanding claims by batches.
This  reports  is the  outstanding  accounts  receivable  balance.  There  is an
identifiable outstanding gross receivable and outstanding net receivable.

                                      B-4<PAGE>

                                                                    Exhibit 10.3

                                  AMENDMENT TO

                         EXECUTIVE EMPLOYMENT AGREEMENT

         This Amendment to Executive Employment Agreement (the "Amendment"),
executed effective as of November 21, 2002 (the "Effective Date"), is between
BAM! Entertainment, Inc., a Delaware corporation, (the "Company") and Raymond
Musci ("Employee").

                                    RECITALS

         A.       The Company and Employee have executed an Executive Employment
Agreement dated as of October 1, 1999, as amended (the "Employment Agreement"),
in which the Company hired Employee as an executive of the Company with a base
salary of $225,000 (the "Salary").

         B.       The Company is adjusting to the current economic climate and
has determined it to be in the best interests of the Company to have the
Employee agree to a reduction in his Salary as set forth in this Amendment.

         C.       Employee and the Company desire to amend the Employment
Agreement in accordance with the terms and conditions set forth below.

         ACCORDINGLY, THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, the parties agree to amend the Employment Agreement as
follows:

         1.       Salary Reduction. As of the December 1, 2002 until June 30,
2003 (the "Salary Reduction Period"), Employee's Salary shall be reduced by 50%
in consideration for the Company granting Employee the option set forth in
Section 2 (the "Reduction").

         2.       Stock Option. As consideration for the Reduction, the Company
shall grant Employee an option to purchase Common Stock of the Company pursuant
to the option agreement, attached hereto as Exhibit A (the "Option"). The Option
shall be for 116,978 shares of the Company's Common Stock, which is equal to the
Reduction divided by 110% of the closing market price of the Company's Common
Stock on November 29, 2002. The exercise price of the Option shall be $0.561 per
share, which is equal to 110% of the closing market price of the Company's
Common Stock on November 29, 2002.

         3.       Corporate Transaction. In the event of a "Corporate
Transaction" (as defined in the Company's 2000 Stock Incentive Plan), the Option
shall not accelerate and the Reduction will no longer be in effect and any
portion of the Salary withheld during the Salary Reduction Period shall become
immediately payable upon the effective date of the "Corporate Transaction".

         4.       Termination. If Employee's employment is terminated for any
reason, including but not limited to a "Corporate Transaction", during the
Salary Reduction Period, Employee's salary on the date of termination shall be
deemed to be the Salary prior to the Reduction for purposes of any rights under
the Employment Agreement.

<PAGE>

         5.       Effect of Remaining Terms. Except as expressly modified in
this Amendment, all terms and conditions of the Employment Agreement shall
continue in full force and effect; provided however, in the event of any
inconsistency or conflict between terms of the Employment Agreement and the
terms of this Amendment, the terms of this Amendment shall control.

         6.       Entire Agreement. The Employment Agreement, as amended by this
Amendment, shall constitute the final, complete, and exclusive statement of the
agreement with respect to its subject matter and may not be contradicted by
evidence of any prior or contemporaneous statements or agreements, except for
agreements specifically referenced herein and therein.

         7.       Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be considered an original and all of which
together shall constitute one instrument.

         IN WITNESS WHEREOF, the parties have duly executed this Amendment
effective as of the date first set forth above.

                                          COMPANY:

                                          BAM! Entertainment, Inc.,
                                          a Delaware corporation:

                                          By:  /s/ ROBERT HOLMES
                                               ---------------------------------

                                          Its: Chairman
                                               ---------------------------------

                                          EMPLOYEE:

                                          /s/ RAYMOND MUSCI
                                          --------------------------------------
                                          Raymond Musci

                                       2

<PAGE>

                                    EXHIBIT A
                                  STOCK OPTION

               BAM! ENTERTAINMENT, INC. 2000 STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION AWARD

         Grantee's Name and Address:      Raymond C. Musci
                                          c/o BAM! Entertainment, Inc.
                                          333 West Santa Clara Street, Suite 716
                                          San Jose, CA 95113

         You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the BAM! Entertainment, Inc. 2000 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

         Award Number:                               214

         Date of Award:                              December 2, 2002

         Vesting Commencement Date:                  July 1, 2003

         Exercise Price per Share:                   $0.561

         Total Number of Shares Subject
         to the Option (the "Shares"):               116,978

         Total Exercise Price:                       $65,624.66

         Type of Option:                             Incentive Stock Option

         Expiration Date:                            December 2, 2012

         Post-Termination Exercise Period:           Three (3) Months

Vesting Schedule:

         Subject to Grantee's Continuous Service and other limitations set forth
in this Notice, the Plan and the Option Agreement, the Option may be exercised,
in whole or in part, in accordance with the following schedule:

         100% of the Shares subject to the Option shall vest on the Vesting
Commencement Date.

         During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.

                                       1

<PAGE>

         Except as set forth below, in the event of the Grantee's change in
status from Employee to Consultant or from an Employee whose customary
employment is 20 hours or more per week to an Employee whose customary
employment is fewer than 20 hours per week, vesting of the Option shall continue
only to the extent determined by the Administrator as of such change in status.

         IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.

                               BAM! Entertainment, Inc., a Delaware corporation

                               By: _____________________________________________
                                   Raymond C. Musci, Chief Executive Officer

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE.

         The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 16 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.

Dated:_____________            Signed: ______________________________
                                       ________________

                                       2

<PAGE>

                                                               AWARD NUMBER: 214

               BAM! ENTERTAINMENT, INC. 2000 STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

         1.       Grant of Option. BAM! Entertainment, Inc., a Delaware
corporation (the "Company"), hereby grants to the Grantee (the "Grantee") named
in the Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2000 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.

         If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

         2.       Exercise of Option.

                  (a)      Right to Exercise. The Option shall be exercisable
during its term in accordance with the Vesting Schedule set out in the Notice
and with the applicable provisions of the Plan and this Option Agreement. The
Option shall be subject to the provisions of Section 11(b) of the Plan relating
to the exercisability or termination of the Option in the event of a Corporate
Transaction. No partial exercise of the Option may be for less than the lesser
of five percent (5%) of the total number of Shares subject to the Option or the
remaining number of Shares subject to the Option. In no event shall the Company
issue fractional Shares.

                  (b)      Method of Exercise. The Option shall be exercisable
only by delivery of an Exercise Notice (attached as Exhibit A) which shall
state the election to exercise the Option, the whole number of Shares in
respect of which the Option is being exercised, and such other provisions as
may be required by the Administrator. The Exercise Notice shall be signed by
the Grantee and shall be delivered in person, by certified mail, or by such
other method as determined from time to time by the Administrator to the
Company accompanied by payment of the Exercise Price. The Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price, which, to the extent selected, shall be

                                       1

<PAGE>

deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d), below.

                  (c)      Taxes. No Shares will be delivered to the Grantee or
other person pursuant to the exercise of the Option until the Grantee or other
person has made arrangements acceptable to the Administrator for the
satisfaction of applicable income tax, employment tax, and social security tax
withholding obligations, including, without limitation, obligations incident to
the receipt of Shares or the disqualifying disposition of Shares received on
exercise of an Incentive Stock Option. Upon exercise of the Option, the Company
or the Grantee's employer may offset or withhold (from any amount owed by the
Company or the Grantee's employer to the Grantee) or collect from the Grantee or
other person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.

         3.       Method of Payment. Payment of the Exercise Price shall be made
by any of the following, or a combination thereof, at the election of the
Grantee; provided, however, that such exercise method does not then violate any
Applicable Law:

                  (a)      cash;

                  (b)      check;

                  (c)      surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon exercise of
the Option) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate Exercise Price of the Shares as to which the
Option is being exercised (but only to the extent that such exercise of the
Option would not result in an accounting compensation charge with respect to the
Shares used to pay the exercise price); or

                  (d)      payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (i) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

         4.       Restrictions on Exercise. The Option may not be exercised if
the issuance of the Shares subject to the Option upon such exercise would
constitute a violation of any Applicable Laws.

         5.       Termination or Change of Continuous Service. In the event the
Grantee's Continuous Service terminates, the Grantee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise the Option during the Post-Termination Exercise Period. In no event
shall the Option be exercised later than the Expiration Date set forth in the
Notice. In the event of the Grantee's change in status from Employee, Director
or

                                       2

<PAGE>

Consultant to any other status of Employee, Director or Consultant, the Option
shall remain in effect and, except to the extent otherwise determined by the
Administrator, continue to vest; provided, however, with respect to any
Incentive Stock Option that shall remain in effect after a change in status from
Employee to Director or Consultant, such Incentive Stock Option shall cease to
be treated as an Incentive Stock Option and shall be treated as a Non-Qualified
Stock Option on the day three (3) months and one (1) day following such change
in status. Except as provided in Sections 7 and 8 below, to the extent that the
Grantee is not entitled to exercise the Option on the Termination Date, or if
the Grantee does not exercise the Option within the Post-Termination Exercise
Period, the Option shall terminate.

         6.       Disability of Grantee. In the event the Grantee's Continuous
Service terminates as a result of his or her Disability, the Grantee may, but
only within twelve (12) months from the Termination Date (and in no event later
than the Expiration Date), exercise the Option to the extent he or she was
otherwise entitled to exercise it on the Termination Date; provided, however,
that if such Disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

         7.       Death of Grantee. In the event of the termination of the
Grantee's Continuous Service as a result of his or her death, or in the event of
the Grantee's death during the Post-Termination Exercise Period or during the
twelve (12) month period following the Grantee's Termination of Continuous
Service as a result of his or her Disability, the Grantee's estate, or a person
who acquired the right to exercise the Option by bequest or inheritance, may
exercise the Option, but only to the extent the Grantee could exercise the
Option at the date of termination, within twelve (12) months from the date of
death (but in no event later than the Expiration Date). To the extent that the
Grantee is not entitled to exercise the Option on the date of death, or if the
Option is not exercised to the extent so entitled within the time specified
herein, the Option shall terminate.

         8.       Transferability of Option. The Option, if an Incentive Stock
Option, may not be transferred in any manner other than by will or by the laws
of descent and distribution and may be exercised during the lifetime of the
Grantee only by the Grantee. The Option, if a Non-Qualified Stock Option may be
transferred by will, by the laws of descent and distribution, and to the extent
and in the manner authorized by the Administrator, to members of the Grantee's
immediate family (as determined by the Administrator) or pursuant to a domestic
relations order. The terms of the Option shall be binding upon the executors,
administrators, heirs and successors of the Grantee.

         9.       Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

         10.      Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer set forth in this Option Agreement, the Notice or the
Plan, the Company may issue

                                       3

<PAGE>

appropriate "stop transfer" instructions to its transfer agent, if any, and, if
the Company transfers its own securities, it may make appropriate notations to
the same effect in its own records.

         11.      Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.

         12.      Tax Consequences. Set forth below is a brief summary as of the
date of this Option Agreement of some of the federal tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES.

                  (a)      Exercise of Incentive Stock Option. If the Option
qualifies as an Incentive Stock Option, there will be no regular federal income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as income for purposes of the alternative minimum tax for
federal tax purposes and may subject the Grantee to the alternative minimum tax
in the year of exercise.

                  (b)      Exercise of Incentive Stock Option Following
Disability. If the Grantee's Continuous Service terminates as a result of
Disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Grantee must exercise an Incentive Stock Option within three (3) months of such
termination for the Incentive Stock Option to be qualified as an Incentive Stock
Option.

                  (c)      Exercise of Non-Qualified Stock Option. On exercise
of a Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

                  (d)      Disposition of Shares. In the case of a Non-Qualified
Stock Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding

                                       4

<PAGE>

periods that apply to Shares acquired upon exercise of a Non-Qualified Stock
Option. If Shares purchased under an Incentive Stock Option are disposed of
prior to the expiration of such one-year or two-year periods, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (i) the Fair Market Value of the Shares on the date of exercise, or
(ii) the sale price of the Shares.

         13.      Lock-Up Agreement.

                  (a)      Agreement. The Grantee, if requested by the Company
and the lead underwriter of any public offering of the Common Stock or other
securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees
not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of any interest in any Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in such public
offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended, or such shorter
period of time as the Lead Underwriter shall specify. The Grantee further agrees
to sign such documents as may be requested by the Lead Underwriter to effect the
foregoing and agrees that the Company may impose stop-transfer instructions with
respect to such Common Stock subject until the end of such period. The Company
and the Grantee acknowledge that each Lead Underwriter of a public offering of
the Company's stock, during the period of such offering and for the 180-day
period thereafter, is an intended beneficiary of this Section 13.

                  (b)      No Amendment Without Consent of Underwriter. During
the period from identification as a Lead Underwriter in connection with any
public offering of the Company's Common Stock until the earlier of (i) the
expiration of the lock-up period specified in Section 13(a) in connection with
such offering or (ii) the abandonment of such offering by the Company and the
Lead Underwriter, the provisions of this Section 13 may not be amended or waived
except with the consent of the Lead Underwriter.

         14.      Entire Agreement: Governing Law. The Notice, the Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such

                                       5

<PAGE>

provision shall be enforced to the fullest extent allowed by law and the other
provisions shall nevertheless remain effective and shall remain enforceable.

         15.      Headings. The captions used in the Notice and this Option
Agreement are inserted for convenience and shall not be deemed a part of the
Option for construction or interpretation.

         16.      Dispute Resolution. The provisions of this Section 16 shall be
the exclusive means of resolving disputes arising out of or relating to the
Notice, the Plan and this Option Agreement. The Company, the Grantee, and the
Grantee's assignees (the "parties") shall attempt in good faith to resolve any
disputes arising out of or relating to the Notice, the Plan and this Option
Agreement by negotiation between individuals who have authority to settle the
controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court for the Northern District of California (or should such court lack
jurisdiction to hear such action, suit or proceeding, in a California state
court in the County of Santa Clara) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent
permitted by law, any objection the party may have to the laying of venue for
any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 16
shall for any reason be held invalid or unenforceable, it is the specific intent
of the parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.

                                       6

<PAGE>

         17.      Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified mail (if the parties are
within the United States) or upon deposit for delivery by an internationally
recognized express mail courier service (for international delivery of notice),
with postage and fees prepaid, addressed to the other party at its address as
shown beneath its signature in the Notice, or to such other address as such
party may designate in writing from time to time to the other party.

                                       7

<PAGE>

                                    EXHIBIT A

               BAM! ENTERTAINMENT, INC. 2000 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

BAM! Entertainment, Inc.
333 W. Santa Clara Street, Suite 716
San Jose, CA 95113

Attention: Secretary

         1.       Exercise of Option. Effective as of today, _________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of BAM!
Entertainment, Inc. (the "Company") under and pursuant to the Company's 2000
Stock Incentive Plan, as amended from time to time (the "Plan") and the [ ]
Incentive [ ] Non-Qualified Stock Option Award Agreement (the "Option
Agreement") and Notice of Stock Option Award (the "Notice") dated December 2,
2002. Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Exercise Notice.

         2.       Representations of the Grantee. The Grantee acknowledges that
the Grantee has received, read and understood the Notice, the Plan and the
Option Agreement and agrees to abide by and be bound by their terms and
conditions.

         3.       Rights as Shareholder. Until the stock certificate evidencing
such Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11(a) of the Plan. The Grantee shall enjoy rights
as a shareholder until such time as the Grantee disposes of the Shares.

         4.       Delivery of Payment. The Grantee herewith delivers to the
Company the full Exercise Price for the Shares, which, to the extent selected,
shall be deemed to be satisfied by use of the broker-dealer sale and remittance
procedure to pay the Exercise Price provided in Section 3(d) of the Option
Agreement.

         5.       Tax Consultation. The Grantee understands that the Grantee may
suffer adverse tax consequences as a result of the Grantee's purchase or
disposition of the Shares. The Grantee represents that the Grantee has consulted
with any tax consultants the Grantee deems advisable in connection with the
purchase or disposition of the Shares and that the Grantee is not relying on the
Company for any tax advice.

                                       1

<PAGE>

         6.       Taxes. The Grantee agrees to satisfy all applicable federal,
state and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Grantee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Award Date or within one (1) year from the date the Shares were
transferred to the Grantee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result of
such an early disposition, the Grantee agrees to satisfy the amount of such
withholding in a manner that the Administrator prescribes.

         7.       Restrictive Legends. The Grantee understands and agrees that
the Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:

                  (a)      Option Agreement Restrictions:

                  THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
                  SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A CERTAIN
                  LOCK-UP AGREEMENT BETWEEN JEFFRIES & COMPANY, INC. AND MORGAN
                  KEEGAN & COMPANY, INC. (AS REPRESENTATIVES OF SEVERAL
                  UNDERWRITERS) AND THE REGISTERED OWNER OF THESE SHARES (OR HIS
                  PREDECESSOR IN INTEREST), AND SUCH AGREEMENT IS AVAILABLE FOR
                  INSPECTION WITHOUT CHARGE AT THE OFFICE OF THE SECRETARY OF
                  THE CORPORATION.

                  (b)      Removal of Legend. Upon the expiration or termination
of the Lock-up Agreement of Section 13 of the Option Agreement (and of any
agreement entered pursuant to Section 13), the Shares then held by Grantee will
no longer be subject to the legend referred to in Section 7(a). After such time,
and upon Grantee's request, a new certificate or certificates representing the
Shares not repurchased shall be issued without the legend referred to in Section
7(a), and delivered to Grantee.

         8.       Successors and Assigns. The Company may assign any of its
rights under this Exercise Notice to single or multiple assignees, and this
agreement shall inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

         9.       Headings. The captions used in this Exercise Notice are
inserted for convenience and shall not be deemed a part of this agreement for
construction or interpretation.

                                       2

<PAGE>

         10.      Dispute Resolution. The provisions of Section 16 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

         11.      Governing Law; Severability. This Exercise Notice is to be
construed in accordance with and governed by the internal laws of the State of
California (as permitted by Section 1646.5 of the California Civil Code, or any
similar successor provision) without giving effect to any choice of law rule
that would cause the application of the laws of any jurisdiction other than the
internal laws of the State of California to the rights and duties of the
parties. Should any provision of this Exercise Notice be determined by a court
of law to be illegal or unenforceable, such provision shall be enforced to the
fullest extent allowed by law and the other provisions shall nevertheless remain
effective and shall remain enforceable.

         12.      Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified mail (if the parties are
within the United States) or upon deposit for delivery by an internationally
recognized express mail courier service (for international delivery of notice),
with postage and fees prepaid, addressed to the other party at its address as
shown below beneath its signature, or to such other address as such party may
designate in writing from time to time to the other party.

         13.      Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

         14.      Entire Agreement. The Notice, the Plan and the Option
Agreement are incorporated herein by reference and together with this Exercise
Notice constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan, the Option Agreement and this Exercise Notice (except as expressly
provided therein) is intended to confer any rights or remedies on any persons
other than the parties.

                            [Signature Page Follows]

                                       3

<PAGE>

Submitted by:                           Accepted by:

GRANTEE:                                BAM! ENTERTAINMENT, INC.

                                        By:_____________________________________

_____________________________           Title:__________________________________

Address:                                Address:

_____________________________           BAM! Entertainment, Inc.
_____________________________           333 W. Santa Clara Street, Suite 716
                                        San Jose, CA 95113

I, __________________, spouse of the Grantee, have read and hereby approve the
foregoing Exercise Notice. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Exercise Notice, I hereby
agree to be bound irrevocably by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall
hereby be similarly bound by the Exercise Notice. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Exercise Notice.

                                        ___________________________
                                        Spouse of Grantee

                                       4

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