Document:

VSOURCE, INC.

                       CONVERTIBLE NOTE PURCHASE AGREEMENT

          This Convertible Note Purchase Agreement (this "Agreement") is made as
of  this  25th  day  of  June,  2001  by  and  among  Vsource,  Inc., a Delaware
corporation  (the  "Company"),  NetCel360.com  Ltd.,  a  Cayman  Islands company
("NetCel"),  NetCel360  Sdn Bhd, a Malaysian company ("NetCel Malaysia" together
with  NetCel,  the "Guarantors"), and each of the persons and entities listed on
the  Schedule  of  Purchasers  attached  as  Exhibit  A  hereto  (hereinafter
collectively  referred  to  as  "Purchasers"  and  each  individually  as  a
"Purchaser").

                                 R E C I T A L S

          A.  Pursuant  to that certain Bridge Loan Agreement, dated as of April
6,  2001, as amended by that certain Amended and Restated Bridge Loan Agreement,
dated  as  of May 24, 2001, (as amended, supplemented or otherwise modified from
time  to  time,  the  "Bridge  Agreement"),  among NetCel360 Holdings Limited, a
Cayman  Islands  company  ("Holdings"),  the  Guarantors  and  certain  other
individuals  and  entities  listed as signatories thereto, NetCel has heretofore
borrowed  from  the  persons  and  entities (the "Bridge Lenders") listed on (i)
Schedule  1A thereto (collectively, the "Tranche A Bridge Lenders") an aggregate
principal  amount  of  $2.25  million  (the  "Tranche  A  Bridge Loan") and (ii)
Schedule 1B thereto (collectively, the "Tranche B Bridge Lenders", and, together
with  the Tranche A Bridge Lenders, the "Bridge Lenders") an aggregate principal
amount  of  US$1.45 million (the "Tranche B Bridge Loan", and, together with the
Tranche A Bridge Loan, the "Bridge Loans") in accordance with and subject to the
terms  and  conditions  of  the  Bridge  Agreement;

          B.  The  Company  has  acquired  certain subsidiaries of Holdings (and
related  assets),  including  each  of  the Guarantors, pursuant to that certain
Acquisition  Agreement,  dated  as  of  May  24,  2001, between Holdings and the
Company  (as  amended,  the  "Acquisition");

          C.  The  Company  is also considering a Series B Exchangeable Note and
Warrant  Purchase  Agreement  providing for financing to the Company of up to $4
million  pursuant to the issuance of Series B Exchangeable Promissory Notes (the
"Series  B Notes") which are expected to be exchangeable for Series A Promissory
Notes;

          D.  The  Company  wishes to issue, and the Purchasers wish to purchase
from  the Company, the Company's Convertible Promissory Notes in accordance with
and  subject  to  the terms and conditions of this Agreement in order to provide
for  the  working  capital  requirements  of  the  Company  and its subsidiaries
following  the  Acquisition;

          NOW  THEREFORE,  in  consideration  of  the foregoing recitals and the
mutual  promises  hereinafter  set  forth,  the parties hereto agree as follows:

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     1.     PURCHASE  AND  SALE  OF  SERIES  A  NOTES

          1.1     SALE AND ISSUANCE OF SERIES A NOTES.  Subject to the terms and
conditions  of this Agreement, each Purchaser agrees, severally and not jointly,
to  purchase,  and  the Company agrees to sell and issue to each such Purchaser,
that  principal  amount  of  the Company's Series A Convertible Promissory Notes
(individually,  a  "Note"  and  collectively,  the  "Series  A Notes") set forth
opposite such Purchaser's name on Exhibit A hereto, for the purchase price equal
to  the  principal  amount  thereof,  (the "Purchase Price"), payable in cash or
other  consideration  permitted  by  Section  1.3(d) hereunder in the amount set
forth  opposite  such  Purchaser's  name  on  Exhibit  A  hereto.  The aggregate
Purchase  Price  of  the Series A Notes for all Purchasers combined shall be not
less  than  $2,950,000  nor  more  than $11,500,000 plus the principal amount of
Series  A  Notes  issued  under  Section  1.3(c)  hereof.

          1.2     SUBORDINATION.  Each  Purchaser  agrees  that  no  amount (for
interest, principal, fees or otherwise) shall be paid in respect of the Series A
Notes  unless  and  until  NetCel, the Company and/or NetCel Malaysia shall have
paid  in  full all due and owing amounts in respect of the Bridge Loans based on
the  principal  amount  currently  outstanding.  Each  Purchaser agrees, for the
benefit  of the Bridge Lenders, that all amounts owing by Company and Guarantors
under  the  Series  A Notes are subordinated to the prior payment in full of all
amounts  in  respect  of  the  Bridge  Loans.  Each Purchaser agrees to hold any
amount  received in violation of the preceding sentence in trust for the benefit
of  the  Bridge  Lenders.

          1.3     CLOSING;  ADDITIONAL  CLOSINGS.

               (a)     The  purchase  and  sale  of  the  Series A Notes with an
aggregate  Purchase  Price  of  not less than $2,950,000 shall take place at the
offices of McDermott, Will & Emery, Chicago, Illinois at 10:00 a.m., on June 22,
2001,  or  at  such  later  time,  not  beyond June 30, 2001, as the Company may
specify  in writing to the Purchasers (which time and date are designated as the
"First  Closing").

               (b)     For  a period of 120 days following the date of the First
Closing,  the  Company  may,  at  any  time or from time to time, issue and sell
additional  Series  A  Notes  of like tenor (other than issuance date) to one or
more  individuals  or entities ("New Purchasers") on the same terms as set forth
in this Agreement.  Each New Purchaser, if any, which is not already a Purchaser
hereunder,  shall execute a joinder to this Agreement agreeing to be fully bound
by,  and subject to, all of the covenants, terms and conditions of the Agreement
and  shall  be deemed a "Purchaser" for all purposes hereof.  In connection with
any sale of Series A Notes to any New Purchaser pursuant to this Section 1.3(b),
Exhibit  A  shall  be  automatically amended to reflect the identity of such New
----------
Purchaser  and  such  New  Purchaser's  purchase of Series A Notes.  The date of
closing  of any purchase of Series A Notes pursuant to this Section 1.3(b) shall
be  an  "Additional  Closing"  and each of the First Closing and each Additional
Closing  shall  be  a  "Closing"  hereunder.

               (c)     In  the  event  a  holder  of  Series  B Notes ("Series B
Holders")  elects to exchange his Series B Notes for Series A Notes, the Company
may  issue to the Series B Holders in respect of the Series B Notes so exchanged
Series  A  Notes  identical to the Series A Notes (except for issue date).  Each
Series B Holder, if any, who is not already a Purchaser hereunder, shall execute

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a  joinder  to this Agreement agreeing to be fully bound by, and subject to, all
of  the  covenants,  terms and conditions of the Agreement and shall be deemed a
"Purchaser"  for all purposes hereof.  In connection with any issuance of Series
A  Notes to any Series B Holder pursuant to this Section 1.3(c), Exhibit A shall
                                                                 ---------
be  automatically  amended  to  reflect the identity of such Series B Holder and
such  Series  B  Holder's  purchase  of  Series  A  Notes.

                    (d)     Subject  to  the  terms  of  this  Agreement, at the
Closing,  the  Company  shall  deliver to each Purchaser a Note in the principal
amount  of  the applicable Purchase Price, against payment of the Purchase Price
therefor  by  check  or  a  wire  transfer  of  funds  to the following Account:

                        City  National  Bank,  Encino  Office
                        16133  Ventura  Blvd.
                        Encino,  CA  91436
                        ABA  #:        122016066
                        Beneficiary:   Vsource, Inc.
                        Acct  #:       024-845419

,  or  such  other  form  of  payment  as  shall be mutually agreed upon by such
Purchaser  and  the  Company.  In  the  case of a Purchaser which is a Tranche B
Bridge  Lender  or  a  Series  B  Holder,  the Purchase Price may be paid by the
surrender  to the Company of a promissory note issued in respect of such Tranche
B Bridge Lender's Tranche B Bridge Loan or such Series B Holder's Series B Note,
as  the  case  may  be  for  cancellation  in  full  of  the  Company's  and its
Subsidiaries  obligations  thereunder  and  the  Purchase  Price so paid will be
deemed  to  be  the  principal  amount  thereof and all accrued interest thereon
through  the  applicable  date  of  Closing.

               (e)     Shares  of  the  Preferred  Stock of the Company issuable
upon  conversion of the Series A Notes are herein referred to as the "Series 3-A
Preferred  Stock"  or the "Exchange Shares."  The shares of the Company's common
stock,  par  value  $0.01 share ("Common Stock") issuable upon conversion of the
Series  3-A  Preferred Stock are sometimes herein referred to as the "Conversion
Shares"  and  the  Series A Notes, Conversion Shares and the Exchange Shares are
sometimes  herein  referred  to  collectively  as  the  "Securities."

          1.4     USE  OF  PROCEEDS.  The proceeds of the sale of Series A Notes
by  the  Company  will  be used at the option of the Company (a) to redeem up to
$200,000  principal  amount  of the Bridge Loan made by Phillip Kelly and Dennis
Smith,  as Tranche B Bridge Lenders, (b) for general corporate purposes, and (c)
to pay the fees and expenses incurred in connection with the Acquisition and the
transactions  contemplated  hereby, including the fees and expenses described in
Section  6.3  of  this  Agreement.

     2.     GUARANTEE  AND  INDEMNITY.

          2.1     GUARANTEE.  In  consideration  of the purchase of the Series A
Notes  upon  the  terms  and conditions of this Agreement, the Guarantors hereby
jointly  and  severally  and  unconditionally  and  irrevocably  guarantee  as a
continuing  obligation,  the  due  and  punctual  payment of the Obligations (as
defined in Section 2.4 below) in the currency in which the same is payable under
the  terms of this Agreement and the due and punctual performance and observance
by  the  Company  of  all  other  obligations  of  the Company contained in this

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<PAGE>
Agreement  and  the  Series  A  Notes  (as  defined  below)  (collectively,  the
"Guarantee"), and if the Company fails to pay any amount of the Obligations when
due  the  Guarantors  shall  pay  such  amount to the Purchasers in the required
currency  as  aforesaid  forthwith  upon  receiving  the  written  demand of the
Majority  Holders.

          2.2     DEMANDS.  Demands may be made under the Guarantee from time to
time and may be enforced irrespective of whether any steps or proceedings are or
will  be  taken  against  the  Company  or any other person to recover under the
Series  A  Notes  or  interest  accrued  thereon  or  this  Agreement.

          2.3     INDEMNITY.  Without  prejudice  to  the guarantee contained in
Section 2.1, the Guarantors hereby jointly and severally and unconditionally and
irrevocably  undertake,  as  a  separate,  primary,  additional  and  continuing
obligation,  to  indemnify  each  Purchaser  against  all  losses,  liabilities,
damages, costs and expenses whatsoever arising out of any failure by the Company
to  make  due and punctual payment of the Obligations or in the due and punctual
performance and observance of all other obligations under this Agreement and the
Series  A Notes.  This indemnity shall remain in effect notwithstanding that the
Guarantee  under  Section  2.1 may cease to be valid and enforceable against the
Guarantors  for  any  reason  whatsoever.

          2.4     OBLIGATIONS.  For  the  purpose  of  this  Agreement,
"Obligations"  means  any  and all of the obligations of the Company (whether or
not  for  the  payment of money, and including any obligation to pay damages for
breach  of contract) which are or may become payable to the Purchasers or any of
them pursuant to this Agreement, the Series A Notes or Article V (redemption) of
the  Certificate  of  Designation  for  the  Series  3-A  Preferred  Stock.

          2.5     CONTINUING  GUARANTEE.  This  Guarantee  shall be a continuing
guarantee  and  shall remain in full force and effect until the Obligations have
been  paid  and performed in full, notwithstanding the insolvency or liquidation
or  any  incapacity  or  change  in the constitution or status of the Company or
either  or  both  of  the  Guarantors  or  any  other person or any intermediate
settlement  of  account  or  other  matter  whatsoever.

          2.6     PROTECTIVE CLAUSES.  Without limiting Section 2.5, neither the
liability of either of the Guarantors nor the validity or enforceability of this
Guarantee  shall  be  prejudiced,  affected  or  discharged  by:

               (a)     the  granting of any time or indulgence to the Company or
any  other  person;

               (b)     any  variation  or  modification  of  this Agreement, the
Series  A  Notes  or any other document referred to herein or therein or related
thereto;
               (c)     the  invalidity  or unenforceability of any obligation or
liability  of  any  party  under this Agreement, the Series A Notes or any other
documents  referred  to  herein  or  therein  or  related  thereto;

                                      -4-
<PAGE>
               (d)     any  invalidity  or irregularity in the execution of this
Agreement,  the  Series  A  Notes  or  any other documents referred to herein or
therein  or  related  thereto;

               (e)     any  lack  of capacity or deficiency in the powers of the
Company,  any  Guarantor or any other person to enter into or perform any of its
obligations  under  this  Agreement,  the  Series A Notes or any other documents
referred  to  herein  or  therein  or related thereto or any irregularity in the
exercise  thereof  or  any  lack of authority by any person purporting to act on
behalf  of  the  Company,  the  Guarantors  or  such  other  person;

               (f)     the  insolvency,  bankruptcy  or  liquidation  or  any
incapacity, disability or limitation or any change in the constitution or status
of  the  Company  or  either  or  both  of  the  Guarantors or any other person;

               (g)     any  other  security  document,  security  interest,
guarantee  or  other  security  or  right or remedy being or becoming held by or
available to any Purchaser or by any other person or by any of the same being or
becoming  wholly  or  partly void, voidable, unenforceable or impaired or by any
Purchaser  at  any  time releasing, refraining from enforcing, varying or in any
other  way  dealing  with  any  of  the  same  or any power, right or remedy any
Purchaser  may  now  or  hereafter have from or against the Company or any other
person;

               (h)     any  waiver,  exercise, omission to exercise, compromise,
renewal  or release of any rights against the Company or any other person or any
compromise,  arrangement  or  settlement  with  any  of  the  same;  or

               (i)     any  act,  omission, event or circumstance which would or
may  but  for  this  provision  operate  to  prejudice, affect or discharge this
Guarantee  or  the  liability  of  the  Guarantors  hereunder.

          2.7     Taxes  and  Other  Deductions.

               (a)     Funds.  All  payments  to  be  made  by  the  Company  or
                       -----
Guarantors  or  any  other  person under this Purchaser shall be made in full in
immediately  available  U.S.  Dollars  without  any  set  off  or  consideration
whatsoever,  free  and  clear  of  any Taxes, deductions or withholdings save as
required  by  law.

               (b)     Taxes.  If at any time Company or a Guarantor is required
                       -----
to  make  any deduction or withholding in respect of Taxes (as defined below) or
otherwise  from  any payment due under this Agreement or the Series A Notes, the
sum due from such Guarantor in respect of such payment shall be increased to the
extent  necessary  to  ensure  that,  after  the  making  of  such  deduction or
withholdings,  each  Purchaser  receives  on  the due date for such payment (and
retains,  free  from and clear of any Taxes or otherwise) a net sum equal to the
sum  which  it  would  have  received  had no such deduction or withholding been
required  to  be  made and such Guarantor shall indemnify each Purchaser against
any  losses  or  costs  incurred by any of them by reason of any failure of such
Guarantor  to  make  any  such  deduction  or  withholding  or  by reason of any
increased  payment  not  being  made  on  the  due  date for such payment.  Such
Guarantor  shall promptly deliver to the Purchaser any receipts, certificates or
other  proof  evidencing  the amounts (if any) paid or payable in respect of any
deduction or withholding as aforesaid.  "Taxes" shall mean taxes, charges, fees,
levies or other assessments of any nature, including, without limitation, sales,

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<PAGE>
value added, use, excise, real or personal property, withholding, stamp or other
taxes,  customs,  duties  or  landing  fees  or other government charges however
designated,  now  or hereafter imposed, collected or assessed by, or payable to,
any  taxing  authority  of any country and shall include interest, penalties and
additions imposed, collected or assessed or payable with respect to such amount.

          2.8     COSTS,  CHARGES  AND  EXPENSES.  The  Company  and each of the
Guarantors  shall  from  time  to  time  forthwith on demand of the holders of a
majority  of  the  then  outstanding principal amount of the Series A Notes (the
"Majority  Holders") pay to or reimburse the Purchaser for all reasonable costs,
charges  and  expenses  (including reasonable legal fees for one counsel for all
Purchasers  and other reasonable fees on a full indemnity basis) incurred by any
Purchaser  in  connection  with the enforcement of any of their rights or powers
hereunder  or  in  suing  for or seeking to recover any sums due hereunder or in
defending  any  claims  brought  against  them in respect of this Agreement, the
Series A Notes or this Guarantee and until payment of the same in full, all such
costs,  charges  and  expenses  shall  be  secured  by  this  Guarantee.

          2.9     UNDERTAKINGS.  Each  Guarantor  hereby  undertakes  and agrees
jointly  and severally with the Purchasers that the undertakings in this Article
2 shall remain in force throughout the continuance of this Guarantee and so long
as  the  Obligations  or  any  part  thereof  remains  owing  or  outstanding.

          2.10     UNRESTRICTED  RIGHT  OF  ENFORCEMENT.  The  Guarantee  may be
enforced  without  any Purchaser first having made any demand or had recourse to
any  other  security  or rights or taking any other steps or proceedings against
the  Company,  either  or  both of the Guarantors or any other person and may be
enforced  for  any balance due after resorting to any one or more other means of
obtaining payment or discharge of the monies, obligations and liabilities hereby
secured.

          2.11     DISCHARGE  AND  RELEASE.  Notwithstanding  any  discharge,
release  or  settlement  from  time  to  time  between  any  Purchaser  and  the
Guarantors,  if  any  security,  disposition  or  payment granted or made to the
Majority  Holders  or  any  Purchaser  in  respect  of  the  Obligations  by the
Guarantors  or  any  other  person  is  avoided  or  set  aside or ordered to be
surrendered,  paid  away, refunded or reduced by virtue of any provision, law or
enactment  relating  to  bankruptcy,  insolvency,  liquidation,  winding-up,
composition  or arrangement for the time being in force or for any other reason,
the Majority Holders shall be entitled hereafter to enforce this Agreement as if
no  such  discharge,  release  or  settlement  had  occurred.

          2.12     AMENDMENT.  Any  amendment  or waiver of any provision of the
Guarantee  and  any  waiver  of  any  default under this Agreement shall only by
effective  if  made  in  writing  and  signed  by  the  Majority  Holders.

     3.     REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY

               As  used herein, (i) any reference to any event, change or effect
being  "material"  with  respect  to  the  Company or any Subsidiary (as defined
herein)  means  an  event, change or effect which is material in relation to the
financial  condition,  properties,  business,  operations,  assets or results of
operations  of  the  Company and each Subsidiary, taken as a whole, and (ii) the

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term "Material Adverse Effect" on the Company means a material adverse effect on
the  financial condition, properties, business, operations, assets or results of
operations  of  the  Company  and its Subsidiaries, taken as a whole.  As of the
date  hereof  and  each  Additional  Closing,  the Company hereby represents and
warrants  to, and covenants with, each Purchaser, except as contemplated by this
Agreement or as set forth in the Disclosure Schedule (the "Disclosure Schedule")
attached  hereto,  as  follows:

          3.1     ORGANIZATION  AND  STANDING.  The  Company  has  been  duly
incorporated,  is  validly  existing  and in good standing under the laws of the
State  of  Delaware  and  has  corporate  power  and authority to own, lease and
operate  its  properties  and  to  conduct  its business in the manner presently
conducted  and  to  enter into and perform its obligations under this Agreement,
the  Series  A  Notes  and,  subject  to  obtaining  shareholder approval of the
Shareholder  Proposals,  the  Certificate  of Designation for designation of the
Exchange Shares (the "Certificate of Designation").  The Company and each of the
Subsidiaries is duly qualified as a foreign corporation to transact business and
is  in  good  standing in each other jurisdiction in which such qualification is
required,  whether  by  reason  of  the  ownership or leasing of property or the
conduct  of  business,  except  where the failure to so qualify or to be in good
standing  would  not  result  in  a Material Adverse Effect.  The Company is not
required  to  register  as  an  "investment  company"  within the meaning of the
Investment  Company  Act  of  1940.  The  Company  has  made  available  to  the
Purchasers  a  true,  complete  and correct copy of the Company's certificate of
incorporation and bylaws and the constitution documents of each Subsidiary, each
as  amended  to  date  (collectively,  the  "Organizational  Documents").  The
Organizational  Documents  are  in  full  force  and  effect.

          3.2     CAPITALIZATION.  As of the date hereof, the authorized, issued
and  outstanding  shares of capital stock of the Company are as set forth in the
Company's  Annual  Report  on  form 10-KSB for the fiscal year ended January 31,
2001,  as  filed  with the SEC on May 16, 2001, as amended (the "Form 10-K") and
Quarterly  Report  on  form 10-Q for the fiscal period ended April 30, 2001 (the
"Form  10-Q"),  with  such  changes  as  are (a) contemplated by the Acquisition
Agreement,  this  Agreement  or  the Series B Note Agreement or (b) set forth on
Schedule  3.2.  The  authorized  capital  also  includes  shares  of  Series 3-A
Preferred  Stock  having the rights, privileges and preferences set forth in the
Certificate  of  Designation, none of which shares have been issued prior to the
date  hereof.  All issued and outstanding shares of capital stock of the Company
have  been  duly  authorized  and  validly  issued  and  are  fully  paid  and
non-assessable;  none  of the outstanding shares of capital stock of the Company
have  been issued in violation of the pre-emptive or other similar rights of any
person or in violation of any applicable securities laws or regulations.  Except
as  otherwise  specified  in  Schedule 3.2 hereto or described in the Form 10-Q,
                              ------------
there  are  no shares of capital stock or other securities of the Company or any
Subsidiary (i) reserved for issuance or (ii) subject to preemptive rights or any
outstanding  subscriptions,  options,  warrants,  calls,  rights,  convertible
securities  or  other  agreements  or other instruments outstanding or in effect
giving  any  person  the  right  to acquire any shares of capital stock or other
securities  of the Company or any Subsidiary or any commitments of any character
relating  to  the  issued  or  unissued capital stock or other securities of the
Company  or  any  Subsidiary.  On  the  date  hereof  the  Company does not have
outstanding  any  bonds,  debentures,  notes or other obligations the holders of
which  have  the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Company.  The sale
of  the  Series A Notes, Exchange Shares and Conversion Shares is not subject to
any  preemptive rights or rights of first refusal and, when issued and delivered

                                      -7-
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in  compliance  with the provisions of this Agreement, the Series A Notes and/or
the  Certificate  of Designation, the Exchange Shares and Conversion Shares will
be  duly  and  validly issued, fully paid and nonassessable, and will be free of
any liens, encumbrances or restrictions on transfer; provided, however, that (a)
the  Securities  may  be  subject to restrictions on transfer under state and/or
federal  securities  laws  as  set forth herein or as otherwise required by such
laws  at  the  time a transfer is proposed, and (b) the Securities shall only be
assigned  pursuant  to  Section  8.3  hereof.

          3.3     AUTHORIZATION  OF AGREEMENTS.  This Agreement and the Series A
Notes have been duly authorized, executed and delivered by the Company, and this
Agreement  and  each  of the Series A Notes constitute valid and legally binding
obligations  of the Company, enforceable in accordance with their terms, subject
to  bankruptcy,  insolvency, fraudulent transfer, reorganization, moratorium and
other  similar laws of general applicability relating to or affecting creditors'
rights  and  to general equity principles except that the right of the holder of
Exchange  Shares to convert Exchange Shares into Conversion Shares is subject to
receipt  of  shareholder  approval  of  the  Shareholder  Proposals  (as  herein
defined).  The  Board  of  Directors of the Company has approved the Shareholder
Proposals  and  recommended  approval thereof by the stockholders of the Company
and  has  duly  approved  the  Certificate  of Designation.  Such Certificate of
Designation  has  been duly filed with the Secretary of State of Delaware and is
in  full  force  and  effect.

          3.4     ABSENCE  OF  DEFAULTS  AND CONFLICTS.  None of the Company nor
any  Subsidiary  (as  defined  below)  is  in  violation  of  its organizational
documents.  Except  as  set  forth  on  Schedule  3.4,  the execution, delivery,
performance  and  consummation  of  this  Agreement  and  the Series A Notes and
issuance  of  the  Exchange Shares and the Conversion Shares by the Company does
not  and  will not, with respect to the Company and each Subsidiary, directly or
indirectly, (with or without the giving of notice or the lapse of time or both):
(i)  subject in the case of the issuance of the Conversion Shares to the receipt
of shareholder approval of the Shareholder Proposals, contravene, conflict with,
or  constitute or result in a breach or violation of, or a default under (A) any
provision  of  any of the Organizational Documents or (B) any resolution adopted
by the Board of Directors (or similar governing body) or the stockholders of the
Company  or  any  Subsidiary;  (ii)  contravene, conflict with, or constitute or
result  in a breach or violation of, or a default under, or the acceleration of,
or  the triggering of any payment or other obligations pursuant to, any existing
benefit  plan  maintained by the Company or any Subsidiary or any grant or award
made  under any of the foregoing; (iii) contravene, conflict with, or constitute
or  result in a breach or violation of, or a default under, or the cancellation,
modification  or  termination  of,  or the acceleration of, or the creation of a
lien  on any properties or assets owned or used by the Company or any Subsidiary
pursuant  to, any provision of any contract, indenture, mortgage, deed of trust,
loan  or credit agreement, note, lease or other agreement or instrument to which
it  is  a  party or by which it may be bound, or to which any of its property or
assets  is subject ("Contract"), except for those that would not individually or
in  the aggregate result in a Material Adverse Effect; (iv) contravene, conflict
with,  or  constitute or result in a breach or violation of, any federal, state,
local,  municipal, foreign, international, multinational, or other constitution,
law,  rule,  requirement,  administrative ruling, order, ordinance, principle of
common  law,  code, regulation, statute, treaty or process ("Law") or any award,
decision,  injunction,  judgment,  decree,  settlement,  order, process, ruling,
subpoena  or  verdict  (whether  temporary,  preliminary  or  permanent entered,
issued,  made  or  rendered  by  any  court,  administrative agency, arbitrator,
Governmental  Entity  or  other  tribunal of competent jurisdiction ("Order") or
give  any  foreign,  federal,  state,  local,  municipal,  county  or  other

                                      -8-
<PAGE>
governmental,  quasi-governmental, administrative or regulatory authority, body,
agency,  court,  tribunal,  commission  or  other  similar entity (including any
branch,  department  or  official  thereof) ("Governmental Entity") or any other
person  the right to challenge any of the transactions contemplated herein or to
exercise  any  remedy  or obtain any relief under, any Law or any Order to which
the Company or any Subsidiary, or any of the assets owned or used by the Company
or  any  Subsidiary,  are subject;  (v) require any filing by the Company or any
Subsidiary  with,  or  approval  or consent or other action by, any Governmental
Entity  or  any  other  person; (vi) contravene, conflict with, or constitute or
result  in  a  breach  or violation of, or a default under, any provision of, or
give  any  Governmental  Entity  the right to revoke, withdraw, suspend, cancel,
terminate  or  modify,  any license or permit that is held by the Company or any
Subsidiary  or  that  otherwise  relates  to  the business of the Company or any
Subsidiary, or any of the assets owned or used by the Company or any Subsidiary;
or  (vii)  cause  any of the assets owned by the Company or any Subsidiary as of
the  date  hereof  to be reassessed or revalued by the taxing authority or other
Governmental  Entity.

          3.5     ABSENCE  OF PROCEEDINGS.  Except as described in the Form 10-K
or  the  Form  10-Q  or  set  forth  in  Schedule 3.5, there is no action, suit,
proceeding,  inquiry  or  investigation  before  or  brought  by  any  court  or
governmental  agency  or  body,  domestic  or  foreign,  now pending, or, to the
knowledge  of  the  Company, threatened, against or affecting the Company or any
Subsidiary  which  might reasonably be expected individually or in the aggregate
to result in a Material Adverse Effect, or which might reasonably be expected to
materially  and  adversely affect the properties or assets of the Company or any
Subsidiaries  or  the  consummation  of  the  transactions  contemplated in this
Agreement,  the  Series  A  Notes  or  the  Certificate  of  Designation  or the
performance by the Company of its obligations hereunder.  Except as disclosed in
the  Form 10-K or Form 10-Q, or set forth in Schedule 3.5, no event has occurred
or  circumstance  exists that is reasonably likely to give rise to or serve as a
basis  for  the  commencement  of  any  such  action.

          3.6     INTELLECTUAL  PROPERTY.

               (a)     Intellectual  Property  Assets.  The  term  "Intellectual
                       ------------------------------
Property  Assets"  includes:

                    (i)  names Vsource, NetCel360 and all registered trademarks,
          service  marks,  and  applications  (collectively,  "Marks");

                    (ii)  all know-how, trade secrets, confidential information,
          software,  technical information, process technology, plans, drawings,
          and  blue  prints  (collectively,  "Trade  Secrets");  and

                    (iii) all domain names and URL addresses for websites on the
          internet  or  the  world  wide  web  ("Domain Names"); owned, used, or
          licensed  by  the  Company  or any Subsidiary as licensee or licensor.

                                      -9-
<PAGE>
               (b)     Intellectual  Property  Necessary  for  the  Company's
                       ------------------------------------------------------
Business.  The  Intellectual  Property  Assets  are  all those necessary for the
       -
operation of the business of the Company and its Subsidiaries as it is currently
conducted.  Except  as  set forth in Schedule 3.6(b) of the Disclosure Schedule,
the  Company  and/or  one or more of the Subsidiaries is the owner of all right,
title, and interest in and to, or has the right to use, each of the Intellectual
Property Assets, free and clear of all Liens (except for the Liens granted under
the  Bridge  Loans  (the "Bridge Loan Liens")), and other adverse claims and has
the  right  to  use, without any payment to any third party in excess of $50,000
per  year,  all  of  the  Intellectual  Property  Assets.

               (c)     Trademarks.
                       ----------

                    (i)  Except  as  set forth on Schedule 3.6(c), the Form 10-K
          contains  a true, complete and correct list and summary description of
          all  Marks. To the knowledge of the Company, the Company and/or one or
          more  of  the  Subsidiaries  is the owner, licensor or licensee of all
          right, title, and interest in and to each of the Marks, free and clear
          of  all  Liens  (except  for the Bridge Loan Liens), and other adverse
          claims.

                    (ii)  No Mark has been or is now involved in any opposition,
          invalidation, or cancellation and, to the knowledge of the Company, no
          such  action  is  threatened  with  respect  to  any  of  the  Marks.

                    (iii) To the knowledge of the Company, there is no trademark
          or  trademark  application  of  any  third  party  which  potentially
          interferes  with  any  of  the  Marks.

                    (iv)  No  Mark  is  infringed  or,  to  the knowledge of the
          Company,  has  been  challenged  or threatened in any way by any other
          Person. To the knowledge of the Company, none of the Marks used by the
          Company  or  any  Subsidiary  infringes  or is alleged to infringe any
          trade  name,  trademark,  or  service  mark  of  any  third  party.

               (d)     Trade  Secrets.  To  the  knowledge  of  the Company, the
                       --------------
Company  and/or  one  or more of the Subsidiaries has good title and an absolute
(but not necessarily exclusive) right to use the Trade Secrets. To the knowledge
of  the  Company,  the  Trade  Secrets  are  not part of the public knowledge or
literature,  and, to the knowledge of the Company, have not been used, divulged,
or  appropriated either for the benefit of any person (other than the Company or
any  Subsidiary  or pursuant to a non-disclosure agreement), or to the detriment
of  the  Company  or  any  Subsidiary. No Trade Secret is subject to any adverse
claim or, to the knowledge of the Company or any Subsidiary, has been challenged
or  threatened  in  any  way.

               (e)     Domain  Names.  Schedule  3.6(e)  of  the Disclosure
                       -------------
Schedule  sets  forth a complete list of all Domain Names used in the conduct of
the  business  of  the  Company and its Subsidiaries.  The Company and/or one or
more  Subsidiaries is the owner of all right, title, and interest in and to each
of  the  Domain  Names,  free and clear of all Liens (except for the Bridge Loan
Liens).  Such  Domain  Names  are  properly registered with Network Solutions or

                                      -10-
<PAGE>
such  other  agency or company duly authorized by relevant Governmental Entities
to maintain such registry, and all fees due in respect of such registration have
been  paid.

          3.7     PRIVATE  PLACEMENT.  Neither the Company nor any affiliate (as
defined  in Rule 405 under the Securities Act) thereof has (i) sold, offered for
sale,  solicited  offers  to  buy  or  otherwise  negotiated  in respect of, any
security  (as defined in the Securities Act) which is or will be integrated with
the sale of the Securities in a manner that would require the registration under
the U.S. Securities Act of 1933 (the "Securities Act") of the Securities or (ii)
engaged  in  any form of general solicitation or general advertising (within the
meaning of Rule 502(c) of Regulation D under the Securities Act) or any directed
selling  efforts  (as  defined under the Securities Act) in the United States in
connection  with  the offer and sale of the Securities. Assuming the accuracy of
the  representations  and  warranties  of  each Purchaser contained in Section 3
hereof,  the  offer,  issue,  and  sale  of the Securities:  (a) are and will be
exempt  from  the  registration  and  prospectus  delivery  requirements  of the
Securities Act of 1933, as amended (the "1933 Act"); and neither the Company nor
any  authorized  agent  acting on its behalf will take any action hereafter that
would  cause  the  loss  of  such  exemption,  and  (b)  have been registered or
qualified  (or  are  exempt  from  registration  and  qualification)  under  the
registration,  permit,  or  qualification  requirements  of all applicable state
securities  laws.

          3.8     SUBSIDIARIES.  Each  subsidiary  of  the  Company, meaning any
entity in which the Company, directly or indirectly, beneficially owns more than
50%  of  the equity interest in, or the voting control of, such company (each, a
"Subsidiary"),  is a corporation validly existing and in good standing under the
laws  of  its  jurisdiction  of  incorporation  and has full corporate power and
authority  to own, lease and operate its properties, conduct its business as and
to  the extent now conducted.  All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable,  and,  except as set out in Schedule 3.8, are owned, beneficially
                                           ------------
and  of  record, by the Company or Subsidiaries wholly owned by the Company free
and  clear  of  all liens, charges, encumbrances, options, rights of pre-emption
and  third  party rights whatsoever (collectively, "Liens").  A complete list of
all  Subsidiaries  is  set  out  in  Schedule  3.8.  Except  as  set out in that
                                     -------------
schedule,  the  Company does not own, directly or indirectly, any of the capital
stock  or  voting  stock  of  any  other  company  or  corporation.

          3.9     LIABILITIES.  Except  potential  Liabilities  referred  to  in
the  Form  10-Q  or  as  set  forth on Schedule 3.9, neither the Company nor any
Subsidiary  has  any  debt,  liability,  commitment  or  obligation of any kind,
character  or  nature  whatsoever, whether known or unknown, choate or inchoate,
secured  or  unsecured,  accrued,  fixed, absolute, contingent or otherwise, and
whether  due  or  to  become  due  ("Liability")  (and,  to the knowledge of the
Company,  there  is  no basis for any present or future action against it giving
rise  to  any  Liability) except for (i) Liabilities or obligations reflected or
reserved  against  on the balance sheet contained in the Financial Statements or
the  Interim  Financial  Statements  (as  defined  herein)  and  (ii)  current
Liabilities  incurred  in the ordinary course of business (none of which results
from,  arises  out  of,  relates  to,  is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of Law)
since  the  date  thereof.

          3.10     BROKERS.  All negotiations relative to this Agreement and the
transactions  contemplated  hereby have been carried out by the Company directly

                                      -11-
<PAGE>
without  the  intervention of any person on behalf of the Company in such manner
as  to give rise to any valid claim by any person against the Purchasers (or any
of them), the Company or any Subsidiary for a finder's fee, brokerage commission
or  similar  payment.

          3.11     SEC FILINGS.  Except as disclosed in the Disclosure Schedule,
the  Form 10-K or the Form 10-Q (including any financial statements or schedules
included  therein)  and  each  other  filing of the Company under the Securities
Exchange  Act of 1934, as amended, made since May 15, 2001 (i) complied with the
requirements  of  the  Securities  Act  of  1933,  as amended, or the Securities
Exchange  Act of 1934, as amended, as the case may be, in all material respects,
and  (ii)  did  not  at  the  time  of  filing  (or  if amended, supplemented or
superseded  by  a  filing  prior to the date hereof, on the date of that filing)
contain any untrue statement of a material fact or omit to state a material fact
required  to  be  stated  therein  or  necessary in order to make the statements
therein,  in  the  light  of  the  circumstances under which they were made, not
misleading.

          3.12     FINANCIAL  STATEMENTS.  The  audited  consolidated  financial
statements of (i) the Company as of and for the years ended January 31, 2000 and
January  31, 2001 and (ii) NetCel360 Holdings Limited ("Holdings") as of and for
the  year ended December 31, 2000 (collectively, the "Financial Statements") and
the unaudited consolidated financial statements of the Company as of and for the
three months ended April 30, 2001 and of Holdings as of and for the three months
ended  March  31, 2001 (collectively, the "Interim Financial Statements"), which
have  been  made  available  to the Purchasers, have been prepared in accordance
with  US  generally  accepted  accounting principles ("GAAP") applied on a basis
consistent  throughout  the periods indicated (except as may be indicated in the
notes  thereto)  and  present  fairly  in all material respects the consolidated
financial  condition  and  consolidated  operating  results  of  the  Company or
Holdings,  as  the  case  may  be, of the dates and during the periods indicated
therein  in conformance with GAAP, subject, in the case of the Interim Financial
Statements,  to normal year-end adjustments, consistent with past practices.  As
of  their  respective  date, the Financial Statements did not contain any untrue
statement  of  a  material  fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances  under  which they were made, not misleading.  Except as set forth
in  the  Financial  Statements, the Interim Financial Statements, the Form 10-K,
Form  10-Q  or  a  Current  Report on Form 8-K filed by the Company with the SEC
prior  to  the applicable Closing, or arising in the ordinary course of business
since  April  1,  2001,  as  of  the  date  hereof  none  of the Company nor any
Subsidiary  has  (A) incurred any material liabilities of any nature (matured or
unmatured,  fixed  or  contingent)  or (B) made any material disposal of assets,
suffered  any loss or material damage of any assets, waived any valuable rights,
made  any  material  change  in  any material contract to which it is a party or
declared  or  paid  any  dividends.

          3.13     NON-COMPETITION  AGREEMENTS.  Except  as  set  forth  in  the
Disclosure  Schedule delivered by Holdings to the Company in connection with the
Acquisition,  neither  the Company nor any of its Subsidiaries is a party to any
non-competition  or  other  agreement  or subject to any duty which prohibits or
limits the ability of the Company or any Subsidiary (i) to engage in any line of
business,  (ii)  to  compete  with  any  person, (iii) to carry on or expand the
nature  or  geographical scope of the business of the Company or such Subsidiary
anywhere  in  the  world or (iv) to disclose any confidential information in the
possession  of  the  Company  or  any  Subsidiary  (any  not otherwise generally

                                      -12-
<PAGE>
available to the public), other than, in the case of (iv) only, any contract for
the  sale  or  purchase  of  goods  or  services or any non-disclosure agreement
entered into in connection with the possible or actual sale or purchase of goods
or  services  in the ordinary course of business that does not meet any other of
the  criteria  set  forth  in  this  Section  3.13.

          3.14     CERTAIN PAYMENTS.  Since their incorporation or organization,
neither  the  Company  nor  any  Subsidiary  has,  nor has any representative of
Company  or  any  Subsidiary,  or  to  the knowledge of the Company or any other
person  associated  with  or  acting  for  or  on  behalf  of the Company or any
Subsidiary,  directly  or  indirectly  (a)  made  any contribution, gift, bribe,
rebate,  payoff,  influence  payment,  kickback, or other payment to any person,
private  or  public, regardless of form, whether in money, property, or services
(i)  to  obtain  favorable  treatment  in  securing  business,  (ii)  to pay for
favorable treatment for business secured, or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company or
any  Subsidiary  or (b) established or maintained any fund or asset that has not
been  recorded  in  the  books  and  records  of  the Company or any Subsidiary.

          3.15     SMALL  BUSINESS  MATTERS.  The  Company  acknowledges  and
understands  that  Mercantile Capital Partners I, LP is a Federal licensee under
the  Small  Business  Investment  Act  of  1958  and the regulations promulgated
thereunder,  each  as  amended (the "SBIC Act").  The Company, together with its
"affiliates"  (as  that  term  is  defined  in  the SBIC Act, including, without
-----------
limitation,  Title  13,  Code  of Federal Regulations, Sec.121.103), is a "small
                                                                           -----
business  concern"  within the meaning of Title 13, Code of Federal Regulations,
-----------------
Sec.121.301(c).  The  information  regarding  the Company and its affiliates set
forth  in  the SBA Form 480, Form 652 and Parts A and B of Form 1031 and the Use
of  Proceeds  Statement  delivered  at the Closing is accurate and complete. The
Company  does  not  presently  engage  in, and does not intend to engage in, any
activities,  nor  does  the  Company  intend to use, directly or indirectly, the
proceeds  from the Series A Notes for any purpose for which a licensee under the
SBIC  Act  is  prohibited  from providing funds by the SBIC Act (including under
Title  13,  Code  of  Federal  Regulations,  Sec.Sec.  107.720).

          3.16     NO  OTHER  REPRESENTATIONS.  Notwithstanding  anything to the
contrary  contained  in  this Agreement, it is the explicit intent of each party
hereto that the Company is not making any representation or warranty whatsoever,
express  or  implied,  except those representations, and warranties contained in
this  Article  3.

     4.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  PURCHASERS

          Each  Purchaser,  severally  but  not  jointly,  hereby represents and
warrants  to  the  Company  as  follows:

          4.1     LEGAL  POWER.  It  has the requisite legal power to enter into
this  Agreement,  to  purchase the Series A Notes hereunder and to carry out and
perform  its  obligations  under  the  terms  of  this  Agreement.

          4.2     DUE  EXECUTION.  This  Agreement  have  been  duly authorized,
executed  and  delivered  by  it,  and,  upon  due execution and delivery by the
Company  and  such  Purchaser,  this  Agreement  and  will  be valid and binding
agreements of it, subject to laws of general application relating to bankruptcy,

                                      -13-
<PAGE>
insolvency  and  the  relief  of  debtors  and  subject  to  the availability of
equitable  remedies.

          4.3     NO  CONFLICTS;  NO CONSENTS REQUIRED.  The execution, delivery
and performance of and compliance with this Agreement by such Purchaser will not
result  in  any  violation  of  any  term  of  any material mortgage, indenture,
contract,  agreement  or  other  instrument  or any judgment, decree or order to
which such Purchaser is a party or subject, or be in conflict with or constitute
a  default  under  any  such  term.  All  consents,  approvals,  orders,  or
authorizations  of or registrations, qualifications, designations, declarations,
or  filings  with,  any governmental authority or other third party, required on
the part of the Purchaser in connection with the valid execution and delivery of
this Agreement, the purchase of the Securities, or the consummation of any other
transaction  contemplated hereby have been obtained, or will be effective at the
Closing, except for notices required or permitted to be filed with certain state
and  federal  securities  commissions  after  the  Closing.

          4.4     INVESTMENT  REPRESENTATIONS.

               (a)     It  is  acquiring the Securities for its own account, not
as  nominee  or  agent,  for investment and not with a view to, or for resale in
connection  with, any distribution or public offering thereof within the meaning
of  the  1933  Act.

               (b)     It  understands  that  (i)  the  Securities have not been
registered  under the 1933 Act by reason of a specific exemption therefrom, that
they  must  be  held  by  it indefinitely, and that it must, therefore, bear the
economic  risk  of such investment indefinitely, unless a subsequent disposition
thereof  is  registered  under the 1933 Act or is exempt from such registration;
(ii)  each  certificate  representing  the  Series  A Notes, Exchange Shares and
Conversion  Shares  will  be  endorsed  with  a  legend similar to the following
legend:

     "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER  THE SECURITIES ACT OF 1933, AS AMENDED, (THE "1933 ACT") OR THE
     SECURITIES  LAWS  OF  ANY  STATE  AND  MAY  NOT  BE SOLD, TRANSFERRED,
     ASSIGNED  OR HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
     STATEMENT  UNDER  THE  1933  ACT  COVERING  SUCH  SECURITIES  AND  IN
     COMPLIANCE  WITH SUCH STATE LAWS OR IF THE COMPANY RECEIVES AN OPINION
     OF  COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
     TO  THE  COMPANY,  STATING  THAT  SUCH  SALE,  TRANSFER, ASSIGNMENT OR
     HYPOTHECATION  IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
     REQUIREMENTS  OF  THE  1933  ACT  AND  SUCH  APPLICABLE  STATE  LAWS."

and  (iii)  the  Company  will  instruct  any transfer agent not to register the
transfer  of  any  of  the  Securities  unless  the  conditions specified in the
foregoing  legend  are  satisfied;  provided,  however,  that no such opinion of
counsel  shall be necessary if the sale, transfer or assignment is made pursuant
to  Securities  and  Exchange  Commission  ("SEC")  Rule  144 and such Purchaser

                                      -14-
<PAGE>
provides  the  Company  with evidence reasonably satisfactory to the Company and
its  counsel  that  the  proposed transaction satisfies the requirements of Rule
144.  The  Company  agrees to remove the foregoing legend from any securities if
the  requirements of SEC Rule 144(k) (or any successor rule or regulation) apply
with  respect  to  such  securities and the Company and its counsel are provided
with  reasonably  satisfactory  evidence  that  the  requirements of Rule 144(k)
apply.

                    (c)     It  is an investor in securities of companies in the
development  stage  and  acknowledges  that it can bear the economic risk of its
investment  and  has  such  knowledge  and  experience  in financial or business
matters  that it is capable of evaluating the merits and risks of the investment
in  the  Securities.

                    (d)     It has  reviewed  this Agreement and the Certificate
of  Designation  and  all the schedules and exhibits to such documents carefully
and has conducted such investigation of the Company as it has deemed appropriate
and  has  had  the  questions  it  has  asked  of  the  Company  answered to its
satisfaction.

                    (e)     It  has  not been offered the Securities by any form
of  advertisement,  article,  notice  or  other  communication  published in any
newspaper,  magazine  or similar media or broadcast over television or radio, or
any  seminar  or  meeting  whose  attendees  have  been  invited  by such media.

                    (f)     It  is  (i)  an  "accredited  investor"  within  the
meaning  of  SEC Rule 501 of Regulation D, as presently in effect; or (ii) not a
"U.S. person" within the meaning of SEC Rule 902 and is acquiring the Securities
in  an  "offshore  transaction"  as  defined  in  SEC  Rule  902.

                    (g)     If  Purchaser  is a  corporation, partnership, trust
or  other  entity,  it  was not formed for the specific purpose of acquiring the
Shares  offered  hereunder.

                    (h)     Its  principal address is as set forth  on Exhibit A
hereto,  and it does not reside in any state of the United States other than the
state  specified  in  its  address  on  Exhibit  A,  if  at  all.

     5.     CONDITIONS  TO  CLOSING

          5.1     CONDITIONS  TO  OBLIGATIONS  OF THE PURCHASERS AT THE CLOSING.
Each  Purchaser's  obligation  to  purchase the Series A Notes at the Closing is
subject  to the fulfillment, at or prior to the Closing, of all of the following
conditions,  any  of  which  may  be  waived  by  such  Purchaser:

               (a)     Representations  and  Warranties;  Performance  of
                       --------------------------------------------------
Obligations.  The  representations and warranties made by the Company in Section
          -
3  hereof  shall be true and correct in all material respects on the date of the
Closing,  with  the  same force and effect as if they had been made on and as of
said  date;  and  the  Company  shall  have  performed  and complied with in all
material respects all obligations and conditions herein required to be performed
or  complied  with  by  it  on  or  prior  to  the  Closing.

                                      -15-
<PAGE>
               (b)     Certificate  of  Designation.  The  Company  shall  have
                       ----------------------------
executed  and  filed  with  the  Delaware  Secretary of State the Certificate of
Designation  in  the  form  of  Exhibit  C  attached hereto (the "Certificate of
Designation").

               (c)     Proceedings  and  Documents.  All  corporate  and  other
                       ---------------------------
proceedings in connection with the transactions contemplated at the Closing, and
all  documents and instruments incident to such transactions shall be reasonably
satisfactory  in substance and form to the Purchasers' counsel, which shall have
received  all  such  counterpart  originals or certified or other copies of such
documents  as  it  may  reasonably  request.

               (d)     Qualifications;  Legal  Investment.  All  authorizations,
                       ----------------------------------
approvals,  or permits, if any, of any governmental authority or regulatory body
of  the  United  States or of any state that are required in connection with and
prior  to  the  lawful  sale  and  issuance  of  the Securities pursuant to this
Agreement  and all authorizations, approvals and permits, if any, needed by such
Purchaser  to purchase the Securities shall have been duly obtained and shall be
effective  on and as of the Closing.  No stop order or other order enjoining the
sale  of  the  Shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the SEC, the
California  Commissioner  of  Corporations, the Delaware Secretary of State or a
similar  official  of any other state having jurisdiction over this transaction.
At the time of the Closing, the sale and issuance of the Shares shall be legally
permitted  by  all  laws and regulations to which each Purchaser and the Company
are  subject.

               (e)     Payment  of Purchase Price.  The aggregate Purchase Price
                       --------------------------
for  all  Series  A  Notes  purchased on or before the First Closing date by all
Purchasers  at  the  First  Closing  shall  equal  or  exceed  $1,500,000.

               (f)     Use  of  Proceeds.  The  Company shall have delivered for
                       -----------------
each  Purchaser  which  is licensed as a small business investment company under
the  SBIC  Act  (the  "SBIC Holder"), completed and executed United States Small
Business Administration ("SBA") Forms 480, 652 and 1031 (Parts A and B) together
with a written statement from the Company regarding its intended use of proceeds
from the sale of the Series A Notes hereunder (the "Use of Proceeds Statement").

               (g)     Opinion of Company Counsel.  The Company's legal counsel,
                       --------------------------
McDermott,  Will  &  Emery,  shall  have  delivered an opinion to the Purchasers
addressing  the  issues  customarily  addressed in transactions of the nature of
those  contemplated in this Agreement and which shall be reasonably satisfactory
in  form  and  content  to  Mercantile  Capital  Partners  I,  L.P.,  one of the
Purchasers  ("Mercantile").

               (h)     SBA  Approval.  Each  Purchaser  which  is  a SBIC Holder
                       -------------
shall  have  received  all  approvals  from  the  SBA  necessary to purchase the
Securities.

          5.2     CONDITIONS  TO OBLIGATIONS OF THE COMPANY AT THE CLOSING.  The
Company's  obligation  to issue and sell the Series A Notes under this Agreement
to a Purchaser is subject to the fulfillment, on or prior to the Closing, of the
following  conditions  as  to  such Purchaser, any of which may be waived by the
Company:

                                      -16-
<PAGE>
               (a)     Representations  and  Warranties,  Performance  of
                       --------------------------------------------------
Obligations.  The  representations  and  warranties  made  by  such Purchaser in
          -
Section  4 hereof shall be true and correct at the date of the Closing, with the
same  force  and  effect  as if they had been made on and as of said date.  Such
Purchaser  shall  have performed and complied with all agreements and conditions
herein required to be performed or complied with by it on or before the Closing.

               (b)     Qualifications,  Legal  Investment.  All  authorizations,
                       ----------------------------------
approvals,  or permits, if any, of any governmental authority or regulatory body
of  the  United  States or of any state that are required in connection with the
lawful  sale and issuance of the Series A Notes pursuant to this Agreement shall
have  been  duly  obtained  and shall be effective on and as of the Closing.  No
stop  order  or other order enjoining the sale of the Securities shall have been
issued and no proceedings for such purpose shall be pending or, to the knowledge
of  the  Company,  threatened  by  the  SEC,  the  California  Commissioner  of
Corporations,  the  Delaware  Secretary  of  State or any similar officer of any
other  state  having  jurisdiction  over  this  transaction.  At the time of the
Closing,  the  sale and issuance of the Securities shall be legally permitted by
all  laws  and  regulations to which such Purchaser and the Company are subject.

               (c)     Payment  of  Purchase  Price.  Such  Purchaser shall have
                       ----------------------------
delivered  the  Purchase  Price  for  the  Series  A  Notes  purchased  by  it.

     6.   COVENANTS

          6.1     COVENANTS  OF  THE  COMPANY.  The  Company  and each Guarantor
covenants  with  each  Purchaser,  so  long  as Series A Notes with an aggregate
principal  amount  of at least 50% of the principal amount of the Series A Notes
issued  at  the  First  Closing  are  outstanding,  that:

               (a)     Stamp  Tax.  The  Company and the Guarantors will pay (1)
                       ----------
any  stamp,  issue,  registration, documentary or other similar taxes and duties
including  interest and penalties, payable on or in connection with the issuance
of  the Series A Notes or the Guarantee, the creation, issue and offering of the
Securities,  if any, received in the exchange or upon conversion of the Series A
Notes  or  Series  3-A  Preferred  Stock,  or  the execution or delivery of this
Agreement  or  the  Series A Notes; and (2) in addition to any amount payable by
the Company or the Guarantors under this Agreement, any value added, turnover or
similar  tax  payable  in  respect  of  that  amount.

               (b)     Notification  of  Defaults.  Each  of the Company and the
                       --------------------------
Guarantors  will  notify  the  Purchasers in writing of any Event of Default (as
defined  in  Section  7.1)  forthwith  upon  the  occurrence  thereof.

               (c)     Consents.  Each  of  the  Company and the Guarantors will
                       --------
obtain  and  promptly  renew  from  time to time and thereafter maintain in full
force  and  effect,  and  will comply with and upon the Purchasers' request will
promptly furnish certified copies to the Purchasers of, all such authorizations,
approvals,  consents,  licenses  and  exemptions  as  may  be required under any
applicable  law or regulation to enable it to perform its obligations under this
Agreement  or  required  for  the  validity or enforceability of this Agreement.

                                      -17-
<PAGE>
               (d)     Pari  Passu  Ranking.  Each  of  the  Company  and  the
                       --------------------
Guarantors  undertakes  that  its  obligations  hereunder and under the Series A
Notes  do  and  will at all times rank at least pari passu with all of its other
present  and  future  unsecured  obligations  save for the obligations under the
Bridge  Loan  and  any  obligations  preferred  by  law.

               (e)     Disposals.  Except  for  entering  into  and consummating
                       ---------
the  Acquisition,  each  of  the  Company  and  the Guarantors will not and will
procure  that  no  other Subsidiary will, either in a single transaction or in a
series  of  transactions  whether  related  or  not  and  whether voluntarily or
involuntarily,  sell,  transfer,  lease  or  otherwise  dispose  of  all  or any
substantial part of its assets or revenues except for any of the following types
of disposals provided such disposal does not adversely affect the ability of the
Company  or  the  Guarantors  to  perform  its obligations under this Agreement:

                    (i)     disposals made with the prior written consent of the
          Majority  Holders;

                    (ii)     disposals  of  cash  raised  or  borrowed  for  the
          purposes  for  which  such  cash  was  raised  or  borrowed;

                    (iii)     disposals  of  assets in exchange for other assets
          comparable  as  to  type  and  value;

                    (iv)     disposals  of  any  of  its assets on terms whereby
          such  asset is leased to or re-acquired by the Company or Guarantor or
          any  other  Subsidiary  in  an  amount  not  to  exceed  $5,000,000;

                    (v)     any  distribution  of  the  surplus  assets  to  the
          Company  of  either  Guarantor  or  any Subsidiary in a liquidation or
          winding-up  not  involving  insolvency;

                    (vi)     the  application  of  the  proceeds  of an issue of
          securities  (whether  equity  or  debt) for the purposes stated in the
          prospectus  or  other  offering  document  relating  to that issue; or

                    (vii)     sales  of  assets  pursuant  to sale and leaseback
          transactions  in  an  aggregate  amount  not  to  exceed  $5,000,000.

               (f)     Mergers.
                       -------

                    (i)     None  of  the Company or the Guarantors will without
          the  prior  written  consent  of  the  Majority Holders enter into any
          merger  or  consolidation  with  any  entity.

                    (ii)     None  of  the  Company  or the Guarantors will, and
          will  procure  that  no  Subsidiary  will,  without  the prior written
          consent  of  the  Majority  Holders, acquire any assets or business or
          acquire  or make any investment if such assets, business or investment
          is  substantial  in relation to the Company and its Subsidiaries taken
          as  a  whole.

                                      -18-
<PAGE>
               (g)     Maintenance  of  status  and  franchises.
                       ----------------------------------------

                    (i)     Each  of  the Company and the Guarantors will do all
          such  things  as  are necessary to maintain its corporate existence in
          good standing and to conduct its business in compliance with all laws,
          regulations,  authorizations, agreements and obligations applicable to
          it  and  pay  all  taxes  imposed  on  it  when  due.

                    (ii)     Each  of  the  Company  and the Guarantors will and
will procure that each Subsidiary will, ensure that it has the right and is duly
     qualified  to  conduct  its business as it is or is intended as at the date
     hereof  to be conducted in all applicable jurisdictions and will obtain and
     maintain  all  franchises  and  rights  necessary  for  the  conduct of its
     business.

               (h)     Constitutional  Documents.  Each  of  the Company and the
                       -------------------------
Guarantors  shall  procure  that  no  amendment  or  supplement is made to their
respective  certificate  of incorporation, by-laws, memorandum of association or
articles  of  association, if any, which would have a material adverse effect on
the  Purchasers'  interests  hereunder  without the prior written consent of the
Majority  Holders  such  consent  not  to  be  unreasonably withheld or delayed.

               (i)     Share Capital.  Except upon conversion or exchange of any
                       -------------
class  of  convertible  or  exchangeable securities, each of the Company and the
Guarantors  will  not without the prior written consent of the Majority Holders,
purchase  or  redeem  any  of  their  respective  issued  shares.

               (j)     Dividends.  Each  of  the Company and the Guarantors will
                       ---------
not  and will procure that no Subsidiary will, without the prior written consent
of the Majority Holders, pay any cash dividend or make any other distribution of
cash  to their respective shareholders other than dividends and distributions by
Subsidiaries  to  the  Company.

               (k)     Indebtedness.  None  of  the  Company or any Guarantor or
                       ------------
any  Subsidiary  will incur or guarantee any indebtedness exceeding US$5,000,000
in  the  aggregate  without  the  prior written consent of the Majority Holders,
other  than  pursuant  to  Section  1.3(b)  and  1.3(c) hereof and other than as
contemplated  by  the  Tranche  B  Loan Agreement or, subject to the limitations
contained  in  Section  6.3(e)(vii),  in  connection  with  customary  sale  and
leaseback  transactions.

               (l)     Lending.  Each  of  the  Company  and the Guarantors will
                            -------
not  and  will procure that no Subsidiary will make or grant any loan or advance
except  as  may  be  necessary  in  the  ordinary  course  of  its  business.

               (m)     Taxation.  All  payments  of  interest  in respect of the
                       --------
Loan  will  be  made  without  withholding  or deduction of or on account of any
present or future taxes, duties, assessments or governmental charges of whatever
nature imposed or levied by any authority unless the withholding or deduction of
such taxes, duties, assessments or governmental charges is required by law.  The
Company  will  pay such additional amounts as may be necessary in order that the
net amounts received by the Purchasers after such withholding or deduction shall
equal  the respective amounts receivable in respect of the Series A Notes in the
absence  of  such  withholding  or  deduction.

                                      -19-
<PAGE>
               (n)     Inspection  of  Property.  The  Company  will permit each
                       ------------------------
SBIC  Holder or its representative, at such SBIC Holder's expense, and examiners
of the SBA to visit and inspect the properties and assets of the Company and its
Subsidiaries,  to  examine  its books of account and records, and to discuss the
Company's  affairs,  finances  and  accounts  with  the  Company's  and  its
Subsidiaries'  officers,  senior  management  and  accountants,  all  at  such
reasonable  times  as  may  be  requested  by  such  Purchaser  or  the  SBA.

          6.2     SBIC MATTERS.  This Section 6.2 shall apply with regard to any
Purchaser  for so long as such Purchaser is an SBIC Holder regardless of whether
such  Purchaser  holds  Series  A  Notes,  Exchange Shares or Conversion Shares.

               (a)     From  time  to  time as requested by any SBIC Holder, the
Company  shall  deliver to each SBIC Holder a written statement certified by the
Company's  Chief  Executive  Officer  or  Chief  Financial Officer describing in
reasonable  detail  the  use  of  the  proceeds  of  the  sale of the Series 3-A
Preferred  Stock  hereunder  by the Company and such other information as may be
reasonably  requested  by  the  SBIC  Holder,  including  without  limitation  a
description  of  the  use  of  proceeds of each SBIC Holder's investment, to (i)
evaluate  the financial condition of the Company for the purposes of valuing the
SBIC  Holder's  investment,  (ii)  determine  the  continued  eligibility of the
Company  under  the SBIC Act, and (iii) verify the use of proceeds.  In addition
to  any other rights granted hereunder, the Company shall grant each SBIC Holder
and  the  SBA  access  to  the  Company's  books  and records for the purpose of
verifying  the use of such proceeds and the other information which was provided
by  the Company at or before the Closing on Forms 480 and 652.  Such information
shall  be  certified by the Company's Chief Executive Officer or Chief Financial
Officer.

               (b)     Promptly  after  the  end of each fiscal year (but in any
event  prior  to  February  28  of  each year) and at such other times as may be
reasonably  requested  by an SBIC Holder, the Company shall deliver to each SBIC
Holder  a  written  unaudited  assessment  of  the  economic  impact of the SBIC
Holder's  investment  in  the  Company, specifying the full-time equivalent jobs
created  or  retained  in  connection  with  the  investment,  the impact of the
investment  on  the  businesses  of the Company in terms of expanded revenue and
taxes, other economic benefits resulting from the investment (including, but not
limited  to,  technology  development  or  commercialization,  minority business
development,  urban  or rural business development and expansion of exports) and
such  other  information  as may be required regarding the Company in connection
with  the  filing of each SBIC Holder's SBA Form 468.  All information submitted
to  the  Purchasers  in  accordance  with this Section shall be certified by the
Chief  Executive  Officer  or  the  Chief  Financial  Officer  of  the  Company.

               (c)     Neither  the Company nor any of its "affiliates" (as that
term  is  defined  in  Title 13, Code of Federal Regulations, Sec. 121.103) will
engage  in  any  activities  or use directly or indirectly the proceeds from the
sale  of the Series A Notes hereunder for any purpose for which a licensee under
the  SBIC  Act  is  prohibited from providing funds by Title 13, Code of Federal
Regulations,  Sec.  107.720.

                                      -20-
<PAGE>
               (d)     Without obtaining the prior written approval of each SBIC
Holder,  the  Company will not change, within one (1) year of the First Closing,
the  Company's  business  activity to a business activity which a licensee under
the  SBIC  Act  is  prohibited from providing funds by Title 13, Code of Federal
Regulations,  Sec.  107.720.

               (e)     If  the  Company  breaches the representations in Section
3.15  or  the  covenants set forth in this Section 6.2 in which, in either case,
could  result in an assertion by the SBA that the SBIC Holder and its Affiliates
are not entitled to hold, or exercise any significant right with respect to, the
Series  A  Notes  or the Securities, and such breach continues for 20 days after
receiving  written  notice thereof from a SBIC Holder, such breach or failure to
comply  shall  constitute  a  material  breach  of  this  Agreement (a "Material
Breach").  If  a  Material Breach occurs, then in addition to any other remedies
generally available to the holders of the Securities pursuant to this Agreement,
such  SBIC Holder may demand that the Company repurchase any Series A Notes then
held for the then outstanding principal amount plus all accrued interest thereon
and  any  other  Securities  acquired by such SBIC Holder upon conversion of the
Series A Notes pursuant to this Agreement at the redemption price for the Series
3-A  Preferred  Stock  set forth in Section 5 of the Certificate of Designation.
The  Company  will  make  such  payment  within thirty (30) days of receipt of a
demand  and  SBIC  Holder's  delivery  of  the  Securities,  as the case may be.

          6.3     FEES.  Promptly upon receipt of invoices therefor, the Company
shall  (a)  pay one counsel for the lead Purchaser up to $100,000 for the actual
legal  fees  and costs incurred in negotiating the terms hereof, the preparation
of  this  Agreement  and the other agreements and instruments delivered pursuant
hereto,  and  consummating  the transactions contemplated by this Agreement, (b)
reimburse Mercantile for up to $45,000 of fees payable to the SBA as a result of
its  purchase  of  Series  A  Notes.

          6.4     REGISTRATION  RIGHTS.  The  Company  agrees  that  each of the
Purchasers  shall  have  the  registration rights with respect to the Conversion
Shares,  if  any,  received  by the Purchasers, which are set forth on Exhibit B
                                                                       ---------
hereto.

          6.5     SHAREHOLDER  APPROVALS.  Unless  and  until  the  applicable
Alternative Condition (as defined below) is satisfied for a Shareholder Proposal
(as  defined below), the Company will use its reasonable efforts to (a) promptly
(but  not  later than 60 days) following the Closing, prepare in proper form and
file  with the SEC a proxy statement on Schedule 14A ("Proxy Statement") for use
in  soliciting  proxies  for  the approval by the shareholders of the Company of
such  Shareholder  Proposal, (b) duly call, give notice of and convene a special
meeting  of its shareholders, as soon as practicable, but not later than 40 days
after  the  Proxy  Statement  is  cleared  by the SEC, for purposes of obtaining
shareholder  approval  of  such  Shareholder  Proposal,  and  (c) have the Proxy
Statement  cleared  by  the  SEC and obtain such shareholder approval.  The term
"Shareholder Proposals" shall mean each of (i) a proposal to amend the Company's
Certificate  of  Incorporation  to  increase  the number of authorized shares of
Common  Stock to at least 200 million shares, and (ii) a proposal to approve the
issuance  of  the  Conversion Shares upon conversion of the Series 3-A Preferred
Stock.  The  "Alternative  Condition"  shall  be  satisfied  with  respect  to a
Shareholder  Proposal if the Company has determined not to seek approval of such

                                      -21-
<PAGE>
proposal  and the Company has received an opinion of counsel, which has not been
withdrawn,  to  the effect that (I) the approval that is not being sought is not
required  for the Company to issue shares of Common Stock upon the conversion of
the  Series  3-A  Preferred  Stock pursuant to Section VII of the Certificate of
Designation,  (II)  such  shares  of  Common Stock, upon issuance, will be fully
paid,  validly  issued  and  nonassessable,  and  (III)  such issuance would not
violate  the  rules or regulations of any securities exchange or market on which
any  of  the  Company's  securities  are  then  listed,  if  any.

     7.     EVENTS  OF  DEFAULT

          7.1     DEFAULT.  Upon  the  occurrence  of any Event of Default, each
Note  then  outstanding  shall forthwith be immediately due and payable, without
presentment,  demand,  protest or any other notice of any kind, all of which are
hereby  expressly  waived, unless the Majority Holders otherwise determines, and
the  Purchasers  may  exercise any and all rights and remedies available to them
under  this  Agreement  or  the  Series  A  Notes  or  as  provided  by  law.

An  "Event of Default" shall mean the occurrence of any of the following events:

               (a)     Any  proceeding  shall  be  commenced  by  or against the
Company  or  either  Guarantor  under  any bankruptcy or insolvency laws, or the
Company  or a Guarantor shall take any action to authorize any of the foregoing;
provided  that  if  such  proceeding  is  not  instituted by or on behalf of the
Company  (or acquiesced by it) there shall be an "Event of Default" only if such
proceeding  shall  remain  unstayed  for  60  days;

               (b)     Any  law, rule or regulation of any jurisdiction shall be
enacted  or promulgated that shall have a material adverse affect on the ability
of the Company to perform any of its obligations hereunder or under the Series A
Notes,  including,  without  limitation,  any  moratorium  or  similar  laws;

               (c)     This  Agreement or any of the Series A Notes ceases to be
the  legal,  valid  and  binding  obligation  of  the  Company or the Guarantors
enforceable  in  accordance  with  its  terms;

               (d)     if  any  governmental  authority  or  agency  of  any
jurisdiction  condemns,  seizes, compulsorily purchases or expropriates all or a
substantial  part  of the assets of the Company and its Subsidiaries, taken as a
whole, or places any material restriction on a material portion of the assets of
such  Company  and  its  Subsidiaries,  taken  as  a  whole  whether  by  way of
cancellation  or revocation of, or the imposition of conditions on, any licenses
of  such  companies,  or  otherwise  howsoever;  and

               (e)     as  to  an  SBIC  Holder  only, there exists any Material
Breach  (as  defined  in  Section  6.2(e).

          7.2     OTHER  EVENTS.  Without  implication  that  the contrary would
otherwise be true, the Purchasers retain all right to pursue any cause of action
(including  breach  of  contract)  in  the  event  that:

               (a)     there  is  a  material  breach  of  this  Agreement,  the
Certificate of Designation for the Series 3-A Preferred Stock or any Note by the
Company  or  a  Guarantor;  or

                                      -22-
<PAGE>
               (b)     Any  representation or warranty made or deemed to be made
or  repeated  by or in respect of the Company or either Guarantor in or pursuant
to  this  Agreement  is  or  proves  to have been incorrect or misleading in any
respect.

     8.   MISCELLANEOUS

          8.1     GOVERNING  LAW  AND  JURISDICTION.  This  Agreement  shall  be
governed  by  and  construed  under  the  laws of the State of Delaware.  If any
Delaware  law or laws shall require or permit the application of the laws of any
other  jurisdiction  to  this  Agreement,  such  Delaware  law  or laws shall be
disregarded  with  the  effect  that the remaining laws of the State of Delaware
shall  nonetheless  be  applied.

          8.2     SURVIVAL  AND  DISCLOSURE  SCHEDULE.  The  representations,
warranties,  covenants,  and  agreements  made  herein  shall  survive  any
investigation  made  by  any  party  hereto  and the closing of the transactions
contemplated  hereby and shall in no way be affected by any investigation of the
subject  matter  thereof  made by or on behalf of the Purchasers or the Company.

          8.3     SUCCESSORS  AND  ASSIGNS.  Except  as  otherwise  expressly
provided  herein,  the  provisions  hereof shall inure to the benefit of, and be
binding  upon,  the successors, assigns, heirs, executors, and administrators of
the  parties  hereto.  Each  Purchaser  shall be entitled to assign, transfer or
participate  all  or  any  portion  of  the  Securities;  provided that (1) such
transfers  comply  with  all  applicable law, (2) no such transfer is made to an
entity  which  the Board of Directors of the Company determines in good faith is
then  a  competitor of the Company (unless all common and preferred stock in the
Company  is  being  transferred  to  such  competitor  in such transaction), (3)
transfers  of  Securities  may not be made in amounts of less than $500,000, and
(4)  prior  to  any  assignment,  each assignee shall execute and deliver to the
Company  a  joinder to this Agreement agreeing to be fully bound by, and subject
to,  all  of  the  covenants,  terms  and  conditions  of  this  Agreement.

          8.4     ENTIRE  AGREEMENT.  This  Agreement,  the Exhibits hereto, and
the  other  documents  delivered  pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and  no  party  shall be liable or bound to any other party in any manner by any
covenants  or  agreements  except  as  specifically set forth herein or therein.
Nothing  in  this  Agreement, express or implied, is intended to confer upon any
party,  other  than  the  parties  hereto  and  their  respective successors and
assigns,  any rights, remedies, obligations or liabilities under or by reason of
this  Agreement,  except  as  expressly  provided  herein.

          8.5     SEVERABILITY.  In  case  any provision of this Agreement shall
be  invalid,  illegal, or unenforceable, it shall, to the extent practicable, be
modified  so  as to make it valid, legal and enforceable and to retain as nearly
as  practicable  the  intent  of  the  parties;  and the validity, legality, and
enforceability  of  the remaining provisions shall not in any way be affected or
impaired  thereby.

          8.6     AMENDMENT  AND  WAIVER.  Any  term  of  this  Agreement may be
amended  and  the observance of any term of this Agreement may be waived (either
generally  or in a particular instance and either for a specified period of time

                                      -23-
<PAGE>
or indefinitely), with the written consent of the Company and the holders of 75%
of  the  sum  of  the  aggregate  principal  amount  of  the Series A Notes then
outstanding  and  the  aggregate  Original  Issue  Price  (as  defined  in  the
Certificate  of Designation) of the Series 3-A Preferred Stock then outstanding,
if  any;  provided,  however,  that no such amendment or waiver shall reduce the
amount  of the Series A Notes or Series 3-A Preferred Stock the holders of which
are  required  to  consent  to any waiver or supplemental agreement, without the
consent of the holders of all of the Series A Notes; provided, further, however,
that  any amendment, modification or waiver that would change the interest rate,
maturity date, or conversion price or privilege (it being understood that if the
Company  complies  with Section 5 of the Note, the Company will not be deemed to
have  modified such conversion price or privilege), shall not be effective as to
such Purchaser without such Purchaser's prior written consent.  Any amendment or
waiver  effected  in  accordance  with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding,
each  future  holder  of  all  such  securities,  and  the  Company.  Upon  the
effectuation  of  each such amendment or waiver, the Company shall promptly give
written  notice  thereof  to  the  record holders of the Securities who have not
previously  consented  thereto  in  writing.

          8.7     DELAYS  OR  OMISSIONS.  No  delay  or omission to exercise any
right, power, or remedy accruing to any party hereto or any subsequent holder of
any  Securities  upon  any  breach,  default or noncompliance of any other party
under  this Agreement or under the Certificate of Incorporation or Bylaws of the
Company shall impair any such right, power, or remedy, nor shall it be construed
to be a waiver of any such breach, default or noncompliance, or any acquiescence
therein,  or  of  any  similar  breach,  default  or  noncompliance  thereafter
occurring.  Any waiver, permit, consent, or approval of any kind or character on
any  party's  part  of  or  to  any  breach, default or noncompliance under this
Agreement  or under the Certificate of Incorporation or Bylaws of the Company or
any waiver on any party's part of any provisions or conditions of this Agreement
must  be  in  writing and shall be effective only to the extent specifically set
forth  in  such  writing;  and  all  remedies,  either under this Agreement, the
Certificate  of  Incorporation  or Bylaws, any law, or otherwise afforded to any
party,  shall  be  cumulative  and  not  alternative.

          8.8     NOTICES,  ETC.  All  notices and other communications required
or permitted hereunder shall be effective if in writing and delivered personally
or  sent by telecopier, nationally recognized overnight courier or registered or
certified  mail,  return  receipt  requested,  postage  prepaid,  addressed:

     If  to a Purchaser:      at  such  Purchaser's  address  as  set  forth  on
                              Exhibit  A  attached  hereto,  or  at  such  other
                              address  as such Purchaser shall have furnished to
                              the  Company  in  writing,

     If to the Company, to:   Vsource,  Inc.
                              5740  Ralston  Street,  Suite  110
                              Ventura,  California  93003
                              Attention:  Sandy  Waddell
                              Facsimile:     (805)  677-6740

                                      -24-
<PAGE>
     with  a  copy  to:       McDermott,  Will  &  Emery
                              227  W.  Monroe
                              Chicago,  Illinois  60606
                              Attention:  Brooks  Gruemmer,  Esq.
                              Facsimile:     (312)  984-7700

          Unless  otherwise  specified  herein,  such  notices  or  other
communications shall be deemed effective (a) on the date delivered, if delivered
personally,  (b)  two  business  days  after  being  sent, if sent by nationally
recognized  overnight courier, (c) one business day after being sent, if sent by
telecopier  with  confirmation  of  good transmission and receipt, and (d) three
business days after being sent, if sent by registered or certified mail, postage
prepaid,  return  receipt  requested.  Each  of  the  parties  herewith shall be
entitled to specify another address by giving notice as aforesaid to each of the
other  parties  hereto.

          8.9     TITLES  AND  SUBTITLES,  NUMBER AND GENDER.  The titles of the
paragraphs  and subparagraphs of this Agreement are for convenience of reference
only  and  are  not to be considered in construing this Agreement.  Whenever the
context requires, the plural shall include the singular and the reverse and each
gender  shall  include  the  others.

          8.10     COUNTERPARTS.  This  Agreement  may be executed in any number
of  counterparts,  each  of  which shall be deemed an original, but all of which
together  shall  constitute  one  instrument.

Executed as of the date first set forth above.

                                      VSOURCE,  INC.

                                      By:  /s/  Sandford  Waddell
                                           ------------------------
                                           Sandford  Waddell
                                           Chief Financial Officer

                                      -25-
<PAGE>
                                      GUARANTORS

                                      NETCEL360.COM  LTD.

                                      By:  /s/  Phillip E. Kelly
                                           ------------------------
                                           Name: Phillip E. Kelly
                                                 ------------------
                                           Title:

                                      NETCEL360  SDN  BHD

                                      By:  /s/  Phillip E. Kelly
                                           ------------------------
                                           Name: Phillip E. Kelly
                                                -------------------
                                           Title:

                                      -26-
<PAGE>
This  is  page  27  to the Convertible Note Purchase Agreement to which Vsource,
Inc.,  a  Delaware corporation, the Guarantors and the Purchaser set forth below
are  parties:

PURCHASER:

MERCANTILE  CAPITAL  PARTNERS  I,  L.P.,
an  Illinois  limited  partnership

By:     Mercantile  Capital  Group,  LLC,
        a  Delaware  limited  liability  company,
        its  General  Partner

        By:     Mercantile  Capital  Management  Corp.,
                an  Illinois  Corporation
                its  Manager

                By:     /s/  I.  Steven  Edelson
                        ------------------------
                        I.  Steven  Edelson
                        President

1372  Shermer  Road
Northbrook,  IL  60062
Attn:  Steven  Edelson

Purchase Price: $   1,300,000                            Dated: June 20, 2001
                -----------------
                [amount investing]

<PAGE>
This  is  page  28  to the Convertible Note Purchase Agreement to which Vsource,
Inc.,  a  Delaware  corporation,  and the Purchaser set forth below are parties:

PURCHASER:

/s/  Dennis  Smith
------------------
Dennis  Smith

Pursuant  to  Section 1.3(d), the undersigned is delivering a promissory note in
the initial principal amount of $237,500, issued in respect of the undersigned's
Tranche  B  Loan.

____________________
____________________
____________________

Purchase Price: $239,030.56                              Dated: June 20, 2001
                ----------
               [amount investing]

<PAGE>
This  is  page  29  to the Convertible Note Purchase Agreement to which Vsource,
Inc.,  a  Delaware  corporation,  and the Purchaser set forth below are parties:

PURCHASER:

Phillip  E.  Kelly

/s/  Phillip  E.  Kelly
-----------------------
c/o  NetCel360 Hong Kong Limited
5th  Floor,  AXA  Centre
151  Gloucester  Road
Wanchai,  Hong  Kong

Purchase  Price: $                    *         Dated:  6/19/01
                  --------------------                  -------
                  [amount investing]

*    Pursuant  to Section 1.3(d) of the Convertible Note Purchase Agreement, the
     Purchase  is  hereby  paying  the  Purchase Price for its Series A Notes by
     delivering  its  Tranche  B  Bridge  Note  in  the  principal amount of US$

<PAGE>
This  is  page  29  to the Convertible Note Purchase Agreement to which Vsource,
Inc.,  a  Delaware  corporation,  and the Purchaser set forth below are parties:

PURCHASER:

BAPEF  Investments  XII,  Ltd.,
a British Virgin Islands company

By:  /s/  A. W. Guille
     -----------------------
     Name:  A. W. Guille
     Title: Director

c/o International Private Equity Services Ltd.
P.O.  Box  431
13-14  Victoria  Road
Guemsy,  UK
GY13ZD
Attn:  Connie  Helyar

Purchase  Price:  $     1,000,000                Dated:  21 June 2001
                        ---------                        ------------

<PAGE>
This  is  page  30  to the Convertible Note Purchase Agreement to which Vsource,
Inc.  a  Delaware  corporation,  and  the Purchaser set forth below are parties:

PURCHASER:

John  Gerard  Cantillon

/s/  John Gerard Cantillon
---------------------------
10  Jalan  Marie  Pitchay
Tanjong  Bungah
Hillside,  Penang  11200
Malaysia

Purchase  Price: $                    *         Dated:  20/6/01
                  --------------------                  -------
                  [amount investing]

     Tranche  A:  $1,000,000
     Tranche  B:  $500,000

<PAGE>

EXHIBIT  A

                           SCHEDULE OF PURCHASERS

      NAME AND ADDRESS               PRINCIPAL AMOUNT      FORM AND AMOUNT OF
            OF                            OF NOTE            PURCHASE PRICE
        PURCHASER
==============================================================================

Mercantile Capital Partners I, L.P.  $       1,300,000  Cash

Dennis Smith                         $      239,030.56  Surrender of note for
                                                        Tranche B Loan

Phillip Kelly                        $      767,413.89  Surrender of note for
                                                        Tranche B Loan

Barings                              $       1,000,000  Cash

Jack Cantilon                        $       1,000,000  Cash

<PAGE>
                                    EXHIBIT B

                         REGISTRATION RIGHTS PROVISIONS

     Section  1.1  Definitions.  The following terms when used in this Exhibit B
                   -----------
shall  have the following meanings (such definitions to be equally applicable to
the  singular  and  plural  forms  thereof):

     "Holder" shall mean any Purchaser or any transferee permitted under Section
8.3  of  the  Agreement.

     "Registrable  Securities" shall mean any Conversion Shares held by a Holder
and any equity securities of the Company issued or issuable with respect to such
shares  of  common  stock  by  way  of  a  stock  dividend  or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or  other reorganization and held by a Holder; provided, however, that any share
of  such  securities  shall  cease  to  be  a  Registrable  Security  when (i) a
registration  statement  covering  such  Registrable  Security has been declared
effective  by  the Commission and such securities have been disposed of pursuant
to such effective registration statement or (ii) such securities are distributed
to  the  public pursuant to Rule 144 (or any similar or successor provision then
in  force)  under  the  Securities  Act.

     Section  1.2  Registration  Procedures.  The  Company  shall:
                   ------------------------

     (a)  Prepare  and  file  with  the Commission a registration statement with
respect  to  the  Registrable  Securities (which registration statement may also
include  securities  held  by  other holders of Company common stock) within the
later of (a) December 20, 2001 and (b) one (1) month after an issuance of common
stock  of  the  Company pursuant to Section 7 of the Certificate of Designation,
and  use its reasonable efforts to (A) have such registration statement declared
effective  within  two (2) months after such registration statement was required
to  be filed, and (B) cause the registration statement to remain effective until
the  earlier  of (i) the date when all Registrable Securities have been sold, or
(ii)  one  (1)  year  after  such  registration  statement is declared effective
(unless  the  Company is, and remains, eligible to use Form S-3 or any successor
short-form  form  registration  statement,  in  which case the period shall be 2
years)  provided  however, that such 1-year period (or 2-year period as the case
may  be)  shall be extended for a period of time equal to the period the Holders
refrain from selling any securities included in such registration at the request
of  an  underwriter  of  the  Company  common  stock  of  the  Company (or other
securities  of  the  Company)  pursuant  to Section 1.5 and for a period of time
equal  to  the  period  during  which  Registrable  Securities could not be sold
pursuant  to  a  notice  delivered  by  the  Company pursuant to Section 1.2(d);

     (b)  Use its reasonable efforts to prepare and file with the Securities and
Exchange  Commission  (the  "Commission")  such  amendments  and  supplements
(including  post-effective  amendments)  to  such registration statement and the
prospectuses  used  in  connection  therewith  as  may  be necessary to keep the
registration  statement  effective  for the period referred to in clause (a) and
comply  with  the  provisions  of  the  Securities  Act of 1933, as amended (the

<PAGE>
"Securities  Act")  with respect to the disposition of all securities covered by
the  registration  statement  during such period in accordance with the intended
methods  of  disposition  by  the  sellers thereof set forth in the registration
statement;

     (c)  Furnish to each Holder of Registrable Securities such number of copies
of  the registration statement, each amendment and supplement thereto (including
post-effective  amendments),  the  prospectus  included  in  the  registration
statement  (including  each  preliminary prospectus) and such other documents as
such Holder may reasonably request in order to facilitate the disposition of the
Registrable  Securities  owned  by  such  Holder;

     (d)  Notify  each Holder of such Registrable Securities, at any time when a
prospectus  relating  thereto  is  required to be delivered under the Securities
Act,  of the happening of any event as a result of which the prospectus included
in  such  registration statement contains an untrue statement of a material fact
or  omits  any fact necessary to make the statements therein not misleading, and
promptly  prepare  and  file a supplement or amendment (including post-effective
amendments) to the prospectus so that, as thereafter delivered to the purchasers
of  such  Registrable  Securities,  such  prospectus shall not contain an untrue
statement  of  a  material  fact or omit to state any fact necessary to make the
statements  therein  not  misleading;

     (e)  Cause  all  such  Registrable  Securities  registered pursuant to this
Agreement  to  be  listed on each securities exchange or market on which similar
securities  issued  by  the  Company  are  then  listed,  if  any;

     (f)  Use  reasonable efforts to register and qualify the securities covered
by  such  registration statement under such other securities or Blue Sky laws of
such  jurisdictions  as  shall  be reasonably requested by the Holders, provided
that  (a)  if the Company's shares are no longer listed on a national securities
exchange  or  traded  on  the  Nasdaq  National Market then the Holders may only
request  such  registration  and qualification in up to 10 jurisdictions and (b)
the  Company  shall  not  be  required in connection therewith or as a condition
thereto  to  qualify  to  do business or to file a general consent to service of
process  in  any  such  states  or  jurisdictions  unless the Company is already
subject  to  service  in  such jurisdiction and except as may be required by the
Securities  Act;  and

     (g)  Advise  each  seller of such Registrable Securities, promptly after it
shall  receive  notice  or obtain knowledge thereof, of the issuance of any stop
order  by  the  Commission  suspending  the  effectiveness  of such registration
statement  or  the  initiation or threatening of any proceeding for such purpose
and  promptly  use its best efforts to prevent the issuance of any stop order or
to  obtain  its  withdrawal  if  such  stop  order  should  be  issued.

     Section  1.3  Registration  Expenses.
                   ----------------------

     (a)  All  expenses  incident  to the Company's performance of or compliance
with  this  Agreement,  including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for  the  Company,  reasonable  fees  and  disbursements  of one counsel for the
Holders  and  all  independent  certified  public accountants, and other Persons
retained  by  the  Company  (all such expenses being herein called "Registration
Expenses"),  shall  be  borne  by  the  Company,  and  the Company shall pay its

<PAGE>
internal  expenses  (including, without limitation, all salaries and expenses of
its  officers  and employees performing legal or accounting duties), the expense
of  any annual audit or quarterly review, the expense of any liability insurance
and  the  expenses  and fees for listing the securities to be registered on each
securities  exchange  on which similar securities issued by the Company are then
listed  or  on  the  NASD  automated quotation system if the common stock of the
Company  is  listed  on  any  such  exchange  or  system.

     (b)  To the extent Registration Expenses are not required to be paid by the
Company,  each Holder of securities included in any registration hereunder shall
pay  those  Registration  Expenses allocable to the registration of the Holder's
securities  so included, and any Registration Expenses not so allocable shall be
borne  by  all  sellers  of  securities  included  in  the  registration

     Section  1.4  Indemnification.
                   ---------------

     (a)  The  Company agrees to indemnify, to the extent permitted by law, each
Holder  of Registrable Securities, its affiliates and their respective officers,
directors,  employees  and  agents,  as  the  case  may  be, and each Person who
controls  the  Holder  (within  the  meaning of the Securities Act), against all
losses,  claims,  damages,  liabilities  and  expenses  caused  by any untrue or
alleged  untrue  statement  of  material  fact  contained  in  any  registration
statement  under which Registrable Securities were registered, any prospectus or
preliminary  prospectus contained therein or any amendment thereof or supplement
thereto  or  any  omission or alleged omission of a material fact required to be
stated  therein  or  necessary  to  make  the statements therein not misleading,
except  insofar  as  the  same  are  caused  by  or contained in any information
furnished  in writing to the Company by such Holder expressly for use therein as
provided  in  Section  1.4(b)  below.

     (b)  In  connection  with  any  registration statement in which a Holder of
Registrable  Securities  is  participating,  each  Holder  shall  furnish to the
Company  in  writing  such  information and affidavits as the Company reasonably
requests  for  use  in  connection  with  any  such  registration  statement  or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors  and  officers  and  each  Person who controls the Company (within the
meaning  of the Securities Act) against any losses, claims, damages, liabilities
and  expenses  resulting from any untrue or alleged untrue statement of material
fact  contained  in  the  registration  statement,  prospectus  or  preliminary
prospectus  or  any  amendment  thereof or supplement thereto or any omission or
alleged  omission  of a material fact required to be stated therein or necessary
to  make the statements therein not misleading, but only to the extent that such
untrue  statement  or  omission  is contained in any information or affidavit so
furnished  in  writing  by the Holder; provided, however, that such Holder shall
not  be liable in any such case to the extent that any alleged losses or damages
result  from  the  failure  of  the  Company to promptly amend or take action to
correct or supplement any such registration statement or prospectus on the basis
of  corrected  or supplemental information provided in writing by such Holder to
the  Company  expressly for such purpose; provided, further, that the obligation
to  indemnify shall be individual to each Holder and shall be limited to the net
amount  of  proceeds  received  by  the  Holder  from  the  sale  of Registrable
Securities  pursuant  to  the  registration  statement.

<PAGE>
     (c)  Any Person entitled to indemnification hereunder shall (i) give prompt
written  notice  to the indemnifying party of any claim with respect to which it
seeks  indemnification  (provided,  however, that the failure of any indemnified
party to give notice shall not relieve the indemnifying party of its obligations
under  this  Section  1.4,  except  to the extent that the indemnifying party is
actually  prejudiced  by  such  failure  to  give  notice)  and  (ii) permit the
indemnifying  party  to  assume  and  undertake  the  defense of such claim with
counsel reasonably satisfactory to the indemnified party.  After notice from the
indemnifying  party of its election to undertake and assume the defense thereof,
the  indemnifying  party  shall  not be liable to such indemnified party for any
legal  expenses  subsequently  incurred  by such indemnified party in connection
with  the  defense  thereof.  The indemnifying party shall not be subject to any
liability  for  any  settlement  made  by  the  indemnified  party  without  the
indemnifying  party's  advance  written  consent  (but such consent shall not be
unreasonably  withheld).  The  indemnifying  party  shall  not  consent  to  a
settlement of, or the entry of any judgment arising from, any third party claim,
unless  (i)  the  settlement  or  judgment  is  solely for money damages and the
indemnifying party admits in writing its liability to hold the indemnified party
harmless  from and against any losses, damages, expenses and liabilities arising
out  of  such  settlement  or  judgment  or  (ii) the indemnified party consents
thereto,  which  consent  shall  not  be unreasonably withheld.  An indemnifying
party  who elects not to assume the defense of a claim shall not be obligated to
pay  the  fees and expenses of more than one counsel for all parties indemnified
by  the  indemnifying party with respect to such claim, unless in the reasonable
judgment  of any indemnified party, a conflict of interest may exist between the
indemnified party and any other of such indemnified parties with respect to such
claim.

     (d)  The  indemnification  provided for under this Section 1.4 shall remain
in full force and effect regardless of any investigation made by or on behalf of
the  indemnified  party  or  any officer, director or controlling Person of such
indemnified  party  and  shall  survive the transfer of securities.  The Company
also  agrees  to  make  such  provisions  as  are  reasonably  requested  by any
indemnified  party  for  contribution  to  the  party in the event the Company's
indemnification  is  unavailable  for  any  reason.

     (e)  If  the indemnification provided for in paragraphs (a) and (b) of this
Section 1.4 is unavailable or insufficient to hold harmless an indemnified party
under such paragraphs in respect of any losses, claims, damages, liabilities and
expenses  in  respect  thereof referred to therein, then each indemnifying party
shall  in  lieu  of indemnifying such indemnified party contribute to the amount
paid  or  payable  by such indemnified party as a result of such losses, losses,
claims,  damages,  liabilities  or expenses in such proportion as appropriate to
reflect  the  relative fault of the Company, on the one hand, and the sellers of
such  Registrable  Securities on the other, in connection with the statements or
omissions  which  resulted  in  such  losses,  claims,  damages,  liabilities or
expenses,  as well as any other relevant equitable considerations, including the
failure  to  give  any  notice  under  paragraph  (c)  of this Section 1.4.  The
relative  fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact relates to information
supplied  by  the  Company,  on the one hand, or the sellers of such Registrable
Securities  on  the  other hand, and to the parties' relative intent, knowledge,
access  to  information  and opportunity to correct or prevent such statement or
omission.  The  Company  and the sellers of Registrable Securities agree that it
would not be just and equitable if contributions pursuant to this paragraph were
determined  by  pro  rata  allocation  (even  if  all  of  the  sellers  of such
Registrable  Securities  were  treated as one entity for such purpose) or by any
other  method  of  allocation  which  did  not  take  account  of  the equitable

<PAGE>
considerations  referred to above in this paragraph.  The amount paid or payable
by  an indemnified party as a result of the losses, claims, damages, liabilities
or  action  in  respect  thereof,  referred to above in this paragraph, shall be
deemed  to  include  any  legal  or  other  expenses reasonably incurred by such
indemnified  party in connection with investigating or defending any such action
or  claim.  Notwithstanding  the provisions of this paragraph, no seller of such
Registrable  Securities  shall be required to contribute any amount in excess of
the  total  proceeds  received  from  the  sale  of  such  seller's  Registrable
Securities.

     Section  1.5  Lockup  Agreement.  Each Holder agrees in connection with any
                   -----------------
underwritten  public  sale  or  distribution  of the Common Stock by the Company
pursuant  to  a  registration statement filed with the Commission, that upon the
request  of  the  Company,  such  Holder shall not sell, make any short sale of,
loan,  grant  any  option  for  the  purchase  of,  or  otherwise dispose of any
Registrable  Securities  without  the  prior written consent of the Company, for
such  period  of  time  (not to exceed 180 days after the effective date of such
registration  statement)  as  the Company may reasonably request, provided, that
all officers and directors of the Company, all securityholders who hold at least
one  percent  of the common stock of the Company , on a fully-diluted basis, and
all  other  persons  with  registration  rights (whether or not pursuant to this
Agreement)  enter  into  similar agreements.  Notwithstanding the foregoing, the
obligations  described  in  this  Section  1.5 shall not apply to a registration
relating  solely  to  employee  benefit plans on Form S-1 or Form S-8 or similar
forms  which may be promulgated in the future, or a registration relating solely
to  an Commission Rule 145 transaction on Form S-4 or similar forms which may be
promulgated  in  the  future.

     Section  1.6  Reports  Under  Securities  Exchange.  With  a view to making
                   ------------------------------------
available  to  the  Holders  the  benefits  of  Rule  144  promulgated under the
Securities  Act  and  any other rule or regulation of the Commission that may at
any time period a Holder to sell securities of the Company to the public without
registration  or  pursuant  to a registration on Form S-3, the Company agrees to
use  its  reasonable  efforts  to:

          (a)  make  and  keep  public information available, as those terms are
     understood  and  defined  in  Commission  Rule  144, so long as the Company
     remains subject to the periodic reporting requirements under Sections 13 or
     15(d)  of  the  Exchange  Act;

          (b)  take such action as is necessary to enable the Holders to utilize
     Form  S-3  for  the  sale  of  their  Registrable  Securities;

          (c)  file with the Commission in a timely manner all reports and other
     documents required of the Company under the Securities Act and the Exchange
     Act;  and

          (d)  furnish to any Holder, so long as the Holder owns any Registrable
     Securities,  forthwith  upon request (i) a written statement by the Company
     as to whether it has complied with the reporting requirements of Commission
     Rule  144, the Securities Act and the Exchange Act, or that it qualifies as

<PAGE>
     a  registrant  whose  securities may be resold pursuant to Form S-3, (ii) a
     copy  of the most recent annual or quarterly report of the Company and such
     other  reports and documents so filed by the Company , and (iii) such other
     information  as  may  be reasonably requested in availing any Holder of any
     rule  or regulation of the Commission which permits the selling of any such
     securities  without  registration  or  pursuant  to  such  form.

     Section  1.7  Termination.  Except  for  Section  1.4  which  shall survive
                   -----------
indefinitely,  the  provisions of this Exhibit B shall terminate with respect to
each  Holder of Registrable Securities on the earlier of (a) the date that there
are no longer any Registrable Securities, and (b) the date when no shares of the
Company's  common stock are registered under the Exchange Act and the Company is
no  longer  required  to  make  any  filings  under  the  Exchange  Act.

References  to Sections in the Exhibit B refer to Sections in this Exhibit B and
not  to  Sections  in  the  Agreement.

<PAGE>
     The  following  Schedules  and  Exhibit  to  the  Convertible Note Purchase
Agreement  have  not been filed as part of this Form 8-K.  The Company agrees to
furnish  supplementally  to  the Commission, upon request, a copy of all omitted
schedules.

Schedule     Description
--------     -----------

3.2          Capitalization
3.4          Absence  of  Defaults
3.5          Absence  of  Proceedings
3.6(b)       Intellectual  Property  Assets  Liens
3.6(c)       Trademarks
3.6(e)       Domain  Names
3.8          Subsidiaries
3.9          Liabilities
3.11         SEC  Reports

Exhibit      Description
-------      -----------

C            Form  of  Certificate  of  Designations

<PAGE><PAGE>

                                                                   EXHIBIT 10.49

                             INTERIM CAPITAL, INC.
                       FACTORING AND SECURITY AGREEMENT

July 29, 1994                                            Contract No:  ADCM-0014

Name of Seller:     Applied Data Communications

Name of Purchaser:  Interim Capital, Inc.

                                       I
                              FACTORING AGREEMENT

A.  Interim Capital, Inc., a California corporation, as Purchaser, acting herein
by and through its duly authorized corporate officer, and Applied Data
Communications, acting herein by and through its duly authorized officer, do
desire and intend to evidence herein their agreement for the purchase by
Purchaser, from time to time, of select Accounts (defined herein) of Seller,
under the terms and conditions of this Factoring and Security Agreement
(referred to herein as this "Agreement").  Such Accounts purchased from time to
time are to be listed on successive Schedules A to this Agreement.

                                       II
                                  INTRODUCTION

A.  Seller acknowledges and agrees this is a factoring agreement and is intended
to and does evidence a true factoring relationship between Purchaser and Seller,
and this Agreement shall be interpreted to accomplish same, in all events.  Both
parties agree to modification and reformation of their rights and or duties to
the extent necessary, but only to such extent to avoid classification of this
Agreement and the relationship between Seller and Purchaser as a financing or
loan arrangement.

B.  All amounts payable hereunder are for purchases, services, discounts and
other expenses.  In the event any term or provision hereof is finally construed
by any applicable governing authority to constitute interest, then in such
event, but only in such event, such provision shall be modified without further
notice or approval so that it is in compliance with the applicable governing
laws.

                                      III
                                 TERMS DEFINED

A.  Account Payor:  The term "Account Payor" as used herein, shall mean the
customer of the Seller, whose name is listed on each Account purchased and is
referred to in the Schedules A, and made a part hereof.

B.  Accounts:  The term "Accounts" as used herein, shall mean all records of
amounts owing to Seller by its Account Payors for bona fide sales by Seller in
accordance with the terms agreed to by such Account Payor and Seller, where such
goods/services as are represented by such Account records shall have been
shipped or otherwise made available to the Account Payor and accepted by said
Account Payor.

Accounts may include:

    1.  All of the Seller's Accounts reflected in the Account records.

    2.  One or more specific Accounts of the Seller's reflected in the
        Account records.

    3.  One or more of the Seller's valid invoices or billings for completed
        goods/services received and acknowledged as satisfactory by the
        customer.

    4.  Seller's advance orders such as purchase orders, contracts for orders,
        agreements for orders or other legal documentation representing bona
        fide advance orders placed with Seller for goods/services which orders
        Seller has the right, capability and intention to fill and which Seller
        does properly and timely fill and invoice.
<PAGE>

C.  Schedules A:  The term "Schedule A" as used herein shall mean each of the
following:

    1.  Each purchase, from time to time, under this Agreement of an Account,
        shall require a specific Schedule A.

    2.  Each Schedule A shall contain a schedule of Accounts purchased under
        this Agreement.

    3.  Each Schedule A shall be made a part of this Agreement and shall be
        numbered consecutively and reference the Contract Number assigned to
        this Agreement.

    4.  Each Schedule A shall be dated the date of purchase of the Accounts
        reflected on such Schedule.

    5.  Each Schedule A shall be signed by Seller and Purchaser.

    6.  Each Schedule A as used herein shall be referred to as a "Schedule A".

D.  MPC:  The term "MPC" as used herein, shall mean the Maximum Purchase
Ceiling.  Purchaser's MPC is identified as the maximum outstanding balance, due
at any one time on Accounts purchased from Seller, as established from time to
time by Purchaser.  Such MPC, shall be established in the sole judgment of
Purchaser and may be so established or changed at any time by Purchaser, during
the term of this Agreement.  Purchaser shall notify Seller of any change in the
MPC.

E.  Assignment Letter:  The term "Assignment Letter" as used herein, shall mean
the Account Payor Assignment Letter and Directive for Payment, which shall be
the official notification to the Account Payors that payments for the specific
Accounts Purchased and reflected in the Schedules A be made directly to the
Purchaser.

F.  INP:  The term "INP" as used herein, shall mean Invoices Not Purchased.
Purchaser, it its sole discretion, shall have made an election not to purchase
or not to consider for purchase from Seller certain invoices.

G.  ANP:  The term "ANP" as used herein, shall mean Accounts Not Purchased.
Purchaser, in its sole discretion, shall have made an election not to purchase
or not to consider for purchase from Seller certain Accounts.

H.  Reserve Account:  The term "Reserve Account" as used herein, shall mean
Purchaser's Collateral Reserve Account, established, distributed and controlled
solely by Purchaser.

I.  Exhibits:  Exhibit A, Purchaser's Lien & UCC-1 Financing Statement; Exhibit
B, Discount and Service Fees; Exhibit C, Certification of Solvency.

                                       IV
                        ACCOUNT PURCHASE AND ASSIGNMENT

A.  Seller hereby sells, transfers, conveys and assigns to Purchaser, all of
Seller's right, title and interest in and to all Accounts as are accepted by
Purchaser, together with all replacements, and proceeds thereof, all guaranties
and security therefor, and all right, title and interest of Seller in and to the
goods/services represented by such Accounts including, but not limited to, all
rights to stoppage in transit, replevin, reclamation as an unpaid vendor, and
all other rights available to Seller under all applicable agreements, laws,
rules, regulations, orders and/or ordinances.

B.  Purchaser's rights shall also include the right to:

    1.  Sell, assign, transfer, pledge, encumber, settle, and/or compromise
        any or all of the Accounts;

    2.  Do all acts necessary or advisable in furtherance or any rights of
        Purchaser hereunder;

    3.  Demand, receive and sue, in Seller's name at Purchaser's option, for any
        monies due or which may become due under such Accounts, or for
        enforcement of any rights afforded Seller;
<PAGE>

    4.  Substitute one or more persons or entities with like powers;

    5.  Sign and endorse on behalf of Seller, all checks and instruments,
        received in connection with payment on the Accounts; and

    6.  Seller hereby irrevocably appoints Purchaser the attorney-in-fact of
        Seller for such purpose; and Seller hereby specifically authorizes,
        ratifies and confirms all that purchaser or its substitutes shall do by
        virtue thereof.

C.  Seller specifically agrees to execute and/or prepare, and file or publish,
at the request and direction of Purchaser any and all documentation and/or
notice of Purchaser's rights herein as may be necessary or advisable, in
Purchaser's discretion, to effect the terms hereof or to protect Purchaser's
interest herein described.

D.  Purchaser may, at its discretion, prepay Seller, prior to Seller's filling
of an advance order or the creation by Seller of an invoice in regard thereto as
payment for the Account to be created in connection with such advance order.  In
such event, the prepayment shall be referred to as an advance order prepayment
and it is hereby agreed that all terms hereof applicable to an assignment of
Accounts shall equally apply to an advance order prepayment.  Immediately upon
the creation of an invoice relating to an advance order prepayment, all rights
in such shall be delivered to Purchaser.  Additionally, Seller shall direct all
suppliers, in connection with any such prepayments, to deliver all goods and/or
services at the direction of Purchaser where requested by Purchaser and shall
otherwise perform and execute such other documents a Purchaser shall request to
effect the maximum security possible for Purchaser's prepayment.

E.  In the event of any sale to Purchaser, by Seller, of an Advance order, then,
without further action, Purchaser shall also obtain all of Seller's rights, then
existing and/or later arising, in and to goods/services represented by such
advance order and all of Seller's rights, as then existing or as later arising,
in all invoices, guaranties, warranties, security agreements, and similar
instruments, relating to such advance order.  Provided that, it is specifically
agreed that in purchasing the advance order, or otherwise making an advance
order prepayment, all of Seller's interest therein shall be delivered to
Purchaser without further notice immediately upon creation of such.  Purchaser
is purchasing the Accounts and any related rights, associated therewith;
provided that, as described in Section XI-15, in no event shall purchaser be
responsible, in whole or in part, for any duties, performance or obligations of
Seller nor shall Seller be relieved thereof by reason of this Agreement.

                                       V
                            PURCHASER'S PERFORMANCE

A.  In consideration for Seller's performance as described above and elsewhere
herein, which performance shall be a condition precedent to any duties of
Purchaser hereunder, Purchaser covenants and agrees to purchase all Accounts
specifically identified by Purchaser as acceptable to Purchaser in Purchaser's
sole discretion, subject to any MPC established by Purchaser.

B.  Seller shall offer, in writing, Accounts to Purchaser for Purchase from time
to time throughout the term hereof under the terms and conditions of this
Agreement, with specific identification of such Accounts and the terms thereof.
Purchaser shall notify Seller, within a reasonable time, of those proffered
Accounts which are acceptable for purchase.

C.  Purchaser shall issue each Account Payor notice of its obligation to make
all payments on the Account to Purchaser by the Assignment Letter furnished by
Purchaser and signed by Seller.

D.  If any Account(s) remain unpaid over 60 days, Purchaser has the right to
institute an internal audit/verification procedure of these Accounts or to hire
an independent professional accounting firm to do the same.  Expenses incurred
are to be charged to the Seller as reimbursable expenses in addition to the fees
and discounts.  Such expenses shall be deducted from the Reserve Account, billed
separately or added to the repurchase, as Purchaser shall determine.

E.  If any Account(s) remain(s) unpaid for 75 days, Purchaser has the right, in
its sole discretion, to require Seller to immediately repurchase such Account(s)
and pay Purchaser the total amount previously paid or incurred by Purchaser in
connection with such Account(s), as fees, discounts and/or expenses, and all
additional costs and damages incurred by Purchaser in connection with such
Account(s).  Such amount shall be paid to Purchaser within seven days from
dispatch of demand from Purchaser for such payment; provided that, if Purchaser
has funds in the Reserve Account (described below), Purchaser, at its discretion
and without further notice to Seller, may satisfy any portion or all of such
payment obligation directly from the Reserve Account, in addition to applying
any other payments received from INPs, ANPs or any other source.
<PAGE>

F.  In connection with any repurchase of an Account required by Purchaser
pursuant to the preceding paragraph, it is specifically agreed that Seller shall
be liable for any and all expenses to, or losses of, Purchaser occasioned by or
resulting from:

    1.  Any breach by Seller of any warranty or covenant herein;

    2.  Seller's contribution to, or aggregation of, an Account Payor's credit
        problem;

    3.  Any dispute of any kind, regardless of validity, between Seller and the
        Account Payor where such dispute was not disclosed to Purchaser prior to
        purchase; and

    4.  An Account Payor's assertion of a chargeback, return, retention, claim
        of loss or offset of any kind against Seller or Purchaser.

G.  Upon notification to Seller, Purchaser, in its discretion, may purchase
credit insurance on any Account Payors.  The full cost of such credit insurance
may be, as Purchaser determines, a deduction from the purchase price payable by
Purchaser to Seller in the purchase of the Account.

H.  The monthly cost of such credit insurance, as evidenced by billings or
invoices from the insurance carrier, may, as Purchaser determines, be billed to
Seller monthly and paid to Purchaser by the first day of the following month;
provided that, Purchaser, in its sole discretion, may apply any funds in the
Reserve Account in Payment of reasonable insurance costs owed by Seller for
credit insurance purchased.

I.  Purchaser agrees to service, for Seller, those Accounts listed in the
Schedules A in such a manner as to properly record and report the receipts and
distributions of such Accounts.  Purchaser will furnish such reports to Seller
as a service.  Fees for these services are included in the schedule of fees
attached to this Agreement.  Seller's request for additional or special services
shall be in writing and will require additional fees as agreed upon by Seller
and Purchaser and made a part of this Agreement.

                                       VI
                           PURCHASE PRICE AND PAYMENT

A.  The total purchase price payable for Accounts shall be equal to the face
amount payable by an Account Payor on such Account, less Purchaser's fees,
discounts, and reimbursable expenses and any deductions (Section V-F4) taken by
the Account Payor from the amount of the face value of the Account, known or
unknown to Purchaser.  Purchaser's fees and discounts are identified on Exhibit
B, attached hereto, and incorporated herein by reference for all purposes.
Reimbursable expenses are described below.

B.  It is specifically agreed that Accounts will be purchased hereunder in
groups and identified by reference to the Schedule A on which such Accounts
constituting a group are listed.

C.  Notwithstanding any other provision hereof, in all events, and in
Purchaser's sole discretion, Purchaser may apply any amount in the Reserve
Account or any other payments received, whether relating to INP's, ANP's or
otherwise, to compensate Purchaser for any breach by Seller of any provision of
this Agreement, including failure to pay Purchaser any amount due to Purchaser
hereunder, in preference to the payment to Seller described below.

D.  The purchase price payable by Purchaser in the purchase of Accounts
hereunder shall be paid in installments as follows:

    1.  The First Installment:  An initial payment computed as seventy percent
        (70%) of the face value of the Accounts purchased shall be paid by
        Purchaser to Seller upon notice by Purchaser to Seller of the purchase
        of specific proffered Accounts. Seller acknowledges receipt of the
        initial payment from Purchaser as a down payment for the purchase of the
        Accounts grouped or set out in the applicable Schedule A.

    2.  The Final Installment:  When all funds due have been collected by
        Purchaser from the Account Payors listed on the applicable Schedule A on
        which such Accounts purchased have been grouped, and only on the
        condition that all such funds are fully collected by Purchaser,
        Purchaser shall deliver a check to Seller, drawn against the Reserve
        Account identified below, for the remainder of the purchase price owed
        to Seller by Purchaser.
<PAGE>

    3.  The amount of the final installment shall not exceed an amount equal to
        the aggregate funds collected from the Accounts listed in the
        applicable Schedule A:

        (a)  Less the first installment
        (b)  Less all fees earned by Purchaser
        (c)  Less any Reimbursable Expenses (as defined in VII below)
        (d)  Less any deductions taken by Account Payor from face amount of
             the Account
        (e)  Less any shortage or amount due Purchaser from any other purchase

                                      VII
                             REIMBURSABLE EXPENSES

A.  Reimbursable Expenses, as such term is used herein, is hereby defined as any
expense identified below, incurred by Purchaser in performance hereunder, the
payment of which shall be reflected in Purchaser's purchase price for the
Accounts.  Seller thus hereby assumes full responsibility for, and agrees to
indemnify and hold Purchaser harmless against, such expenses.  The expenses
included as Reimbursable Expenses are those expenses, and only those expenses,
which are incurred in connection with the following activities performed in
regard to the Accounts:
<TABLE>
<CAPTION>

      <S>     <C>                                                               <C>
      1.      Credit Research, analysis, credit report                          Cost of Report

      2.      Wire transfer of immediately available funds to client accounts   Cost of Transfer

      3.      Overnight mail or hand delivery                                   Cost of Delivery

      4.      Check certification                                               Cost of Check

      5.      UCC search and filing fee                                         Cost of Search and filing

      6.      Services by Purchaser and/or any professional,
              including Attorneys, and Accountants Purchaser hires
              to audit, verify or assist in any way in protecting
              Purchaser's rights hereunder                                      Cost of Services

      7.      Credit Insurance purchased on any Account                         Cost of Insurance

      8.      Checks returned for NSF, Stop Payments, or
              deposited checks returned for any reason                          $20.00 charge/check
</TABLE>

                                      VII
                                CONTINUING TERM

A.  This Agreement evidences the continuing agreement of the parties hereto
concerning the purchase and sale of Accounts.  The terms of this Agreement shall
begin on the execution date hereof and shall terminate upon receipt of written
notice by either party of the intent of the other to terminate this Agreement,
provided that such notice of termination shall not affect any Accounts then the
property of Purchaser and this Agreement shall continue in full force and effect
with respect to such Accounts until full payment is received by Purchaser and
remittance by Purchaser to Seller of any amount payable to Seller under Section
VI hereof.

                                       IX
                                RESERVE ACCOUNT

A.  Purchaser agrees to maintain a Reserve Account as additional collateral for
Purchaser to which Purchaser shall credit all payments made on the Accounts,
less all amounts payable to Purchaser hereunder or deductible from Purchaser's
purchase price, and subject to application for amounts due Purchaser as
described herein.  The Reserve Account shall be administered and controlled
solely by Purchaser.

B.  The unpaid purchase price owed Seller shall be payable from the Reserve
Account by Purchaser, governed by the applicable Schedule A.  Such shall be paid
only after:
<PAGE>

    1.  Purchaser shall have collected all Accounts in the applicable Schedule
        A, in full;

    2.  Purchaser shall have been paid in full for all fees, discounts and
        Reimbursable Expenses associated with each Account in the applicable
        Schedule A; and

    3.  Seller shall be in full compliance with the terms of this Agreement
        and with regard to all Accounts purchased from Seller at any designated
        purchase date.

C.  Purchaser shall be entitled, in its sole discretion and without notice to
Seller, to apply any balance in the Reserve Account to:

    1.  Any Account Purchased on any Schedule A.

    2.  Any Accounts purchased which shall not have been liquidated, under
        provisions of this Agreement;

    3.  The payment of any sums which shall have become owing to Purchaser by
        Seller under the provisions of this Agreement; and

    4.  The liquidation of any Accounts or the payment owing to Purchaser under
        this Agreement on any guaranty given in connection with this Agreement
        in the event of and at the time of filing or institution of a proceeding
        in receivership or insolvency by or against Seller or any guarantor of
        Seller's obligations under this Agreement. See Certification of
        Solvency, Exhibit C, attached hereto and made a part hereof.

D.  It is specifically agreed, notwithstanding anything to the contrary
expressed or implied elsewhere, that Purchaser and Seller may agree in writing
that Seller shall continue to collect amounts owing on certain Accounts
purchased by Purchaser.  However, such shall not alter the character of the sale
described in this Agreement.  Seller shall merely collect amounts owing on the
Accounts and immediately notify Purchaser upon receipt of such and remit one
hundred percent (100%) thereof to Purchaser.  Purchaser shall deposit such
remittance in its Reserve Account and draw checks, therefrom.

                                       X
                                PURCHASER'S LIEN

A.  As further consideration for Purchaser's performance hereunder, and as a
condition precedent to such performance, and in order to secure Seller's
covenants, representations and performance hereunder and the payment of all
amounts due and under the Accounts and otherwise due by Seller to Purchaser, and
to protect Purchaser from loss in association therewith, Seller does hereby give
and grant unto Purchaser a security interest representing a first lien position
in and to all of Seller's right, title and interest in and to the following,
identified in aggregate as the "Collateral":

    1.  Any and all amounts due Seller from the Reserve Accounts and
        replacements and proceeds thereof, or from Purchaser as the balance of
        Purchaser's purchase price as referenced herein;

    2.  Any and all amounts collected by Seller on the Accounts where payments
        are made directly to Seller; and

    3.  Any and all amounts received by Purchaser for all INP's, ANP's or any
        Account not under contract to Purchaser.

    4.  The assets described on Exhibit "A" attached hereto and incorporated
        herein by reference for all purposes.

                                       XI
            SELLER'S WARRANTIES, REPRESENTATIONS AND INDEMNIFICATION

A.  Seller hereby covenants and warrants as follows, as of the date of execution
hereof and continuing throughout the term of this Agreement:
<PAGE>

    1.  Seller is the sole owner of the Accounts and no ownership interest in
        the Accounts has previously been assigned, pledged, mortgaged,
        encumbered or conveyed in any manner, nor has any security interest been
        granted or conveyed to any other person or entity in all or any part of
        Seller's Accounts and no financing statement covering the Accounts is
        filed in any public office.

    2.  Seller has the full power and authority to sell each of the Accounts,
        whether individually or in its corporate capacity, free of any condition
        or restriction, and has duly authorized their sale and assignment to
        Purchaser through this Agreement.

    3.  Each Account is for the amount stated in the applicable Schedule A,
        detailing each Account purchase and there are no set-offs, discounts,
        deduction, disputes, contingency or claims, restrictions, liens,
        security interests, encumbrances or counterclaims against Seller or any
        of the Accounts.

    4.  Seller agrees to indemnify, hold harmless and forever defend Purchaser
        from any and all liability and expenses arising out of the sale of
        goods, wares, merchandise, or services evidenced by the Accounts,
        whether asserted by Seller's Account Payor or subsequent purchases or
        users.

    5.  Seller agrees to execute any and all documents required by Purchaser to
        assist Purchaser in the collection of the Accounts and the enforcement
        of any liens or rights of Seller arising under the terms of the
        Accounts.

    6.  In the event of a misrepresentation by Seller (either intentional or
        otherwise) of any Account or invoice or in the age of an Account or in
        the amount of an Account or a reduction by the Account Payor in the
        amount paid or owing on any Account for any reason, or a deficiency in
        the payment of any funds earned by or owing to Purchaser, including but
        not limited to any funds advanced by Purchaser to Seller, Purchaser may
        take a corresponding credit against the Reserve Account and any other
        payments received on or for the Account (whether purchased or
        unpurchased) without further notice.

    7.  In addition, Purchaser may demand reimbursement directly from Seller
        for the amount of the deficiency and Seller shall immediately pay such
        amount to Purchaser. Upon Purchaser taking a credit or receiving payment
        from Seller due to any reduction in an Account as described in this
        paragraph, Purchaser may reassign such Account (or the portion thereof
        which has been reduced) to Seller without recourse.

    8.  All those Accounts representing invoiced an/or filled advance orders,
        are currently and presently due and owing to Seller and payment is not
        contingent upon fulfillment of any obligation at any time. All those
        Accounts identified as advance order prepayments represent valid
        commitments of Seller which Seller has the ability and intent to
        properly fill and perform.

    9.  Purchaser and its assigns shall be the owner and holder of the Accounts.

   10.  All proceeds, replacements, products, contract rights, lien rights and
        claims relating to the Accounts shall to be deemed a part of the
        Accounts.

   11.  Seller hereby ratifies and affirms its solvency, the absence of protest
        to payment by any Account Payor and each of the statements made in its
        most current corporate resolutions delivered to Purchaser authorizing
        the sale of Accounts to Purchaser.

   12.  Should Seller, at any time, breach any provision of any written
        agreement between Seller and Purchaser (including, but not limited to
        this Agreement) Purchaser shall have the right, upon notice to Seller in
        writing, to require Seller to repurchase all unpaid Accounts under this
        and all other agreements between Seller and Purchase, and such purchase
        shall be without recourse to Purchaser. Seller agrees to so purchase
        within seven (7) days of receipt of such written notice, said unpaid
        Accounts. In such event, Seller agrees that in addition to paying
        Purchaser any reimbursable expenses and special damages incurred by
        Purchaser, Seller shall pay all sums otherwise due under this and all
        other factoring agreements; Seller will be responsible for paying within
        the aforesaid seven day period a sum equal to the total purchase price,
        described in Section VI above, to the extent such has been paid or
        incurred by Purchaser.
<PAGE>

    13.  No provision hereof shall obligate Purchaser in any manner or to any
         degree, to Seller or to any third party whether such third party is
         with or without notice of this Agreement, to perform for Seller in
         regard to the underlying contract which gave rise to any Account.
         Seller and each guarantor do hereby covenant and agree to indemnify and
         hold Purchaser harmless for any and all performance, responsibility or
         duty owed by Seller to any Account Payor or other third party. Seller
         does covenant and agree to fully comply, in an acceptable manner, with
         the terms of any and all agreements with Account Payors to the extent
         such might affect the Accounts.

    14.  Seller shall notify the Account Payors of its obligation to make all
         payments on the Accounts to Purchaser on the "Assignment Letter"
         provided by Purchaser (Section V-C).

    15.  Each advance order included in the description of Accounts affected
         hereby, is valid; and Seller shall complete and deliver the
         goods/services associated therewith; Seller has the capability and
         intention of filling the advance orders, in a timely manner and agrees
         to so deliver and furnish invoices for same.

   16.   Seller agrees to immediately notify Purchaser of any funds received for
         any Accounts sold to Purchaser. Seller also agrees to forward such
         funds to Purchaser immediately after notifying Purchaser of the receipt
         of these funds. Until forwarded to Purchaser, Seller holds such funds
         in trust for Purchaser and Seller shall have no rights to such funds.

                                      XII
                               DEFAULT BY SELLER

A.  Any of the following acts, omissions and/or events, shall be and are hereby
defined as events of default by seller, in addition to any further events
defined elsewhere as events of default by Seller:

    1.  Breach by Seller of its agreement with any Account Payor for whom
        Purchaser owns an Account;

    2.  Breach by Seller of any obligation, covenant or warranty hereof,
        including but not limited to its repurchase obligation and/or its
        obligation to notify and remit funds to Purchaser; or

    3.  Seller's insolvency or business failure or Seller's assignment for the
        preference of certain creditors or the taking over of the Collateral or
        any part thereof by a receiver of Seller or placing the same in the
        custody of any court or the filing by or against Seller of a petition
        for bankruptcy protection.
        (See Certification of Solvency, Exhibit C.)

B.  Upon the occurrence of an event of default or warranty breach, and at any
time thereafter, Purchaser may elect, to foreclose on its security interest in
the above-described Collateral and Seller hereby expressly waives notice, demand
and presentment.  Provided that it is specifically agreed in all events, that
upon such foreclosure, Purchaser must first proceed against the Reserve Account
balance, and exhaust such, prior to any further action in regard to any other
Collateral.

C.  In the case of an event of default or warranty breach and such foreclosure,
Purchaser shall have the right to retain the balance of the purchase price held
in the Reserve Account and to set off against the Reserve Account any and all
damages suffered by Purchaser.  Purchaser shall have and may exercise any and
all rights provided by the Uniform Commercial Code of the State of California,
to the maximum extent provided by said Code (such rights to include the right to
take possession of and dispose of the Collateral).  Purchaser shall be entitled
to avail itself of all such rights and remedies as may now or hereafter exist at
law or in equity for the enforcement of the covenants, herein and the
foreclosure of the security interest created hereby and the resort to any remedy
provided hereunder or provided by the Uniform Commercial Code of California, or
by any other law of California, and nothing shall prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies.

D.  Any requirement of reasonable notice to Seller of the time and place of any
sale of the Collateral, or any other intended disposition thereof to be made,
shall be met if such notice is mailed, postage prepaid, to Seller at the last
known business address of Seller, as required by law.
<PAGE>

E.  Purchaser may remedy any default, without waiving same, or may waive any
default without waiving any prior or subsequent default.

F.  The security interest herein granted shall not be affected by nor affect any
other security taken for the indebtedness hereby secured, or any part thereof,
and any extensions may be made of Purchaser's rights and this security interest
and any releases may be executed of the Collateral, or any part hereof, herein
conveyed without affecting the priority of the security interest or the validity
thereof with reference to any third person, and the holder of said rights shall
not be limited by any election of remedies if it chooses to foreclose this
security interest by suit.

                                      XIII
                                 MISCELLANEOUS

A.  This Agreement has been made and is performable in Orange County, California
and shall be governed by the laws of the State of California.

B.  Seller and each guarantor, in addition to all other obligations owed
hereunder or in such guaranty agreements, shall, jointly and severally, be
liable for the full amount of attorney's fees and other cost incurred by
Purchaser in enforcing its rights hereunder and/or taking any legal action to
settle, collect or defend the Accounts or any part thereof or security interest
therein, together with interest on unpaid amounts at the maximum rate permitted
by law.

C.  This Agreement, and the exhibits attached hereto from time to time, set
forth the complete and entire understanding between Seller and Purchaser as to
the terms hereof.  Such Agreement shall only be modified by a written instrument
signed by all parties to be bound thereby.

D.  Purchaser shall have all of the rights and remedies of a secured party as
provided by the Uniform Commercial Code of the State of California, in addition
to all other rights and remedies provided by other applicable law and all rights
and remedies provided by this agreement.  It is understood that the security
interest created herein is intended and does hereby secure all present and
future obligations of Seller to Purchaser.

E.  Failure or delay by Purchaser in exercising any right hereunder shall not
waive the later assertion of that right nor waive Seller's future performance.

F.  Purchaser shall at all times have access to inspect and review all of
Seller's accounts and financial records to protect Purchaser's position
hereunder.  Seller shall also furnish all financial data to Purchaser,
immediately upon request for such from Purchaser and from time to time; such
financial data to include but not be limited to all deposits or receipts, all
accounts receivable and invoice payments, receipts for all required tax
payments, proof of payment of all insurance, including worker's compensation
payments and proof of all current payables.

G.  All rights of Purchaser against Seller, in the event of Seller's
nonperformance or breach, shall survive the termination of this Agreement.

H.  This Agreement shall be binding on and inure to the benefit of the parties
hereto and their legal representatives, heirs, executors, administrators,
successors and assigns.

I.  Any notice to be given hereunder shall be sufficient if in writing and
personally delivered or mailed, postage prepaid, by U.S. registered or certified
mail, return receipt requested, to the parties addresses as set forth below.
Notice shall be deemed given two (2) business days following dispatch as set
forth above.

J.  Notwithstanding any term or provision hereof which expressly or impliedly
indicates otherwise, no amount payable hereunder is payable as interest, for the
use, forbearance or detention of monies.  All amounts specifically designated as
interest shall be forgiven to the extent they cannot be restructured so as to
constitute legally imposed charges.  In no event shall this Agreement be
interpreted or enforced to contract for, charge or authorize receipt of any
interest in excess of the maximum nonusurious interest rate chargeable under
applicable law in regard to which no claim or defense of usury could
successfully be asserted.  Any amount determined by a court of proper
jurisdiction as usurious interest shall be deemed a mistake and shall be
refunded to the Seller or credited to authorized amounts owed by such Seller to
Purchaser.  Provided that nothing herein above shall limit any fees, discounts
or expenses payable to Purchaser where such do not constitute interest.
<PAGE>

EXTENDED AND ENTERED into this Factoring and Security Agreement as of this date.

"PURCHASER"

INTERIM CAPITAL, INC.

/s/  John F. Fuini, Pres.
By:  John F. Fuini, President
     3020 Old Ranch Parkway, Suite 300
     Seal Beach, CA 90740

"SELLER"

Applied Data Communications

/s/  Walter J. Kane, Pres.
By:  Walter J. Kane, Pres.
     Applied Data Communications
     16 Technology, Suite 118
     Irvine, CA 92718

          By signature below and in exchange for sufficient, good and valuable
consideration, the receipt of which, directly or indirectly, is hereby
acknowledged, the undersigned "Guarantor" does personally, jointly and
severally, guaranty all performance required in the above Agreement by the party
identified therein as "Seller" and does agree to execute a formal Guaranty
Agreement detailing the term of such Guaranty obligation where such is required
by Purchaser.

Dated:    July 29, 1994                Guarantor    /s/ Walter J. Kane
                                                    Walter J. Kane
<PAGE>

                                   EXHIBIT A

                          TO UCC-1 FINANCING STATEMENT

                                PURCHASER'S LIEN

In order to secure Purchaser's rights and Seller's obligations under this
Purchase Agreement, Seller hereby grants to Purchaser a security interest in,
and lien upon, all of Seller's rights, title and interest in, and to all of
Seller's existing and hereafter acquired Accounts Receivable, Accounts,
Invoices, Advance Orders, Contract rights, and Intangibles, Chattel Paper,
Documents, Instruments, Money Goods, Insurance Policies, Inventory, Equipment
and Vehicles and all proceeds and replacements and additions thereof and thereto
shall be and become security for Seller's performance under the Agreement and
collateral to Purchaser.

Seller shall execute such Financing Statements and other documents as Purchaser
shall request to effect the attachment, perfection and continuation of
Purchaser's security interest immediately upon execution hereof and continuing
thereafter for so long as any amount remains owing to Purchaser hereunder.
<PAGE>

                                   EXHIBIT B

                           DISCOUNT AND SERVICE FEES

If collection of the Account is completed within the below stated periods, then
the amount of the fee earned by INTERIM CAPITAL, INC. for discount and services
is as listed below:

          FEE PERIOD                         FEE EARNED

          0 to 10 days from date hereof       2.0%

          11 to 20 days from date hereof      4.0%

          21 to 30 days from date hereof      6.0%

          31 to 40 days from date hereof      8.0%

          41 to 50 days from date hereof      10.0%

          51 to 60 days from date hereof      12.5%

          61 to 75 days from date hereof      16.0%

          76 to 90 days from date hereof      18.0%

          After 91 days from date hereof      1% per month additional

Signed:    By  /s/ Walter J. Kane        July 29, 1994
               Walter J. Kane
<PAGE>

                                   EXHIBIT C

                           CERTIFICATION OF SOLVENCY

I, Walter J. Kane ("Seller") do hereby voluntarily and without coercion from
INTERIM CAPITAL, INC. ("IC") or any third party, certify that I (as a principal
of Seller), and the seller is solvent and not in bankruptcy at this time.

    I further certify that:

    1.  Seller and the undersigned have never declared Bankruptcy.

    2.  Seller and the undersigned have no intention of declaring Bankruptcy.

    3.  The Accounts listed in the Schedules A of this Agreement, have been
        sold to INTERIM CAPITAL, INC. and are no longer my assets or the assets
        of the above-mentioned Seller.

In the event it becomes necessary to declare bankruptcy at some time in the
future, this Certification shall serve as notice to the Courts that all monies
received from on these "Specified Accounts" listed on specific Schedules A are
due and owing in total to IC and should be paid to IC.  The Reserve Account held
by IC, is additional collateral to insure payment to IC of all funds and fees
due and owing to IC.  After receipt of all monies due and owing, IC shall then
forward any balance in the Reserve Account to the Court, along with any
accounting thereof.

This Certification shall serve as notice to the Account Payor(s) named on these
"Specified Accounts", which have been purchased by IC and listed in all
Schedules A of this Agreement, that such "Specified Accounts" are not the assets
of the above-named person or firm, but rather the assets of IC and that this
action or any further similar action shall not in any way interfere or stop the
payment of these "Specified Accounts", by the Account Payor, to Interim Capital,
Inc.

Applied Data Communications

Signed:  By  /s/ Walter J. Kane             July 29, 1994
             Walter J. Kane, Pres.

Signed:  By  /s/ Walter J. Kane
             Walter J. Kane
<PAGE>

                              PURCHASER'S NOTORIAL

STATE OF CALIFORNIA  )
                     ) ss.
COUNTY OF ORANGE     )

       On July 29, 1994, before me, Bonnie J. Hemingway, a Notary Public in and
for the State of California, personally appeared John F. Fuini, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument, and acknowledged to me that
he or she executed the same in his or her authorized capacity and that, by his
or her signature on the instrument, the person or the entity upon behalf of
which he or she acted, executed the instrument.

       WITHNESS my hand and official seal.

                                       /s/ Bonnie Jeanne Hemingway
                                       Notary Public in and for said State

(Notarial Seal)
<PAGE>

                               SELLER'S NOTORIAL

STATE OF CALIFORNIA  )
                     ) ss.
COUNTY OF ORANGE     )

       On July 29, 1994, before me, Bonnie J. Hemingway, a Notary Public in and
for the State of California, personally appeared Walter J. Kane, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument, and acknowledged to me
that he or she executed the same in his or her authorized capacity and that, by
his or her signature on the instrument, the person or the entity upon behalf of
which he or she acted, executed the instrument.

       WITHNESS my hand and official seal.

                                       /s/ Bonnie Jeanne Hemingway
                                       Notary Public in and for said State

(Notarial Seal)
<PAGE>

                              GUARANTOR'S NOTORIAL

STATE OF CALIFORNIA  )
                     ) ss.
COUNTY OF ORANGE     )

       On July 29, 1994, before me, Bonnie J. Hemingway, a Notary Public in and
for the State of California, personally appeared Walter J. Kane, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument, and acknowledged to me
that he or she executed the same in his or her authorized capacity and that, by
his or her signature on the instrument, the person or the entity upon behalf of
which he or she acted, executed the instrument.

       WITHNESS my hand and official seal.

                                       /s/ Bonnie Jeanne Hemingway
                                       Notary Public in and for said State

(Notarial Seal)
<PAGE>

               HOLD HARMLESS AGREEMENT AND AGREEMENT OF INDEMNITY

       Whereas, Wells Fargo Bank (hereinafter "Bank") has been asked by the
undersigns to permit Interim Capital, Inc. to deposit into its accounts at the
Bank checks that are made payable to the undersigned company without the
respective company's endorsement.  As a result of the Bank's agreement to use
its discretion, on a case by case basis, to permit Interim Capital, Inc. to
deposit said company's checks into its account both Interim Capital, Inc. and
the undersigned company agrees to execute this agreement of indemnity.

       In consideration of the Bank's agreement to exercise its option to
deposit said checks into Interim Capital, Inc.'s account without the respective
company's endorsement, Interim Capital, Inc. and each respective payee of said
check agrees, jointly and severally, to indemnify the Bank and to hold the Bank
harmless for any loss suffered by the Bank, in an amount not limited to the
amount of each check, and including and not limited to reasonable attorney's
fees, as a result of the Bank accepting the checks.

       The undersigns agreement to indemnify and hold the bank harmless from any
loss suffered for any past, present, or future claims regarding the deposit of
said checks, includes any loss suffered by the Bank for any reason and not
limited to a claim of lack of proper, complete or a forged endorsement.  The
undersigns agree that in the event the Bank suffered or suffers and loss at any
time, for any reason, the Bank can immediately debit any of your accounts for
the amounts of the loss sustained.

The undersigns acknowledges that its authorization the Bank for Interim Capital,
Inc. to deposit said company's checks to Interim Capital, Inc.'s account without
the respective company's endorsement shall remain in effect until a Bank officer
acknowledges in writing receipt of the undersigns written termination of its
grant of authority.

Interim Capital, Inc.            Company:  Applied Data Corporation

By:  /s/ John F. Fuini           By:    /s/ Walter J. Kane
     John F. Fuini                      Walter J. Kane

Title:  President                Title: President & CEO

Date:  July 29, 1994             Date:  7-29-94

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