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                                                                     EXHIBIT 4.2

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
May 29, 2002, among Irvine Sensors Corporation, a Delaware corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each a
"Purchaser" and collectively the "Purchasers").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and the Purchasers, severally and not jointly, desire to
purchase from the Company, up to $1,400,000 of the Company's common stock, $0.01
par value per share and certain Warrants (as defined below), as more fully
described in this Agreement.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1  Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

              "Affiliate" means any Person that, directly or indirectly through
         one or more intermediaries, controls or is controlled by or is under
         common control with a Person, as such terms are used in and construed
         under Rule 144. With respect to a Purchaser, any investment fund or
         managed account that is managed on a discretionary basis by the same
         investment manager as such Purchaser will be deemed to be an Affiliate
         of such Purchaser.

              "Business Day" means any day except Saturday, Sunday and any day
         which shall be a federal legal holiday or a day on which banking
         institutions in the State of New York are authorized or required by law
         or other governmental action to close.

              "Closing" means the closing of the purchase and sale of the
         Securities pursuant to Section 2.1.

              "Closing Date" means the date of the Closing.

              "Commission" means the Securities and Exchange Commission.

              "Common Stock" means the common stock of the Company, $0.01 par
         value per share, and any securities into which such common stock may
         hereafter be reclassified.

              "Common Stock Equivalents" means any securities of the Company or
         the Subsidiaries which would entitle the holder thereof to acquire at
         any time Common

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         Stock, including without limitation, any debt, preferred stock, rights,
         options, warrants or other instrument that is at any time convertible
         into or exchangeable for, or otherwise entitles the holder thereof to
         receive, Common Stock.

              "Company Counsel" means Brobeck, Phleger & Harrison LLP, counsel
         to the Company.

              "Effective Date" means the date that the Registration Statement is
         first declared effective by the Commission.

              "Escrow Agent" shall have the meaning set forth in the Escrow
         Agreement.

              "Escrow Agreement" shall mean the Escrow Agreement in
         substantially the form of Exhibit A hereto executed and delivered
         contemporaneously with this Agreement.

              "Exchange Act" means the Securities Exchange Act of 1934, as
         amended.

              "Material Adverse Effect" shall have the meaning ascribed to such
         term in Section 3.1(b).

              "Parent Warrants" means the Common Stock purchase warrants, in the
         form of Exhibit D, issuable to the Purchasers at Closing, which
         warrants shall have an exercise price equal to the greater of (i) $2.10
         (subject to stock splits and the like), and (ii) the closing price of
         the Common Stock on the Trading Market on the Trading Day immediately
         prior to the Closing Date.

              "Per Share Purchase Price" means $2.00 per share of Common Stock,
         subject to adjustment for reverse and forward stock splits and the
         like.

              "Person" means an individual or corporation, partnership, trust,
         incorporated or unincorporated association, joint venture, limited
         liability company, joint stock company, government (or an agency or
         subdivision thereof) or other entity of any kind.

              "Proceeding" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

              "Purchasers' Counsel" means Feldman &Weinstein LLP with offices
         located at 36 West 44th Street, New York, New York 10036.

              "Registration Statement" means a registration statement meeting
         the requirements set forth in the Registration Rights Agreement and
         covering the resale by the Purchasers of the Shares and the Warrant
         Shares underlying the Parent Warrants.

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               "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of this Agreement, among the Company
         and the Purchasers, in the form of Exhibit B hereto.

               "Rule 144," means Rule 144 promulgated by the Commission pursuant
         to the Securities Act, as such Rules may be amended from time to time,
         or any similar rule or regulation hereafter adopted by the Commission
         having substantially the same effect as such Rule.

               "Securities" means the Shares, the Warrants and the Warrant
         Shares.

               "Securities Act" means the Securities Act of 1933, as amended.

               "Shares" means the shares of Common Stock issued or issuable to
         the Purchasers pursuant to this Agreement.

               "Strategic Transaction" means a transaction or relationship in
         which the Company issues shares of Common Stock to a Person which is,
         itself or through its subsidiaries, an operating company in a business
         synergistic with the business of the Company and in which the Company
         receives material benefits in addition to the investment of funds, but
         shall not include a transaction in which the Company is issuing
         securities primarily for the purpose of raising capital or to an entity
         whose primary business is investing in securities.

               "Subsidiary" means any subsidiary of the Company that is
         disclosed in the Company's Annual Report to the Company's stockholders
         on Form 10-K for the fiscal year ended September 30, 2001.

               "Subsidiary Warrants" means the common stock purchase warrants of
         iNetWorks Corporation, a subsidiary of the Company, in the form of
         Exhibit E, issuable to the Purchasers at Closing.

               "Trading Day" means (i) a day on which the Common Stock is traded
         on a Trading Market, or (ii) if the Common Stock is not listed on a
         Trading Market, a day on which the Common Stock is traded in the
         over-the-counter market, as reported by the OTC Bulletin Board, or
         (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
         day on which the Common Stock is quoted in the over-the-counter market
         as reported by the National Quotation Bureau Incorporated (or any
         similar organization or agency succeeding its functions of reporting
         prices); provided, that in the event that the Common Stock is not
         listed or quoted as set forth in (i), (ii) and (iii) hereof, then
         Trading Day shall mean a Business Day.

               "Trading Market" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: American Stock Exchange, the New York Stock Exchange, the
         Nasdaq National Market or the Nasdaq SmallCap Market.

                                       -3-

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               "Transaction Documents" means this Agreement, the Registration
         Rights Agreement, the Escrow Agreement, the Warrants and any other
         documents or agreements executed in connection with the transactions
         contemplated hereunder.

               "Warrants" means the Parent Warrants and the Subsidiary Warrants.

               "Warrant Shares" means the shares of Common Stock issuable upon
         exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

         2.1   Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly with the other Purchasers,
purchase from the Company, (a) a number of Shares equal to the subscription
amount set forth below such Purchaser's address on the signature pages to this
Agreement divided by the Per Share Purchase Price for such subscription amount,
and (b) the Warrants as determined in accordance with Section 2.2(a). The
aggregate subscription amount of all the Purchasers shall not be $1,400,000. The
Closing shall take place at the offices of the Escrow Agent on the date hereof
or at such other location or time as the parties may agree.

         2.2   Closing Deliveries.

               (a)  At the Closing, the Company shall deliver or cause to be
         delivered to the Escrow Agent on behalf of each Purchaser the
         following:

                    (i)   this Agreement duly executed by the Company.

                    (ii)  a certificate evidencing a number of Shares equal to
               the subscription amount indicated below such Purchaser's name on
               the signature page of this Agreement divided by the Per Share
               Purchase Price, registered in the name of such Purchaser;

                    (iii) a legal opinion from counsel reasonably acceptable to
               the Purchasers, in the form of Exhibit C hereto, addressed to the
               Purchasers;

                    (iv)  the Registration Rights Agreement duly executed by the
               Company;

                    (v)   the Escrow Agreement duly executed by the Company; and

                    (vi)  a Parent Warrant, registered in the name of such
               Purchaser, pursuant to which such Purchaser shall have the right
               to acquire up to the number of shares of Common Stock equal to
               30% of the Shares to be issued to such Purchaser at the Closing;

                    (vii) a Subsidiary Warrant, registered in the name of such
               Purchaser, pursuant to which such Purchaser shall have the right
               to acquire up to a number of

                                       -4-

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               shares of common stock of iNetWorks Corporation equal to (in
               number and not value) 10% of the number of Shares to be issued
               to such Purchaser at the Closing.

               (b)  At the Closing, each Purchaser shall deliver or cause to be
         delivered to the Escrow Agent the following:

                    (i)   this Agreement duly executed by such Purchaser;

                    (ii)  the subscription amount indicated below such
               Purchaser's address for notice on the signature page of this
               Agreement, in United States dollars and in immediately available
               funds, by wire transfer to the account of the Escrow Agent;

                    (iii) the Escrow Agreement duly executed by such Purchaser;
               and

                    (iv)  the Registration Rights Agreement duly executed by
               such Purchaser.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1   Representations and Warranties of the Company. Except as set
forth under the corresponding section of the Disclosure Schedules attached
hereto and the SEC Reports and except as otherwise would not have a Material
Adverse Effect, the Company hereby makes the following representations and
warranties to each Purchaser:

               (a) Subsidiaries. Except as disclosed in Schedule 3.1(a), the
         Company has no direct or indirect subsidiaries. The Company owns,
         directly or indirectly, all of the capital stock of each Subsidiary
         free and clear of any lien, charge, security interest, encumbrance,
         right of first refusal or other restriction (collectively, "Liens"),
         and all the issued and outstanding shares of capital stock of each
         Subsidiary are validly issued and are fully paid, non-assessable and
         free of preemptive and similar rights. If the Company has no
         subsidiaries, then references in the Transaction Documents to the
         Subsidiaries will be disregarded.

               (b) Organization and Qualification. Each of the Company and the
         Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation of any of the provisions of
         its respective certificate or articles of incorporation, bylaws or
         other organizational or charter documents. Each of the Company and the
         Subsidiaries is duly qualified to conduct business and is in good
         standing as a foreign corporation or other entity in each jurisdiction
         in which the nature of the business conducted or property owned by it
         makes such qualification necessary, except where the failure to be so
         qualified or in good standing, as the case may be, would not,
         individually or in the aggregate, have or reasonably be expected to
         result in (i) adversely affect the legality, validity or enforceability
         of any Transaction Document, (ii)

                                       -5-

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     have or result in a material adverse effect on the results of operations,
     assets, prospects, business or condition (financial or otherwise) of the
     Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
     the Company's ability to perform in any material respect on a timely basis
     its obligations under any Transaction Document (any of (i), (ii) or (iii),
     a "Material Adverse Effect").

           (c) Authorization; Enforcement. The Company has the requisite
     corporate power and authority to enter into and to consummate the
     transactions contemplated by each of the Transaction Documents and
     otherwise to carry out its obligations thereunder. The execution and
     delivery of each of the Transaction Documents by the Company and the
     consummation by it of the transactions contemplated thereby have been duly
     authorized by all necessary action on the part of the Company and no
     further action is required by the Company in connection therewith. Each
     Transaction Document has been (or upon delivery will have been) duly
     executed by the Company and, when delivered in accordance with the terms
     hereof, will constitute the valid and binding obligation of the Company
     enforceable against the Company in accordance with its terms.

           (d) No Conflicts. The execution, delivery and performance of the
     Transaction Documents by the Company and the consummation by the Company of
     the transactions contemplated thereby do not and will not (i) conflict with
     or violate any provision of the Company's or any Subsidiary's certificate
     or articles of incorporation, bylaws or other organizational or charter
     documents, or (ii) conflict with, or constitute a default (or an event that
     with notice or lapse of time or both would become a default) under, or give
     to others any rights of termination, amendment, acceleration or
     cancellation (with or without notice, lapse of time or both) of, any
     agreement, credit facility, debt or other instrument (evidencing a Company
     or Subsidiary debt or otherwise) or other understanding to which the
     Company or any Subsidiary is a party or by which any property or asset of
     the Company or any Subsidiary is bound or affected, or (iii) result in a
     violation of any law, rule, regulation, order, judgment, injunction, decree
     or other restriction of any court or governmental authority to which the
     Company or a Subsidiary is subject (including federal and state securities
     laws and regulations), or by which any property or asset of the Company or
     a Subsidiary is bound or affected; except in the case of each of clauses
     (ii) and (iii), such as would not, individually or in the aggregate, have
     or reasonably be expected to result in a Material Adverse Effect.

           (e) Filings, Consents and Approvals. The Company is not required to
     obtain any consent, waiver, authorization or order of, give any notice to,
     or make any filing or registration with, any court or other federal, state,
     local or other governmental authority or other Person in connection with
     the execution, delivery and performance by the Company of the Transaction
     Documents, other than the filing with the Commission of the Registration
     Statement, the application(s) to each Trading Market for the listing of the
     Shares and Warrant Shares underlying the Parent Warrant for trading thereon
     in the time and manner required thereby, and applicable Blue Sky filings
     (collectively, the "Required Approvals").

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           (f) Issuance of the Securities. The Securities are duly authorized
     and, when issued and paid for in accordance with the Transaction Documents,
     will be duly and validly issued, fully paid and nonassessable, free and
     clear of all Liens. The Company has reserved from its duly authorized
     capital stock the maximum number of shares of Common Stock (and common
     stock of iNetWorks Corporation) issuable pursuant to this Agreement and the
     Warrants.

           (g) Capitalization. The number of shares and type of all authorized,
     issued and outstanding capital stock of the Company is set forth in
     Schedule 3.1(g) of the Disclosure Schedules. No securities of the Company
     are entitled to preemptive or similar rights, and no Person has any right
     of first refusal, preemptive right, right of participation, or any similar
     right to participate in the transactions contemplated by the Transaction
     Documents. Except as a result of the purchase and sale of the Securities,
     there are no outstanding options, warrants, script rights to subscribe to,
     calls or commitments of any character whatsoever relating to, or
     securities, rights or obligations convertible into or exchangeable for, or
     giving any Person any right to subscribe for or acquire, any shares of
     Common Stock, or contracts, commitments, understandings or arrangements by
     which the Company or any Subsidiary is or may become bound to issue
     additional shares of Common Stock, or securities or rights convertible or
     exchangeable into shares of Common Stock. The issue and sale of the
     Securities will not obligate the Company to issue shares of Common Stock or
     other securities to any Person (other than the Purchasers) and will not
     result in a right of any holder of Company securities to adjust the
     exercise, conversion, exchange or reset price under such securities.

           (h) SEC Reports; Financial Statements. The Company has filed all
     reports required to be filed by it under the Securities Act and the
     Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
     two years preceding the date hereof (or such shorter period as the Company
     was required by law to file such material) (the foregoing materials being
     collectively referred to herein as the "SEC Reports" and, together with the
     Schedules to this Agreement, the "Disclosure Materials") on a timely basis
     or has received a valid extension of such time of filing and has filed any
     such SEC Reports prior to the expiration of any such extension. The Company
     has delivered to the Purchasers a copy of all SEC Reports filed within the
     10 days preceding the date hereof. As of their respective dates, the SEC
     Reports complied in all material respects with the requirements of the
     Securities Act and the Exchange Act and the rules and regulations of the
     Commission promulgated thereunder, and none of the SEC Reports, when filed,
     contained any untrue statement of a material fact or omitted to state a
     material fact required to be stated therein or necessary in order to make
     the statements therein, in light of the circumstances under which they were
     made, not misleading. The financial statements of the Company included in
     the SEC Reports comply in all material respects with applicable accounting
     requirements and the rules and regulations of the Commission with respect
     thereto as in effect at the time of filing. Such financial statements have
     been prepared in accordance with generally accepted accounting principles
     applied on a consistent basis during the periods involved ("GAAP"), except
     as may be otherwise specified in such financial statements or the notes
     thereto, and fairly present in all material respects the financial position
     of the Company and its consolidated subsidiaries

                                       -7-

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     as of and for the dates thereof and the results of operations and cash
     flows for the periods then ended, subject, in the case of unaudited
     statements, to normal, immaterial, year-end audit adjustments.

           (i) Material Changes. Since the date of the latest audited financial
     statements included within the SEC Reports, except as specifically
     disclosed in the SEC Reports, (i) there has been no event, occurrence or
     development that has had or that could reasonably be expected to result in
     a Material Adverse Effect, (ii) the Company has not incurred any
     liabilities (contingent or otherwise) other than (A) trade payables and
     accrued expenses incurred in the ordinary course of business consistent
     with past practice and (B) liabilities not required to be reflected in the
     Company's financial statements pursuant to GAAP or required to be disclosed
     in filings made with the Commission, (iii) the Company has not altered its
     method of accounting or the identity of its auditors, (iv) the Company has
     not declared or made any dividend or distribution of cash or other property
     to its stockholders or purchased, redeemed or made any agreements to
     purchase or redeem any shares of its capital stock, and (v) the Company has
     not issued any equity securities to any officer, director or Affiliate,
     except pursuant to existing Company stock option plans. The Company does
     not have pending before the Commission any request for confidential
     treatment of information.

           (j) Litigation. There is no action, suit, inquiry, notice of
     violation, proceeding or investigation pending or, to the knowledge of the
     Company, threatened against or affecting the Company, any Subsidiary or any
     of their respective properties before or by any court, arbitrator,
     governmental or administrative agency or regulatory authority (federal,
     state, county, local or foreign) (collectively, an "Action") which (i)
     adversely affects or challenges the legality, validity or enforceability of
     any of the Transaction Documents or the Securities or (ii) could, if there
     were an unfavorable decision, individually or in the aggregate, have or
     reasonably be expected to result in a Material Adverse Effect. Neither the
     Company nor any Subsidiary, nor any director or officer thereof, is or has
     been the subject of any Action involving a claim of violation of or
     liability under federal or state securities laws or a claim of breach of
     fiduciary duty. There has not been, and to the knowledge of the Company,
     there is not pending or contemplated, any investigation by the Commission
     involving the Company or any current or former director or officer of the
     Company. The Commission has not issued any stop order or other order
     suspending the effectiveness of any registration statement filed by the
     Company or any Subsidiary under the Exchange Act or the Securities Act.

           (k) Labor Relations. No material labor dispute exists or, to the
     knowledge of the Company, is imminent with respect to any of the employees
     of the Company.

           (l) Compliance. Neither the Company nor any Subsidiary (i) is in
     default under or in violation of (and no event has occurred that has not
     been waived that, with notice or lapse of time or both, would result in a
     default by the Company or any Subsidiary under), nor has the Company or any
     Subsidiary received notice of a claim that it is in default under or that
     it is in violation of, any indenture, loan or credit agreement or any other
     agreement or instrument to which it is a party or by which it or any of its

                                       -8-

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     properties is bound (whether or not such default or violation has been
     waived), (ii) is in violation of any order of any court, arbitrator or
     governmental body, or (iii) is or has been in violation of any statute,
     rule or regulation of any governmental authority, including without
     limitation all foreign, federal, state and local laws relating to taxes,
     environmental protection, occupational health and safety, product quality
     and safety and employment and labor matters, except in each case as would
     not, individually or in the aggregate, have or reasonably be expected to
     result in a Material Adverse Effect.

           (m) Regulatory Permits. The Company and the Subsidiaries possess all
     certificates, authorizations and permits issued by the appropriate federal,
     state, local or foreign regulatory authorities necessary to conduct their
     respective businesses as described in the SEC Reports, except where the
     failure to possess such permits would not, individually or in the
     aggregate, have or reasonably be expected to result in a Material Adverse
     Effect ("Material Permits"), and neither the Company nor any Subsidiary has
     received any notice of proceedings relating to the revocation or
     modification of any Material Permit.

           (n) Title to Assets. The Company and the Subsidiaries have good and
     marketable title in fee simple to all real property owned by them that is
     material to the business of the Company and the Subsidiaries and good and
     marketable title in all personal property owned by them that is material to
     the business of the Company and the Subsidiaries, in each case free and
     clear of all Liens, except for Liens as do not materially affect the value
     of such property and do not materially interfere with the use made and
     proposed to be made of such property by the Company and the Subsidiaries.
     Any real property and facilities held under lease by the Company and the
     Subsidiaries are held by them under valid, subsisting and enforceable
     leases of which the Company and the Subsidiaries are in compliance.

           (o) Patents and Trademarks. The Company and the Subsidiaries have, or
     have rights to use, all patents, patent applications, trademarks, trademark
     applications, service marks, trade names, copyrights, licenses and other
     similar rights that are necessary or material for use in connection with
     their respective businesses as described in the SEC Reports and which the
     failure to so have could, individually or in the aggregate, have or
     reasonably be expected to result in a Material Adverse Effect
     (collectively, the "Intellectual Property Rights"). Neither the Company nor
     any Subsidiary has received a written notice that the Intellectual Property
     Rights used by the Company or any Subsidiary violates or infringes upon the
     rights of any Person. Except as set forth in the SEC Reports, to the
     knowledge of the Company, all such Intellectual Property Rights are
     enforceable and there is no existing infringement by another Person of any
     of the Intellectual Property Rights.

           (p) Insurance. The Company and the Subsidiaries are insured by
     insurers of recognized financial responsibility against such losses and
     risks and in such amounts as are prudent and customary in the businesses in
     which the Company and the Subsidiaries are engaged. Neither the Company nor
     any Subsidiary has any reason to believe that it will not be able to renew
     its existing insurance coverage as and when such coverage

                                       -9-

<PAGE>

     expires or to obtain similar coverage from similar insurers as may be
     necessary to continue its business without a significant increase in cost.

           (q) Transactions With Affiliates and Employees. Except as set forth
     in the SEC Reports, none of the officers or directors of the Company and,
     to the knowledge of the Company, none of the employees of the Company is
     presently a party to any transaction with the Company or any Subsidiary
     (other than for services as employees, officers and directors), including
     any contract, agreement or other arrangement providing for the furnishing
     of services to or by, providing for rental of real or personal property to
     or from, or otherwise requiring payments to or from any officer, director
     or such employee or, to the knowledge of the Company, any entity in which
     any officer, director, or any such employee has a substantial interest or
     is an officer, director, trustee or partner in excess of $60,000.

           (r) Internal Accounting Controls. The Company and the Subsidiaries
     maintain a system of internal accounting controls sufficient to provide
     reasonable assurance that (i) transactions are executed in accordance with
     management's general or specific authorizations, (ii) transactions are
     recorded as necessary to permit preparation of financial statements in
     conformity with generally accepted accounting principles and to maintain
     asset accountability, (iii) access to assets is permitted only in
     accordance with management's general or specific authorization, and (iv)
     the recorded accountability for assets is compared with the existing assets
     at reasonable intervals and appropriate action is taken with respect to any
     differences.

           (s) Solvency. Based on the financial condition of the Company as of
     the Closing Date, (i) the Company's fair saleable value of its assets
     exceeds the amount that will be required to be paid on or in respect of the
     Company's existing debts and other liabilities (including known contingent
     liabilities) as they mature; (ii) the Company's assets do not constitute
     unreasonably small capital to carry on its business for the current fiscal
     year as now conducted and as proposed to be conducted including its capital
     needs taking into account the particular capital requirements of the
     business conducted by the Company, and projected capital requirements and
     capital availability thereof; and (iii) the current cash flow of the
     Company, together with the proceeds the Company would receive, were it to
     liquidate all of its assets, after taking into account all anticipated uses
     of the cash, would be sufficient to pay all amounts on or in respect of its
     debt when such amounts are required to be paid. The Company does not intend
     to incur debts beyond its ability to pay such debts as they mature (taking
     into account the timing and amounts of cash to be payable on or in respect
     of its debt).

           (t) Certain Fees. No brokerage or finder's fees or commissions are or
     will be payable by the Company to any broker, financial advisor or
     consultant, finder, placement agent, investment banker, bank or other
     Person with respect to the transactions contemplated by this Agreement. The
     Purchasers shall have no obligation with respect to any fees or with
     respect to any claims made by or on behalf of other Persons for fees of a
     type contemplated in this Section that may be due in connection with the
     transactions contemplated by this Agreement.

                                       -10-

<PAGE>

           (u) Private Placement. Assuming the accuracy of the Purchasers
     representations and warranties set forth in Section 3.2, no registration
     under the Securities Act is required for the offer and sale of the
     Securities by the Company to the Purchasers as contemplated hereby. The
     issuance and sale of the Securities hereunder does not contravene the rules
     and regulations of the Trading Market and no shareholder approval is
     required for the Company to fulfill its obligations under the Transaction
     Documents, including issuing and delivering to the Purchasers the maximum
     number of Securities contemplated by this Agreement and the maximum number
     of Warrant Shares issuable upon exercise in full of the Warrants based on
     their present exercise price.

           (v) Listing and Maintenance Requirements. The Company has not, in the
     two years preceding the date hereof, received notice (written or oral) from
     any Trading Market on which the Common Stock is or has been listed or
     quoted to the effect that the Company is not in compliance with the listing
     or maintenance requirements of such Trading Market. The Company is, and has
     no reason to believe that it will not in the foreseeable future continue to
     be, in compliance with all such listing and maintenance requirements of the
     Trading Market.

           (w) Investment Company. The Company is not, and is not an Affiliate
     of, an "investment company" within the meaning of the Investment Company
     Act of 1940, as amended.

           (x) Registration Rights. The Company has not granted or agreed to
     grant to any Person any rights (including "piggy-back" registration rights)
     to have any securities of the Company registered with the Commission or any
     other governmental authority that have not been satisfied.

           (y) Form S-3 Eligibility. The Company is eligible to register for
     resale of its Common Stock for resale by the Purchasers under Form S-3
     promulgated under the Securities Act.

     3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:

           (a) Organization; Authority. Such Purchaser is an entity duly
     organized, validly existing and in good standing under the laws of the
     jurisdiction of its organization with the requisite corporate or
     partnership power and authority to enter into and to consummate the
     transactions contemplated by the Transaction Documents and otherwise to
     carry out its obligations thereunder. The execution, delivery and
     performance by such Purchaser of the transactions contemplated by this
     Agreement has been duly authorized by all necessary corporate action on the
     part of such Purchaser. Each of this Agreement and the Registration Rights
     Agreement has been duly executed by such Purchaser, and when delivered by
     such Purchaser in accordance with terms hereof, will constitutes the valid
     and legally binding obligation of such Purchaser, enforceable against it in
     accordance with its terms.

                                      -11-

<PAGE>

           (b) Investment Intent. Such Purchaser is acquiring the Securities as
     principal for its own account for investment purposes only and not with a
     view to or for distributing or reselling such Securities or any part
     thereof, without prejudice, however, to such Purchaser's right at all times
     to sell or otherwise dispose of all or any part of such Securities in
     compliance with applicable federal and state securities laws. Nothing
     contained herein shall be deemed a representation or warranty by such
     Purchaser to hold Securities for any period of time. Such Purchaser is
     acquiring the Securities hereunder in the ordinary course of its business.
     Such Purchaser does not have any agreement or understanding, directly or
     indirectly, with any Person to distribute any of the Securities.

           (c) Purchaser Status. At the time such Purchaser was offered the
     Securities, it was, and at the date hereof it is an "accredited investor"
     as defined in Rule 501(a) under the Securities Act. The Purchaser is not
     required to be registered as a broker-dealer under Section 15 of the
     Exchange Act.

           (d) Experience of such Purchaser. Such Purchaser, either alone or
     together with its representatives, has such knowledge, sophistication and
     experience in business and financial matters so as to be capable of
     evaluating the merits and risks of the prospective investment in the
     Securities, and has so evaluated the merits and risks of such investment.
     Such Purchaser is able to bear the economic risk of an investment in the
     Securities and, at the present time, is able to afford a complete loss of
     such investment.

           (e) General Solicitation. Such Purchaser is not purchasing the
     Securities as a result of any advertisement, article, notice or other
     communication regarding the Securities published in any newspaper, magazine
     or similar media or broadcast over television or radio or presented at any
     seminar or any other general solicitation or general advertisement.

           (f) Access to Information. Such Purchaser acknowledges that it has
     reviewed the Disclosure Materials and has been afforded (i) the opportunity
     to ask such questions as it has deemed necessary of, and to receive answers
     from, representatives of the Company concerning the terms and conditions of
     the offering of the Securities and the merits and risks of investing in the
     Securities; (ii) access to information about the Company and the
     Subsidiaries and their respective financial condition, results of
     operations, business, properties, management and prospects sufficient to
     enable it to evaluate its investment; and (iii) the opportunity to obtain
     such additional information that the Company possesses or can acquire
     without unreasonable effort or expense that is necessary to make an
     informed investment decision with respect to the investment. Neither such
     inquiries nor any other investigation conducted by or on behalf of such
     Purchaser or its representatives or counsel shall modify, amend or affect
     such Purchaser's right to rely on the truth, accuracy and completeness of
     the Disclosure Materials and the Company's representations and warranties
     contained in the Transaction Documents.

     The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

                                      -12-

<PAGE>

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

     4.1   Transfer Restrictions.

           (a) Securities may only be disposed of in compliance with state and
     federal securities laws. In connection with any transfer of Securities
     other than pursuant to an effective registration statement, to the Company
     or to an Affiliate of a Purchaser, the Company may require the transferor
     thereof to provide to the Company an opinion of counsel selected by the
     transferor, the form and substance of which opinion shall be reasonably
     satisfactory to the Company, to the effect that such transfer does not
     require registration of such transferred Securities under the Securities
     Act. As a condition of transfer, any such transferee shall agree in writing
     to be bound by the terms of this Agreement and shall have the rights of a
     Purchaser under this Agreement and the Registration Rights Agreement.

           (b) The Purchasers agree to the imprinting, so long as is required by
     this Section 4.1(b), of the following legend on any the Securities:

           [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
           SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
           SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
           ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
           SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
           ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
           EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
           TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
           THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
           WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
           OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
           SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

           (c) Certificates evidencing Securities shall not contain any legend
     (including the legend set forth in Section 4.1(b)), (i) while a
     registration statement (including the Registration Statement) covering the
     resale of such security is effective under the Securities Act, or (ii)
     following any sale of such Securities pursuant to Rule 144, or (iii) if
     such Securities are eligible for sale under Rule 144(k), or (iv) if such
     legend is not required under applicable requirements of the Securities Act
     (including judicial interpretations and pronouncements issued by the Staff
     of the Commission). The Company shall cause its counsel to issue the legal
     opinion to the Company's transfer agent on the Effective Date or promptly
     thereafter. If all or any portion of a Warrant is exercised at a time when
     there is an effective registration statement to cover the resale of the
     Warrant Shares, such Warrant Shares shall be issued free of all legends.
     The

                                      -13-

<PAGE>

     Company agrees that following the Effective Date or at such time as such
     legend is no longer required under this Section 4.1(c), it will, no later
     than three Trading Days following the delivery by a Purchaser to the
     Company or the Company's transfer agent of a certificate representing
     Securities issued with a restrictive legend, deliver or cause to be
     delivered to such Purchaser a certificate representing such Securities that
     is free from all restrictive and other legends. The Company may not make
     any notation on its records or give instructions to any transfer agent of
     the Company that enlarge the restrictions on transfer set forth in this
     Section.

          (d) If the Company fails to deliver or cause to be delivered to any
     Purchaser a certificate representing any Securities without legend as set
     forth above by the seventh (7th) Trading Day after the date on which
     delivery of such certificate is required by any Transaction Document
     (except that, in the case of shares issued upon exercise of the Warrant,
     the ninth (9th) Trading Day from the date such warrant is duly exercised by
     the holder thereof (including providing notice of such exercise to Company
     Counsel)), the Company shall pay to such Purchaser, in cash, as liquidated
     damages and not as a penalty, $50 for each $5,000 of Securities so
     delivered (based upon the original purchase price of the Securities) for
     each day after such seventh (7th) (or ninth (9th), as the case may be)
     Trading Day until such certificate is delivered. Nothing herein shall limit
     such Purchaser's right to pursue actual damages for the Company's failure
     to deliver certificates representing any Securities as required by the
     Transaction Documents, and such Purchaser shall have the right to pursue
     all remedies available to it at law or in equity including, without
     limitation, a decree of specific performance and/or injunctive relief.

     4.2  Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

     4.3  Securities Laws Disclosure; Publicity. The Company may, following the
Closing Date, issue a press release or file a Current Report on Form 8-K, in
each case reasonably acceptable to the Purchasers disclosing the transactions
contemplated hereby and (ii) make such other filings and notices in the manner
and time required by the Commission. The Company and the Purchasers shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release or otherwise make any such public statement without the prior consent of
the other, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public

                                      -14-

<PAGE>

statement or communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure.

     4.4  Indemnification of Purchasers. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Documents; or (b) any cause of action, suit or claim brought or made
against such Purchaser Party and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any of the other
Transaction Documents. The Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.

     4.5  Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

     4.6  Use of Proceeds. The Company's present intent is to use a significant
portion of the proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company's
debt (other than payment of trade payables in the ordinary course of the
Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to use all or a significant portion of the
proceeds to settle any outstanding litigation.

     4.7  Reservation and Listing of Securities.

          (a) The Company shall maintain a reserve from its duly authorized
     shares of Common Stock a number of shares at least equal to the number of
     shares required to fulfill its obligations in full under the Transaction
     Documents.

          (b) The Company shall: (i) in the time and manner required by each
     Principal Market, prepare and file with such Principal Market an additional
     shares listing application covering a number of shares of Common Stock at
     least equal to the number of shares of Common Stock required to fulfill its
     obligations in full under the Transaction Documents, (ii) take all steps
     necessary to cause such shares of Common Stock to be approved for listing
     on each Principal Market as soon as possible thereafter, (iii) provide

                                      -15-

<PAGE>

     to the Purchasers evidence of such listing, and (iv) maintain the listing
     of such Common Stock on each such Principal Market or another Principal
     Market.

                                   ARTICLE V.
                                  MISCELLANEOUS

     5.1 Fees and Expenses. The Company agrees to pay $15,000 to Purchasers'
Counsel as reimbursement for the Purchasers legal, escrow and other fees and
expenses incurred in connection with the investigation and negotiation of the
transaction and the preparation and negotiation of the Transaction Documents.
Except as otherwise set forth in this Agreement, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Securities.

     5.2 Entire Agreement. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

     5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as set forth on the
signature pages hereto or such other address as may be designated in writing
hereafter, in the same manner, by such Person.

     5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

     5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

                                       -16-

<PAGE>

     5.6  Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company (with
respect to any Purchaser) or the Purchasers (with respect to the Company).

     5.7  No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6 and 4.7.

     5.8  Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto (including its affiliates,
agents, officers, directors and employees) hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

     5.9  Survival. The representations, warranties, agreements and covenants
contained herein shall survive until the second anniversary of the Closing and
the delivery and exercise of the Securities, as applicable.

     5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any

                                      -17-

<PAGE>

signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.

     5.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

     5.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

     5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

     5.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

     5.15 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,

                                      -18-

<PAGE>

including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

                         *******************************

                                      -19-

<PAGE>

       IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                       COMPANY:

Address for Notice:                    IRVINE SENSORS CORPORATION
------------------
3001 Redhill Avenue
Costa Mesa, CA 92626
Tel: (714) 549-8211                    By:  /s/ John J. Stuart, Jr.
Fax: (714) 557-1260                        ------------------------------------
Attn:  John Stuart                          Name:  John J. Stuart, Jr.
                                            Title: Sr. Vice President and Chief
                                                   Financial Officer

With copy to:
------------
BROBECK, PHLEGER & HARRISON LLP
38 Technology Drive
Irvine, CA 92618
Tel:(949) 790-6300
Fax:(949) 790-6301
Attn:Ellen S. Bancroft, Esq.

PURCHASERS:

STONESTREET L.P.                       Address for Notice:
                                       ------------------
                                       260 Town Centre Blvd.
                                       Suite 201
By: /s/ Michael Finkelstein            Markham, ON L3R 8H8 Canada
   _________________________           Attn: Fund Manager
   Name:  Michael Finkelstein          Subscription Amount:$900,000
   Title: President
                                       Address for Notice:
                                       ------------------
ALPHA CAPITAL AG                       Lettstrasse 32
                                       Furstentum 9490

                                       Vaduz, Liechtenstein
By: /s/ Konrad Ackerman                Fax: 011-423 232 3196
   ________________________            Subscription Amount:  $500,000
   Name:  Konrad Ackerman
   Title: Director


With notice to:
--------------
FELDMAN WEINSTEIN LLP
36 West 44th Street
New York, New York 10036-8102
Tel: (212) 869-7000
Fax: (212) 401-4741
Attn: Robert F. Charron
























                                      -20-





<PAGE>

                                    EXHIBIT A

                                ESCROW AGREEMENT

          THIS ESCROW AGREEMENT (this "Agreement") is made as of May __, 2002,
by and among Irvine Sensors Corporation, a corporation incorporated under the
laws of Delaware (the "Company"), the purchasers signatory hereto (each an
"Purchaser" and together the "Purchasers"), and Feldman Weinstein LLP, with an
address at 36 West 44th Street, New York, NY 10036 (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement referred to in the first recital.

                              W I T N E S S E T H:

          WHEREAS, the Purchasers will be purchasing from the Company, in the
aggregate, up to US$1,400,000 of the common stock, $0.01 par value per share, of
the Company, Series A Warrants and Series B Warrants as set forth in the
Securities Purchase Agreement (the "Purchase Agreement") dated the date hereof
between the Purchasers and the Company, which will be issued as per the terms
contained herein and in the Purchase Agreement; and

          WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements set forth by Sections 4(2)
and/or 4(6) and/or Regulation D promulgated under the Securities Act of 1933, as
amended; and

          WHEREAS, the Company and the Purchasers have requested that the Escrow
Agent hold the Purchase Price with respect to the Closing in escrow until the
Escrow Agent has received the Release Notice in the form attached hereto from
the Company and each Purchaser;

          NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:

                                   ARTICLE 1

                               TERMS OF THE ESCROW

     1.1  The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
up to US$1,400,000, in the aggregate, of the Shares and Warrants at the Closing
as contemplated by the Purchase Agreement.

     1.2  Closing.

          (a) Upon the Escrow Agent's receipt of the aggregate subscription
     amounts, as set forth on the signature pages to the Purchase Agreement (the
     "Subscription

                                      A-1

<PAGE>

     Amount") for the Closing into its master escrow account, together with
     executed counterparts of this Agreement, the Purchase Agreement, the
     Warrants and the Registration Rights Agreement, it shall telephonically
     advise the Company, or the Company's designated attorney or agent, of the
     amount of funds it has received into its master escrow account.

           (b) Wire transfers to the Escrow Agent shall be made as follows:

               Chase Manhattan Bank, NA
               510 Fifth Avenue
               New York, NY 10036 USA
               ABA Routing Number: 021000021
               Account Number: 987074342668
               Name of Account: Feldman Weinstein LLP Master Escrow Account
               Remark:  IRSN

           (c) The Company, upon receipt of said notice, shall deliver to the
     Escrow Agent the certificates representing the certificates evidencing the
     Securities to be issued to each Purchaser at the Closing together with:

               (i)   the original executed Registration Rights Agreement
           substantially in the form of Exhibit B to the Purchase Agreement;

               (ii)  the original executed opinions of Brobeck, Phleger &
           Harrison LLP in the form of Exhibit C to the Purchase Agreement;

               (iii) an original counterpart of this Escrow Agreement;

               (iv)  a warrant, registered in the name of BiCoastal Consulting
           pursuant to which the holder shall have the right to acquire up to
           the number of shares of Common Stock equal to 200,000 shares of
           Common Stock, otherwise identical to the Series A Warrant ("Class A
           Placement Warrant"); and

               (v)   a warrant, registered in the name of the BiCoastal
           Consulting pursuant to which the holder shall have the right to
           acquire up to the number of shares of Common Stock equal to 200,000
           shares of common stock of iNetWorks Corporation, otherwise identical
           to the Series B Warrant ("Class B Placement Warrant");

           (d) In the event that the foregoing items are not in the Escrow
     Agent's possession within five (5) Trading Days of the Escrow Agent
     notifying the Company that the Escrow Agent has custody of the Subscription
     Amount, then each Purchaser shall have the right to demand the return of
     their portion of the Subscription Amount.

           (e) Once the Escrow Agent receives a Release Notice in the form
     attached hereto as Exhibit X executed by the Company and each Purchaser, it
     shall wire 90% of

                                       A-2

<PAGE>

     the Subscription Amount per the written instructions of the Company, net of
     (i) US$15,000 to Feldman Weinstein LLP for Purchasers' legal,
     administrative and escrow costs, and the remaining 10% of the Subscription
     Agreement per the written instructions of the Company and BiCoastal
     Consulting.

           (f) Once the funds (as set forth above) have been sent per the
     Company's instructions, the Escrow Agent shall then arrange to have the
     Shares, the Warrants, the Purchase Agreement, the Registration Rights
     Agreement, the Escrow Agreement, the opinion of counsel, the Class A
     Placement Warrants and the Class B Placement Warrants delivered to the
     appropriate parties.

                                   ARTICLE 2

                                  MISCELLANEOUS

     2.1 No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the time
for performance of any other obligation or act.

     2.2 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent as set forth in the Purchase Agreement.

     2.3 This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.

     2.4 This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.

     2.5 Whenever required by the context of this Escrow Agreement, the singular
shall include the plural and masculine shall include the feminine. This Escrow
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.

     2.6 The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Any action to enforce, arising out of, or
relating in any way to, any provisions of this Escrow Agreement shall only be
brought in a state or Federal court sitting in New York City.

     2.7 The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, each Purchaser and the
Escrow Agent.

                                      A-3

<PAGE>

     2.8  The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent pursuant
to the advice of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.

     2.9  The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.

     2.10 The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder.

     2.11 The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor which shall be paid by the Escrow Agreement. The Escrow
Agent has acted as legal counsel for the Purchasers, and may continue to act as
legal counsel for the Purchasers, from time to time, notwithstanding its duties
as the Escrow Agent hereunder. The Company consents to the Escrow Agent in such
capacity as legal counsel for the Purchasers and waives any claim that such
representation represents a conflict of interest on the part of the Escrow
Agent. The Company understands that the Purchasers and the Escrow Agent are
relying explicitly on the foregoing provision in entering into this Escrow
Agreement.

     2.12 The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchasers. In the event of any such resignation, the Purchasers and the
Company shall appoint a successor Escrow Agent.

     2.13 If the Escrow Agent reasonably requires other or further instruments
in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.

     2.14 It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or the
escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's

                                      A-4

<PAGE>

sole discretion (1) to retain in the Escrow Agent's possession without liability
to anyone all or any part of said documents or the escrow funds until such
disputes shall have been settled either by mutual written agreement of the
parties concerned by a final order, decree or judgment or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (2) to deliver the escrow funds and any other
property and documents held by the Escrow Agent hereunder to a state or Federal
court having competent subject matter jurisdiction and located in the City of
New York in accordance with the applicable procedure therefor.

     2.15 The Company and each Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.

                            ************************

                                      A-5

<PAGE>

                      [SIGNATURE PAGE TO ESCROW AGREEMENT]

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of this __ day of May , 2002.

         IRVINE SENSORS CORPORATION

         By:______________________________________
                Name:
                Title:

         Company Wiring Instructions:
         ---------------------------

         U.S. Bank of California
         4100 Newport Place
         Newport Beach, CA 92660
         ABA Routing # 122235821
         Acct Name: Irvine Sensors Corporation
         Account # 1 638 0054 0060
         Bank Contact:  Shirley Wentzel, Vice-President, (949) 863-2404
          or  Karen Randazzo, (949) 863-2327

         INVESTORS:

         STONESTREET L.P.

         By: _____________________________________
             Name:
             Title:

         ALPHA CAPITAL AG

         By: _____________________________________
             Name:
             Title:

         ESCROW AGENT:

         FELDMAN WEINSTEIN LLP

         By:______________________________________
            Name:
            Title:

                                      A-6



<PAGE>

                                                                    Exhibit X to
                                                                Escrow Agreement

                                 RELEASE NOTICE

          The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of May __,
2002 among Irvine Sensors Corporation, the Purchasers signatory thereto and
Feldman Weinstein LLP, as Escrow Agent (the "Escrow Agreement"; capitalized
terms used herein and not defined shall have the meaning ascribed to such terms
in the Escrow Agreement), hereby notify the Escrow Agent that each of the
conditions precedent to the purchase and sale of the Shares set forth in the
Securities Purchase Agreement have been satisfied. The Company and the
undersigned Purchaser hereby confirm that all of their respective
representations and warranties contained in the Purchase Agreement remain true
and correct and authorize the release by the Escrow Agent of the funds and
documents to be released at the Closing as described in the Escrow Agreement.
This Release Notice shall not be effective until executed by the Company and the
Purchaser.

          This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.

          IN WITNESS WHEREOF, the undersigned have caused this Release Notice to
be duly executed and delivered as of this __ day of May, 2002.

                                 IRVINE SENSORS CORPORATION

                                 By: ____________________________________
                                       Name:
                                       Title:

                                 INVESTORS:

                                 STONESTREET L.P.

                                 By: ____________________________________
                                       Name:
                                       Title:

                                 ALPHA CAPITAL AG

                                 By:  ___________________________________
                                       Name:
                                       Title:

                                      A-7



<PAGE>

                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

           This Registration Rights Agreement (this "Agreement") is made and
entered into as of May __, 2002, by and among Irvine Sensors Corporation, a
Delaware corporation (the "Company"), and the investors signatory hereto (each a
"Purchaser" and collectively, the "Purchasers").

           This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").

           The Company and the Purchasers hereby agree as follows:

      1.   Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:

           "Effectiveness Date" means, with respect to the initial Registration
      Statement required to be filed hereunder, the earlier of (a) 180th day
      following the Closing Date and (b) the fifth Trading Day following the
      date on which the Company is notified by the Commission that such
      Registration Statement will not be reviewed or is no longer subject to
      further review and comments.

           "Effectiveness Period" shall have the meaning set forth in Section
      2(a).

           "Filing Date" means, with respect to the initial Registration
      Statement required to be filed hereunder, the 30th day following the
      Closing Date.

           "Holder" or "Holders" means the holder or holders, as the case may
      be, from time to time of Registrable Securities.

           "Indemnified Party" shall have the meaning set forth in Section 5(c).

           "Indemnifying Party" shall have the meaning set forth in Section
      5(c).

           "Losses" shall have the meaning set forth in Section 5(a).

           "Proceeding" means an action, claim, suit, investigation or
      proceeding (including, without limitation, an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

           "Prospectus" means the prospectus included in a Registration
      Statement (including, without limitation, a prospectus that includes any
      information previously omitted from a prospectus filed as part of an
      effective registration statement in reliance upon Rule 430A

                                      B-1

<PAGE>

      promulgated under the Securities Act), as amended or supplemented by any
      prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and all other amendments and supplements to the Prospectus, including
      post-effective amendments, and all material incorporated by reference or
      deemed to be incorporated by reference in such Prospectus.

           "Registrable Securities" means the Shares, together with any
      securities issued or issuable upon any stock split, dividend or other
      distribution, recapitalization or similar event with respect to the
      foregoing.

           "Registration Statement" means the initial registration statement
      required to be filed hereunder, including (in each case) the Prospectus,
      amendments and supplements to such registration statement or Prospectus,
      including pre- and post-effective amendments, all exhibits thereto, and
      all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement.

           "Rule 415" means Rule 415 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same effect as such Rule.

           "Rule 424" means Rule 424 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same effect as such Rule.

           "Shares" solely for the purpose of this Agreement means the Shares
      (as defined in the Purchase Agreement) together with the Warrant Shares
      issuable upon exercise of the Parent Warrant and the shares of Common
      Stock issuable upon exercise of the Parent Placement Warrant (as defined
      in the Escrow Agreement).

           "Special Counsel" means Purchaser Counsel who will be reimbursed by
      the Company pursuant to Section 4.

      2.   Registration.

           (a) On or prior to the Filing Date, the Company shall prepare and
      file with the Commission a Registration Statement covering the resale of
      all Registrable Securities for an offering to be made on a continuous
      basis pursuant to Rule 415. Each Registration Statement required hereunder
      shall be on Form S-3 (except if the Company is not then eligible to
      register for resale the Registrable Securities on Form S-3, in which case
      such registration shall be on another appropriate form in accordance
      herewith). Each Registration Statement required hereunder shall contain
      (except if otherwise directed by the Holders) the "Plan of Distribution"
      attached hereto as Annex A. The Company shall cause such Registration
      Statement to become effective and remain effective as provided herein. The
      Company shall use its best efforts to cause each Registration Statement to
      be

                                      B-2

<PAGE>

      declared effective under the Securities Act as promptly as possible after
      the filing thereof, but in any event prior to its Effectiveness Date, and
      shall use its best efforts to keep each Registration Statement
      continuously effective under the Securities Act until the date which is
      two years after the date that such Registration Statement is declared
      effective by the Commission or such earlier date when all Registrable
      Securities covered by such Registration Statement have been sold or may be
      sold without volume restrictions pursuant to Rule 144(k) as determined by
      the counsel to the Company pursuant to a written opinion letter to such
      effect, addressed and acceptable to the Company's transfer agent and the
      affected Holders (the "Effectiveness Period").


           (b) If: (i) a Registration Statement is not filed on or prior to its
      Filing Date (if the Company files a Registration Statement without
      affording Special Counsel to the Holder the opportunity to review and
      comment on the same as required by Section 3(a), the Company shall not be
      deemed to have satisfied this clause (i)), or (ii) the Company fails to
      file with the Commission a request for acceleration in accordance with
      Rule 461 promulgated under the Securities Act, within five Trading Days of
      the date that the Company is notified (orally or in writing, whichever is
      earlier) by the Commission that a Registration Statement will not be
      "reviewed," or not subject to further review, or (iii) prior to the date
      when such Registration Statement is first declared effective by the
      Commission, the Company fails to file a pre-effective amendment and
      otherwise respond in writing to comments made by the Commission in respect
      of such Registration Statement within ten Trading Days after the receipt
      of comments by or notice from the Commission that such amendment is
      required in order for a Registration Statement to be declared effective,
      or (iv) a Registration Statement filed or required to be filed hereunder
      is not declared effective by the Commission within 180 days from the
      Closing Date, or (v) after a Registration Statement is first declared
      effective by the Commission, it ceases for any reason to remain
      continuously effective as to all Registrable Securities for which it is
      required to be effective, or the Holders are not permitted to utilize the
      Prospectus therein to resell such Registrable Securities, for in any such
      cases an aggregate of ten Trading Days (which need not be consecutive
      Trading Days) (any such failure or breach being referred to as an "Event,"
      and for purposes of clause (i) or (iv) the date on which such Event
      occurs, or for purposes of clause (ii) the date on which such five Trading
      Day period is exceeded, or for purposes of clauses (iii) the date which
      such ten Trading Day period is exceeded, or for purposes of clause (v) the
      date on which such ten Trading Day period is exceeded being referred to as
      "Event Date"), then in additional to any other rights the Holders may have
      hereunder or applicable law: (x) on each such Event Date the Company shall
      pay to each Holder an amount in cash, as liquidated damages and not as a
      penalty, equal to 1% of the aggregate purchase price paid by such Holder
      pursuant to the Purchase Agreement; and (y) on each monthly anniversary of
      each such Event Date (if the applicable Event shall not have been cured by
      such date) until the applicable Event is cured, the Company shall pay to
      each Holder an amount in cash, as liquidated damages and not as a penalty,
      equal to 1% of the aggregate purchase price paid by such Holder pursuant
      to the Purchase Agreement; provided, however, that each of the periods
      specified above shall be extended for any period of time in which the
      Company is unable to act with respect to the above items solely due to the
      failure of the Holder or Special Counsel for the Holders to provide the
      individuals that exercise voting and/or investment

                                       B-3

<PAGE>

     power over the Securities and to provide the Holders' beneficial ownership
     of the Common Stock or Special Counsel's failure to provide comments to the
     Company, if any (and if Special Counsel has no comments, notice of such),
     on any documents to be filed; and, provided, further, that in no event
     shall the aggregate amount of damages payable by the Company pursuant to
     this Section 2(b) exceed 18% of the aggregate purchase price paid by the
     Holders pursuant to the Purchase Agreement and amounts payable as to any
     month shall be reduced as to such Holder pro-rata for shares otherwise
     saleable during such month pursuant to Rule 144. If the Company fails to
     pay any liquidated damages pursuant to this Section in full within seven
     days after the date payable, the Company will pay interest thereon at a
     rate of 18% per annum (or such lesser maximum amount that is permitted to
     be paid by applicable law) to the Holder, accruing daily from the date such
     liquidated damages are due until such amounts, plus all such interest
     thereon, are paid in full.

     3.    Registration Procedures

           In connection with the Company's registration obligations hereunder,
the Company shall:

           (a) Not less than five Trading Days prior to the filing of a
     Registration Statement or any related Prospectus or any amendment or
     supplement thereto, the Company shall, (i) furnish to Special Counsel for
     the Holders copies of all such documents proposed to be filed (including
     documents incorporated or deemed incorporated by reference) which documents
     will be subject to the review of such Holders and their Special Counsel,
     and (ii) cause its officers and directors, counsel and independent
     certified public accountants to respond to such inquiries as shall be
     necessary, in the reasonable opinion of respective counsel to conduct a
     reasonable investigation within the meaning of the Securities Act. The
     Company shall not file a Registration Statement or any such Prospectus or
     any amendments or supplements thereto to which the Holders of a majority of
     the Registrable Securities and their Special Counsel shall reasonably
     object.

           (b) (i) Prepare and file with the Commission such amendments,
     including post-effective amendments, to a Registration Statement and the
     Prospectus used in connection therewith as may be necessary to keep a
     Registration Statement continuously effective as to the applicable
     Registrable Securities for the Effectiveness Period and prepare and file
     with the Commission such additional Registration Statements in order to
     register for resale under the Securities Act all of the Registrable
     Securities; (ii) cause the related Prospectus to be amended or supplemented
     by any required Prospectus supplement, and as so supplemented or amended to
     be filed pursuant to Rule 424; (iii) respond as promptly as reasonably
     possible, and in any event within ten days, to any comments received from
     the Commission with respect to a Registration Statement or any amendment
     thereto and, as promptly as reasonably possible provide the Special Counsel
     to the Holders true and complete copies of all correspondence from and to
     the Commission relating to such Registration Statement; and (iv) comply in
     all material respects with the provisions of the Securities Act and the
     Exchange Act with respect to

                                      B-4

<PAGE>

     the disposition of all Registrable Securities covered by a Registration
     Statement during the applicable period in accordance with the intended
     methods of disposition by the Holders thereof set forth in such
     Registration Statement as so amended or in such Prospectus as so
     supplemented.

           (c) Notify the Holders of Registrable Securities to be sold and their
     Special Counsel as promptly as reasonably possible (and, in the case of
     (i)(A) below, not less than three Trading Days prior to such filing) and
     (if requested by any such Person) confirm such notice in writing no later
     than one Trading Day following the day (i)(A) when a Prospectus or any
     Prospectus supplement or post-effective amendment to a Registration
     Statement is proposed to be filed; (B) when the Commission notifies the
     Company whether there will be a "review" of such Registration Statement and
     whenever the Commission comments in writing on such Registration Statement
     (the Company shall provide true and complete copies thereof and all written
     responses thereto to theSpecial counsel for the Holders); and (C) with
     respect to a Registration Statement or any post-effective amendment, when
     the same has become effective; (ii) of any request by the Commission or any
     other Federal or state governmental authority for amendments or supplements
     to a Registration Statement or Prospectus or for additional information;
     (iii) of the issuance by the Commission of any stop order suspending the
     effectiveness of a Registration Statement covering any or all of the
     Registrable Securities or the initiation of any Proceedings for that
     purpose; (iv) of the receipt by the Company of any notification with
     respect to the suspension of the qualification or exemption from
     qualification of any of the Registrable Securities for sale in any
     jurisdiction, or the initiation or threatening of any Proceeding for such
     purpose; and (v) of the occurrence of any event or passage of time that
     makes the financial statements included in a Registration Statement
     ineligible for inclusion therein or any statement made in such Registration
     Statement or Prospectus or any document incorporated or deemed to be
     incorporated therein by reference untrue in any material respect or that
     requires any revisions to such Registration Statement, Prospectus or other
     documents so that, in the case of a Registration Statement or the
     Prospectus, as the case may be, it will not contain any untrue statement of
     a material fact or omit to state any material fact required to be stated
     therein or necessary to make the statements therein, in light of the
     circumstances under which they were made, not misleading.

           (d) Use its best efforts to avoid the issuance of, or, if issued,
     obtain the withdrawal of (i) any order suspending the effectiveness of a
     Registration Statement, or (ii) any suspension of the qualification (or
     exemption from qualification) of any of the Registrable Securities for sale
     in any jurisdiction, at the earliest practicable moment.

           (e) Furnish to each Holder and their Special Counsel, without charge,
     at least one conformed copy of each Registration Statement and each
     amendment thereto, including financial statements and schedules, all
     documents incorporated or deemed to be incorporated therein by reference,
     and all exhibits to the extent requested by such Person (including those
     previously furnished or incorporated by reference) promptly after the
     filing of such documents with the Commission.

                                      B-5

<PAGE>

             (f) Promptly deliver to each Holder and their Special Counsel,
         without charge, as many copies of the Prospectus or Prospectuses
         (including each form of prospectus) and each amendment or supplement
         thereto as such Persons may reasonably request. The Company hereby
         consents to the use of such Prospectus and each amendment or supplement
         thereto by each of the selling Holders in connection with the offering
         and sale of the Registrable Securities covered by such Prospectus and
         any amendment or supplement thereto.

             (g) Prior to any public offering of Registrable Securities, use its
         best efforts to register or qualify or cooperate with the selling
         Holders and their Special Counsel in connection with the registration
         or qualification (or exemption from such registration or qualification)
         of such Registrable Securities for offer and sale under the securities
         or Blue Sky laws of such jurisdictions within the United States as any
         Holder requests in writing, to keep each such registration or
         qualification (or exemption therefrom) effective during the
         Effectiveness Period and to do any and all other acts or things
         necessary or advisable to enable the disposition in such jurisdictions
         of the Registrable Securities covered by a Registration Statement;
         provided, that the Company shall not be required to qualify generally
         to do business in any jurisdiction where it is not then so qualified or
         subject the Company to any material tax in any such jurisdiction where
         it is not then so subject.

             (h) Cooperate with the Holders to facilitate the timely preparation
         and delivery of certificates representing Registrable Securities to be
         delivered to a transferee pursuant to a Registration Statement, which
         certificates shall be free, to the extent permitted by the Purchase
         Agreement, of all restrictive legends, and to enable such Registrable
         Securities to be in such denominations and registered in such names as
         any such Holders may request.

             (i) Upon the occurrence of any event contemplated by Section
         3(c)(v), as promptly as reasonably possible, prepare a supplement or
         amendment, including a post-effective amendment, to a Registration
         Statement or a supplement to the related Prospectus or any document
         incorporated or deemed to be incorporated therein by reference, and
         file any other required document so that, as thereafter delivered,
         neither such Registration Statement nor such Prospectus will contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein, in light of the circumstances under which they were made, not
         misleading.

             (j) Comply with all applicable rules and regulations of the
         Commission.

             (k) The Company may require each selling Holder to furnish to the
         Company a certified statement as to the number of shares of Common
         Stock beneficially owned by such Holder and, if requested by the
         Commission, the controlling person thereof.

         4.  Registration Expenses. All fees and expenses incident to the
     performance of or compliance with this Agreement by the Company shall be
     borne by the Company whether or not any Registrable Securities are sold
     pursuant to a Registration Statement. The fees and expenses

                                       B-6

<PAGE>

     referred to in the foregoing sentence shall include, without limitation,
     (i) all registration and filing fees (including, without limitation, fees
     and expenses (A) with respect to filings required to be made with the
     Trading Market on which the Common Stock is then listed for trading, and
     (B) in compliance with applicable state securities or Blue Sky laws), (ii)
     printing expenses (including, without limitation, expenses of printing
     certificates for Registrable Securities and of printing prospectuses if the
     printing of prospectuses is reasonably requested by the holders of a
     majority of the Registrable Securities included in a Registration
     Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
     disbursements of counsel for the Company, (v) Securities Act liability
     insurance, if the Company so desires such insurance, and (vi) fees and
     expenses of all other Persons retained by the Company in connection with
     the consummation of the transactions contemplated by this Agreement. In
     addition, the Company shall be responsible for all of its internal expenses
     incurred in connection with the consummation of the transactions
     contemplated by this Agreement (including, without limitation, all salaries
     and expenses of its officers and employees performing legal or accounting
     duties), the expense of any annual audit and the fees and expenses incurred
     in connection with the listing of the Registrable Securities on any
     securities exchange as required hereunder. Other than the fees set forth in
     the Purchase Agreement, the Holders shall bear each of their own expenses,
     including any underwriter discounts or fees and any accounting fees or
     expenses or legal fees, including fees of Special Counsel.

         5.  Indemnification

             (a) Indemnification by the Company. The Company shall,
         notwithstanding any termination of this Agreement, indemnify and hold
         harmless each Holder, the officers, directors, agents and employees of
         each of them, each Person who controls any such Holder (within the
         meaning of Section 15 of the Securities Act or Section 20 of the
         Exchange Act) and the officers, directors, agents and employees of each
         such controlling Person, to the fullest extent permitted by applicable
         law, from and against any and all losses, claims, damages, liabilities,
         costs (including, without limitation, reasonable costs of preparation
         and reasonable attorneys' fees) and expenses (collectively, "Losses"),
         as incurred, arising out of or relating to any untrue or alleged untrue
         statement of a material fact contained in a Registration Statement, any
         Prospectus or any form of prospectus or in any amendment or supplement
         thereto or in any preliminary prospectus, or arising out of or relating
         to any omission or alleged omission of a material fact required to be
         stated therein or necessary to make the statements therein (in the case
         of any Prospectus or form of prospectus or supplement thereto, in light
         of the circumstances under which they were made) not misleading, except
         to the extent, but only to the extent, that (1) such untrue statements
         or omissions are based solely upon information regarding such Holder
         furnished in writing to the Company by such Holder expressly for use
         therein, or to the extent that such information relates to such Holder
         or such Holder's proposed method of distribution of Registrable
         Securities and was reviewed and expressly approved in writing by such
         Holder expressly for use in a Registration Statement, such Prospectus
         or such form of Prospectus or in any amendment or supplement thereto
         (it being understood that the Holder has approved Annex A hereto for
         this purpose) or (2) in the case of an occurrence of an event of the
         type specified in Section 3(c)(ii)-(v), the use by such Holder of an
         outdated or defective Prospectus after the Company has notified such
         Holder in

                                      B-7

<PAGE>

     writing that the Prospectus is outdated or defective and prior to the
     receipt by such Holder of the Advice contemplated in Section 6(d). The
     Company shall notify the Holders promptly of the institution, threat or
     assertion of any Proceeding of which the Company is aware in connection
     with the transactions contemplated by this Agreement.

         (b) Indemnification by Holders. Each Holder shall, severally and not
     jointly, indemnify and hold harmless the Company, its directors, officers,
     agents and employees, each Person who controls the Company (within the
     meaning of Section 15 of the Securities Act and Section 20 of the Exchange
     Act), and the directors, officers, agents or employees of such controlling
     Persons, to the fullest extent permitted by applicable law, from and
     against all Losses, as incurred, arising solely out of or based solely
     upon: (x) such Holder's failure to comply with the prospectus delivery
     requirements of the Securities Act or (y) any untrue statement of a
     material fact contained in any Registration Statement, any Prospectus, or
     any form of prospectus, or in any amendment or supplement thereto, or
     arising solely out of or based solely upon any omission of a material fact
     required to be stated therein or necessary to make the statements therein
     not misleading to the extent, but only to the extent, that such untrue
     statement or omission is contained in any information so furnished in
     writing by such Holder to the Company specifically for inclusion in such
     Registration Statement or such Prospectus or to the extent that (1) such
     untrue statements or omissions are based solely upon information regarding
     such Holder furnished in writing to the Company by such Holder expressly
     for use therein, or to the extent that such information relates to such
     Holder or such Holder's proposed method of distribution of Registrable
     Securities and was reviewed and expressly approved in writing by such
     Holder expressly for use in a Registration Statement (it being understood
     that the Holder has approved Annex A hereto for this purpose), such
     Prospectus or such form of Prospectus or in any amendment or supplement
     thereto or (2) in the case of an occurrence of an event of the type
     specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
     defective Prospectus after the Company has notified such Holder in writing
     that the Prospectus is outdated or defective and prior to the receipt by
     such Holder of the Advice contemplated in Section 6(d). In no event shall
     the liability of any selling Holder hereunder be greater in amount than the
     dollar amount of the net proceeds received by such Holder upon the sale of
     the Registrable Securities giving rise to such indemnification obligation.

         (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
     brought or asserted against any Person entitled to indemnity hereunder (an
     "Indemnified Party"), such Indemnified Party shall promptly notify the
     Person from whom indemnity is sought (the "Indemnifying Party") in writing,
     and the Indemnifying Party shall assume the defense thereof, including the
     employment of counsel reasonably satisfactory to the Indemnified Party and
     the payment of all fees and expenses incurred in connection with defense
     thereof; provided, that the failure of any Indemnified Party to give such
     notice shall not relieve the Indemnifying Party of its obligations or
     liabilities pursuant to this Agreement, except (and only) to the extent
     that it shall be finally determined by a court of competent jurisdiction
     (which determination is not subject to appeal or further review) that such
     failure shall have proximately and materially adversely prejudiced the
     Indemnifying Party.

                                      B-8

<PAGE>

         An Indemnified Party shall have the right to employ separate counsel in
     any such Proceeding and to participate in the defense thereof, but the fees
     and expenses of such counsel shall be at the expense of such Indemnified
     Party or Parties unless: (1) the Indemnifying Party has agreed in writing
     to pay such fees and expenses; (2) the Indemnifying Party shall have failed
     promptly to assume the defense of such Proceeding and to employ counsel
     reasonably satisfactory to such Indemnified Party in any such Proceeding;
     or (3) the named parties to any such Proceeding (including any impleaded
     parties) include both such Indemnified Party and the Indemnifying Party,
     and such Indemnified Party shall have been advised by counsel that a
     conflict of interest is likely to exist if the same counsel were to
     represent such Indemnified Party and the Indemnifying Party (in which case,
     if such Indemnified Party notifies the Indemnifying Party in writing that
     it elects to employ separate counsel at the expense of the Indemnifying
     Party, the Indemnifying Party shall not have the right to assume the
     defense thereof and such counsel shall be at the expense of the
     Indemnifying Party). The Indemnifying Party shall not be liable for any
     settlement of any such Proceeding effected without its written consent,
     which consent shall not be unreasonably withheld. No Indemnifying Party
     shall, without the prior written consent of the Indemnified Party, effect
     any settlement of any pending Proceeding in respect of which any
     Indemnified Party is a party, unless such settlement includes an
     unconditional release of such Indemnified Party from all liability on
     claims that are the subject matter of such Proceeding.

         All fees and expenses of the Indemnified Party (including reasonable
     fees and expenses to the extent incurred in connection with investigating
     or preparing to defend such Proceeding in a manner not inconsistent with
     this Section) shall be paid to the Indemnified Party, as incurred, within
     ten Trading Days of written notice thereof to the Indemnifying Party
     (regardless of whether it is ultimately determined that an Indemnified
     Party is not entitled to indemnification hereunder; provided, that the
     Indemnifying Party may require such Indemnified Party to undertake to
     reimburse all such fees and expenses to the extent it is finally judicially
     determined that such Indemnified Party is not entitled to indemnification
     hereunder).

         (d) Contribution. If a claim for indemnification under Section 5(a) or
     5(b) is unavailable to an Indemnified Party (by reason of public policy or
     otherwise), then each Indemnifying Party, in lieu of indemnifying such
     Indemnified Party, shall contribute to the amount paid or payable by such
     Indemnified Party as a result of such Losses, in such proportion as is
     appropriate to reflect the relative fault of the Indemnifying Party and
     Indemnified Party in connection with the actions, statements or omissions
     that resulted in such Losses as well as any other relevant equitable
     considerations. The relative fault of such Indemnifying Party and
     Indemnified Party shall be determined by reference to, among other things,
     whether any action in question, including any untrue or alleged untrue
     statement of a material fact or omission or alleged omission of a material
     fact, has been taken or made by, or relates to information supplied by,
     such Indemnifying Party or Indemnified Party, and the parties' relative
     intent, knowledge, access to information and opportunity to correct or
     prevent such action, statement or omission. The amount paid or

                                      B-9

<PAGE>

     payable by a party as a result of any Losses shall be deemed to include,
     subject to the limitations set forth in Section 5(c), any reasonable
     attorneys' or other reasonable fees or expenses incurred by such party in
     connection with any Proceeding to the extent such party would have been
     indemnified for such fees or expenses if the indemnification provided for
     in this Section was available to such party in accordance with its terms.

          The parties hereto agree that it would not be just and equitable if
     contribution pursuant to this Section 5(d) were determined by pro rata
     allocation or by any other method of allocation that does not take into
     account the equitable considerations referred to in the immediately
     preceding paragraph. Notwithstanding the provisions of this Section 5(d),
     no Holder shall be required to contribute, in the aggregate, any amount in
     excess of the amount by which the proceeds actually received by such Holder
     from the sale of the Registrable Securities subject to the Proceeding
     exceeds the amount of any damages that such Holder has otherwise been
     required to pay by reason of such untrue or alleged untrue statement or
     omission or alleged omission.

          The indemnity and contribution agreements contained in this Section
     are in addition to any liability that the Indemnifying Parties may have to
     the Indemnified Parties.

     6.   Miscellaneous

          (a) Remedies. In the event of a breach by the Company or by a Holder,
     of any of their obligations under this Agreement, each Holder or the
     Company, as the case may be, in addition to being entitled to exercise all
     rights granted by law and under this Agreement, including recovery of
     damages, will be entitled to specific performance of its rights under this
     Agreement. The Company and each Holder agree that monetary damages would
     not provide adequate compensation for any losses incurred by reason of a
     breach by it of any of the provisions of this Agreement and hereby further
     agrees that, in the event of any action for specific performance in respect
     of such breach, it shall waive the defense that a remedy at law would be
     adequate.

          (b) Compliance. Each Holder covenants and agrees that it will comply
     with the prospectus delivery requirements of the Securities Act as
     applicable to it in connection with sales of Registrable Securities
     pursuant to a Registration Statement.

          (c) Discontinued Disposition. Each Holder agrees by its acquisition of
     such Registrable Securities that, upon receipt of a notice from the Company
     of the occurrence of any event of the kind described in Section 3(c), such
     Holder will forthwith discontinue disposition of such Registrable
     Securities under a Registration Statement until such Holder's receipt of
     the copies of the supplemented Prospectus and/or amended Registration
     Statement or until it is advised in writing (the "Advice") by the Company
     that the use of the applicable Prospectus may be resumed, and, in either
     case, has received copies of any additional or supplemental filings that
     are incorporated or deemed to be incorporated by reference in such
     Prospectus or Registration Statement. The

                                      B-10

<PAGE>

         Company may provide appropriate stop orders to enforce the provisions
         of this paragraph.

             (d) Piggy-Back Registrations. If at any time during the
         Effectiveness Period there is not an effective Registration Statement
         covering all of the Registrable Securities and the Company shall
         determine to prepare and file with the Commission a registration
         statement relating to an offering for its own account or the account of
         others under the Securities Act of any of its equity securities, other
         than on Form S-4 or Form S-8 (each as promulgated under the Securities
         Act) or their then equivalents relating to equity securities to be
         issued solely in connection with any acquisition of any entity or
         business or equity securities issuable in connection with stock option
         or other employee benefit plans, then the Company shall send to each
         Holder written notice of such determination and, if within fifteen days
         after receipt of such notice, any such Holder shall so request in
         writing, the Company shall include in such registration statement all
         or any part of such Registrable Securities such holder requests to be
         registered, subject to customary underwriter cutbacks applicable to all
         holders of registration rights.

             (e) Amendments and Waivers. The provisions of this Agreement,
         including the provisions of this sentence, may not be amended, modified
         or supplemented, and waivers or consents to departures from the
         provisions hereof may not be given, unless the same shall be in writing
         and signed by the Company and the Holders of the then outstanding
         Registrable Securities.

             (f) Notices. Any and all notices or other communications or
         deliveries required or permitted to be provided hereunder shall be in
         writing and shall be deemed given and effective on the earliest of (i)
         the date of transmission, if such notice or communication is delivered
         via facsimile at the facsimile number specified in this Section prior
         to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading
         Day after the date of transmission, if such notice or communication is
         delivered via facsimile at the facsimile number specified in this
         Agreement later than 6:30 p.m. (New York City time) on any date and
         earlier than 11:59 p.m. (New York City time) on such date, (iii) the
         Trading Day following the date of mailing, if sent by nationally
         recognized overnight courier service, or (iv) upon actual receipt by
         the party to whom such notice is required to be given. The address for
         such notices and communications shall be as set forth in the Purchase
         Agreement or such other address as may be designated in writing
         hereafter, in the same manner, by such Person.

             (g) Successors and Assigns. This Agreement shall inure to the
         benefit of and be binding upon the successors and permitted assigns of
         each of the parties and shall inure to the benefit of each Holder. The
         Company may not assign its rights or obligations hereunder without the
         prior written consent of each Holder. Each Holder may assign their
         respective rights hereunder in the manner and to the Persons as
         permitted under the Purchase Agreement.

             (h) Execution and Counterparts. This Agreement may be executed in
         any number of counterparts, each of which when so executed shall be
         deemed to be an


                                      B-11

<PAGE>

         original and, all of which taken together shall constitute one and the
         same Agreement. In the event that any signature is delivered by
         facsimile transmission, such signature shall create a valid binding
         obligation of the party executing (or on whose behalf such signature is
         executed) the same with the same force and effect as if such facsimile
         signature were the original thereof.

             (i) Governing Law. All questions concerning the construction,
         validity, enforcement and interpretation of this Agreement shall be
         governed by and construed and enforced in accordance with the internal
         laws of the State of New York, without regard to the principles of
         conflicts of law thereof. Each party agrees that all Proceedings
         concerning the interpretations, enforcement and defense of the
         transactions contemplated by this Agreement (whether brought against a
         party hereto or its respective affiliates, directors, officers,
         shareholders, employees or agents) shall be commenced exclusively in
         the state and federal courts sitting in the City of New York, Borough
         of Manhattan. Each party hereto hereby irrevocably submits to the
         exclusive jurisdiction of the state and federal courts sitting in the
         City of New York, Borough of Manhattan for the adjudication of any
         dispute hereunder or in connection herewith or with any transaction
         contemplated hereby or discussed herein (including with respect to the
         enforcement of the any of this Agreement), and hereby irrevocably
         waives, and agrees not to assert in any Proceeding, any claim that it
         is not personally subject to the jurisdiction of any such court, that
         such Proceeding is improper. Each party hereto hereby irrevocably
         waives personal service of process and consents to process being served
         in any such Proceeding by mailing a copy thereof via registered or
         certified mail or overnight delivery (with evidence of delivery) to
         such party at the address in effect for notices to it under this
         Agreement and agrees that such service shall constitute good and
         sufficient service of process and notice thereof. Nothing contained
         herein shall be deemed to limit in any way any right to serve process
         in any manner permitted by law. Each party hereto hereby irrevocably
         waives, to the fullest extent permitted by applicable law, any and all
         right to trial by jury in any legal proceeding arising out of or
         relating to this Agreement or the transactions contemplated hereby. If
         either party shall commence a Proceeding to enforce any provisions of
         this Agreement, then the prevailing party in such Proceeding shall be
         reimbursed by the other party for its attorneys fees and other costs
         and expenses incurred with the investigation, preparation and
         prosecution of such Proceeding.

             (j) Cumulative Remedies. The remedies provided herein are
         cumulative and not exclusive of any remedies provided by law.

             (k) Severability. If any term, provision, covenant or restriction
         of this Agreement is held by a court of competent jurisdiction to be
         invalid, illegal, void or unenforceable, the remainder of the terms,
         provisions, covenants and restrictions set forth herein shall remain in
         full force and effect and shall in no way be affected, impaired or
         invalidated, and the parties hereto shall use their reasonable efforts
         to find and employ an alternative means to achieve the same or
         substantially the same result as that contemplated by such term,
         provision, covenant or restriction. It is hereby stipulated and
         declared to be the intention of the parties that they would have
         executed the remaining

                                      B-12

<PAGE>

         terms, provisions, covenants and restrictions without including any of
         such that may be hereafter declared invalid, illegal, void or
         unenforceable.

             (l) Headings. The headings in this Agreement are for convenience of
         reference only and shall not limit or otherwise affect the meaning
         hereof.

             (m) Independent Nature of Purchasers' Obligations and Rights. The
         obligations of each Purchaser hereunder is several and not joint with
         the obligations of any other Purchaser hereunder, and no Purchaser
         shall be responsible in any way for the performance of the obligations
         of any other Purchaser hereunder. Nothing contained herein or in any
         other agreement or document delivered at any closing, and no action
         taken by any Purchaser pursuant hereto or thereto, shall be deemed to
         constitute the Purchasers as a partnership, an association, a joint
         venture or any other kind of entity, or create a presumption that the
         Purchasers are in any way acting in concert with respect to such
         obligations or the transactions contemplated by this Agreement. Each
         Purchaser shall be entitled to protect and enforce its rights,
         including without limitation the rights arising out of this Agreement,
         and it shall not be necessary for any other Purchaser to be joined as
         an additional party in any proceeding for such purpose.

                            *************************

                                      B-13




<PAGE>

                  IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.

                           IRVINE SENSORS CORPORATION


                           By: _____________________________________
                                  Name:
                                  Title:

                           PURCHASERS:

                           STONESTREET L.P.


                           By: _____________________________________
                                  Name:
                                  Title:

                           ALPHA CAPITAL AG


                           By: ____________________________________
                                  Name:
                                  Title:

                                      B-14

<PAGE>

                                                                         ANNEX A

                              Plan of Distribution

         The Selling Stockholders and any of their pledgees, assignees and
     successors-in-interest may, from time to time, sell any or all of their
     shares of Common Stock on any stock exchange, market or trading facility on
     which the shares are traded or in private transactions. These sales may be
     at fixed or negotiated prices. The Selling Stockholders may use any one or
     more of the following methods when selling shares:

              .   ordinary brokerage transactions and transactions in which the
                  broker-dealer solicits purchasers;

              .   block trades in which the broker-dealer will attempt to sell
                  the shares as agent but may position and resell a portion of
                  the block as principal to facilitate the transaction;

              .   purchases by a broker-dealer as principal and resale by the
                  broker-dealer for its account;

              .   an exchange distribution in accordance with the rules of the
                  applicable exchange;

              .   privately negotiated transactions;

              .   short sales

              .   broker-dealers may agree with the Selling Stockholders to sell
                  a specified number of such shares at a stipulated price per
                  share;

              .   a combination of any such methods of sale; and

              .   any other method permitted pursuant to applicable law.

         The Selling Stockholders may also sell shares under Rule 144 under the
     Securities Act, if available, rather than under this prospectus.

         Broker-dealers engaged by the Selling Stockholders may arrange for
     other brokers-dealers to participate in sales. Broker-dealers may receive
     commissions or discounts from the Selling Stockholders (or, if any
     broker-dealer acts as agent for the purchaser of shares, from the
     purchaser) in amounts to be negotiated. The Selling Stockholders do not
     expect these commissions and discounts to exceed what is customary in the
     types of transactions involved.

         The selling stockholder may from time to time pledge or grant a
     security interest in some or all of the Shares or common stock owned by
     them and, if they default in the performance of their secured obligations,
     the pledgees or secured parties may offer and sell the shares of

                                      B-15

<PAGE>

     common stock from time to time under this prospectus, or under an amendment
     to this prospectus under Rule 424(b)(3) or other applicable provision of
     the Securities Act of 1933 amending the list of selling stockholders to
     include the pledgee, transferee or other successors in interest as selling
     stockholders under this prospectus.

         The selling stockholders also may transfer the shares of common stock
     in other circumstances, in which case the transferees, pledgees or other
     successors in interest will be the selling beneficial owners for purposes
     of this prospectus.

         The Selling Stockholders and any broker-dealers or agents that are
     involved in selling the shares may be deemed to be "underwriters" within
     the meaning of the Securities Act in connection with such sales. In such
     event, any commissions received by such broker-dealers or agents and any
     profit on the resale of the shares purchased by them may be deemed to be
     underwriting commissions or discounts under the Securities Act. The Selling
     Stockholders have informed the Company that it does not have any agreement
     or understanding, directly or indirectly, with any person to distribute the
     Common Stock.

         The Company is required to pay all fees and expenses incurred by it
     incident to the registration of the shares. The Selling Stockholders shall
     bear each of their own fees and expenses, including but not limited to, the
     fees and disbursements of counsel to the Selling Stockholders. The Company
     has agreed to indemnify the Selling Stockholders against certain losses,
     claims, damages and liabilities, including liabilities under the Securities
     Act.

                                      B-16

<PAGE>

                                    EXHIBIT C

     May 29, 2002




     To the Purchasers Listed on the
     Signature Pages to the
     Irvine Sensors Corporation
     Securities Purchase Agreement dated
     as of May 29, 2002

     Ladies and Gentlemen:

         We have acted as counsel for Irvine Sensors Corporation, a Delaware
     corporation (the "Company"), in connection with the issuance and sale of
     Units, each consisting of (i) 10 shares of the Company's Common Stock (ii)
     a warrant (a "Parent Warrant") to purchase up to 3 shares of the Company's
     Common Stock and (iii) a warrant (a "Subsidiary Warrant") to purchase 1
     share of Common Stock of iNetWorks Corporation, a subsidiary of the
     Company, pursuant to that certain Securities Purchase Agreement dated as of
     May 29, 2002 (the "Securities Purchase Agreement") among the Company and
     you. This opinion letter is being rendered to you pursuant to Section
     2.2(a)(iii) of the Securities Purchase Agreement in connection with the
     Closing of the sale of the Units. Capitalized terms not otherwise defined
     in this opinion letter have the meanings given them in the Securities
     Purchase Agreement.

         In connection with the opinions expressed herein, we have made such
     examination of matters of law and of fact as we considered appropriate or
     advisable for purposes hereof. As to matters of fact material to the
     opinions expressed herein, we have relied upon the representations and
     warranties as to factual matters contained in and made by the Company
     pursuant to the Securities Purchase Agreement and upon certificates and
     statements of government officials and of officers of the Company. We have
     also examined originals or copies of such corporate documents or records of
     the Company as we have considered appropriate for the opinions expressed
     herein. We have assumed for the purposes of this opinion letter the
     genuineness of all signatures, the legal capacity of natural persons, the
     authenticity of the documents submitted to us as originals, the conformity
     to the original documents of all documents submitted to us as certified,
     facsimile or photostatic copies, and the authenticity of the originals of
     such copies.

         In rendering this opinion letter we have also assumed: (A) that the
     Securities Purchase Agreement and the Registration Rights Agreement of even
     date herewith (collectively, the "Transaction Agreements") to which you are
     a party have been duly and validly executed and delivered by you or on your
     behalf, that each of you has the power to enter into and perform all your
     obligations thereunder and has taken any and all necessary corporate,
     partnership or other relevant action to authorize the Transaction
     Agreements, and that the Transaction Agreements constitute valid, legal,
     binding and enforceable obligations upon you; (B) that the representations

                                       C-1

<PAGE>

     May 29, 2002
     Page 2

     and warranties made in the Securities Purchase Agreement by you are true
     and correct; (C) that any wire transfers, drafts or checks tendered by you
     will be honored; and (D) if you are a corporation or other entity, that you
     have filed any required state franchise, income or similar tax returns and
     have paid any required state franchise, income or similar taxes; and (E) if
     you are a small business investment company subject to the Small Business
     Investment Act of 1958, as amended, that you have complied with the
     provisions of such Act and the regulations promulgated thereunder (the
     "SBIA Laws").

         As used in this opinion letter, the expression "we are not aware" or
     the phrase "to our knowledge, " or any similar expression or phrase with
     respect to our knowledge of matters of fact, means as to matters of fact
     that, based on the actual knowledge of individual attorneys within the firm
     principally responsible for handling current matters for the Company (and
     not including any constructive or imputed notice of any information), and
     after an examination of documents referred to herein and after inquiries of
     certain officers of the Company, no facts have been disclosed to us that
     have caused us to conclude that the opinions expressed are factually
     incorrect; but beyond that we have made no factual investigation for the
     purposes of rendering this opinion letter. Specifically, but without
     limitation, we have not searched the dockets of any courts and we have made
     no inquiries of securities holders or employees of the Company, other than
     such officers. No inference as to our knowledge of the existence or absence
     of any fact should be drawn from our representation of the Company or the
     rendering of the opinions set forth below.

         This opinion letter relates solely to the laws of the State of
     California, the General Corporation Law of the State of Delaware and the
     federal law of the United States, and we express no opinion with respect to
     the effect or application of any other laws. Special rulings of authorities
     administering such laws or opinions of other counsel have not been sought
     or obtained.

         Based upon our examination of and reliance upon the foregoing and
     subject to the limitations, exceptions, qualifications and assumptions set
     forth below and except as set forth in the Securities Purchase Agreement or
     the Schedule of Exceptions thereto, we are of the opinion that as of the
     date hereof:

         1. The Company is a corporation duly incorporated, validly existing and
     in good standing under the laws of the State of Delaware, and the Company
     has the requisite corporate power and authority to own its properties and
     to conduct its business as, to our knowledge, it is presently conducted.
     The Company is qualified to do business as a foreign corporation in the
     State of California.

         2. The Company has the requisite corporate power and authority to
     execute, deliver and perform the Transaction Agreements. Each of the
     Transaction Agreements has been duly and validly authorized by the Company
     and constitutes a legal, valid and binding obligation of the Company,
     enforceable by you against the Company in accordance with its terms.

                                       C-2

<PAGE>

     May 29, 2002
     Page 3

         3. The authorized capital of the Company consists of 500,000 shares of
     Preferred Stock and 80,000,000 shares of Common Stock. The shares of the
     Company's Common Stock within the Units to be purchased at the Closing have
     been duly authorized and, upon purchase at the Closing pursuant to the
     terms of the Securities Purchase Agreement, will be validly issued,
     nonassessable and fully paid. The shares of the Company's Common Stock
     issuable upon exercise of the Parent Warrants, when as and if purchased in
     accordance with the terms of the Parent Warrants, will be validly issued,
     fully paid and nonassessable.

         4. Other than in connection with any securities laws (with respect to
     which we direct you to Paragraph 6 below), the Company's execution and
     delivery of, and its performance and compliance as of the date hereof with
     the terms of, the Transaction Agreements do not violate any provision of
     any federal, Delaware corporate or California law, rule or regulation
     applicable to the Company or any provision of the Company's Restated
     Certificate of Incorporation or Bylaws.

         5. Other than in connection with any securities laws (with respect to
     which we direct you to Paragraph 6 below), all consents, approvals,
     permits, orders or authorizations of, and all qualifications by and
     registrations with, any federal, Delaware corporate or California state
     governmental authority on the part of the Company required in connection
     with the execution and delivery of the Securities Purchase Agreement and
     consummation at the Closing of the transactions contemplated by the
     Securities Purchase Agreement have been obtained, and are effective, and we
     are not aware of any proceedings, or written threat of any proceedings,
     that question the validity thereof.

         6. On the assumption that the representations of the Purchasers in the
     Securities Purchase Agreement are correct, the offer and sale of the Units
     to you pursuant to the terms of the Securities Purchase Agreement are
     exempt from the registration requirements of Section 5 of the Securities
     Act of 1933, as amended, and from the qualification requirements of the
     California Securities Law of 1968, as amended, and, under such securities
     laws as they presently exist, the issuance of the Company's Common Stock to
     you upon exercise of the Parent Warrant would also be exempt from such
     registration and qualification requirements.

         7. We are not aware that there is any action, proceeding or
     governmental investigation pending or threatened in writing against the
     Company which questions the validity of the Transaction Agreements or the
     right of the Company to enter into the Transaction Agreements.

         Our opinions expressed above are specifically subject to the following
     limitations, exceptions, qualifications and assumptions:

         The legality, validity, binding nature and enforceability of the
     Company's obligations under the Transaction Agreements may be subject to or
     limited by (1) bankruptcy, insolvency, reorganization, arrangement,
     moratorium, fraudulent transfer and other similar laws affecting the rights
     of creditors generally; (2) general principles of equity (whether relief is
     sought in a proceeding at law or in equity), including, without limitation,
     concepts of materiality,

                                       C-3

<PAGE>

     May 29, 2002
     Page 4

     reasonableness, good faith and fair dealing, and the discretion of any
     court of competent jurisdiction in awarding specific performance or
     injunctive relief and other equitable remedies; and (3), without limiting
     the generality of the foregoing, (a) principles requiring the consideration
     of the impracticability or impossibility of performance of the Company's
     obligations at the time of the attempted enforcement of such obligations,
     and (b) the effect of California court decisions and statutes which
     indicate that provisions of the Transaction Agreements which permit any of
     you to take action or make determinations may be subject to a requirement
     that such action be taken or such determinations be made on a reasonable
     basis in good faith or that it be shown that such action is reasonably
     necessary for your protection.

         (B) We express no opinion as to the Company's or this transaction's
     compliance or noncompliance with applicable federal or state antifraud or
     antitrust statutes, laws, rules and regulations or Section 721 (as amended
     by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988: the
     so-called "Exon-Florio" proviso of the Defense Production Act of 1950 and
     the regulations thereunder.

         (C) We express no opinion concerning the past, present or future fair
     market value of any securities.

         (D) We express no opinion as to the enforceability under certain
     circumstances of any provisions indemnifying a party against, or requiring
     contributions toward, that party's liability for its own wrongful or
     negligent acts, or where indemnification or contribution is contrary to
     public policy or prohibited by law. In this regard, we advise you that in
     the opinion of the Securities and Exchange Commission, provisions regarding
     indemnification of directors, officers and controlling persons of an issuer
     against liabilities arising under the Securities Act of 1933, as amended,
     are against public policy and are therefore unenforceable.

         (E) We express no opinion as to the enforceability under certain
     circumstances of any provisions prohibiting waivers of any terms of the
     Transaction Agreements other than in writing, or prohibiting oral
     modifications thereof or modification by course of dealing. In addition,
     our opinions are subject to the effect of judicial decisions which may
     permit the introduction of extrinsic evidence to interpret the terms of
     written contracts such as the Transaction Agreements.

         (F) We express no opinion as to the effect of Section 1670.5 of the
     California Civil Code or any other California law, federal law or equitable
     principle which provides that a court may refuse to enforce, or may limit
     the application of, a contract or any clause thereof which the court finds
     to have been unconscionable at the time it was made or contrary to public
     policy.

         (G) We express no opinion as to the effect of Sections 1203 and 1102(e)
     of the California Uniform Commercial Code or any other California law,
     federal law or equitable principle, providing for an obligation of good
     faith in the performance or enforcement of contracts and prohibiting
     disclaimer of such obligation.

                                       C-4

<PAGE>

     May 29, 2002
     Page 5

         (H) Our opinions in paragraphs 4 and 5 are limited to laws and
     regulations normally applicable to transactions of the type contemplated in
     the Transaction Agreements and do not extend to licenses, permits and
     approvals necessary for the conduct of the Company's business. In addition
     and without limiting the previous sentence, we express no opinion herein
     with respect to the effect of any land use, safety, hazardous material,
     environmental or similar law, or any local or regional law. Further, we
     express no opinion as to the effect of or compliance with any state or
     federal laws or regulations applicable to the transactions contemplated by
     the Transaction Agreements because of the nature of the business of any
     party thereto other than the Company. Also, we express no opinion with
     respect to any patent, copyright trademark or other intellectual property
     matter, or as to the statutes, regulations, treaties or common laws of any
     nation, state or jurisdiction with regard thereto.

         (I) We express no opinion as to your compliance with any federal or
     state law relating to your legal or regulatory status or the nature of your
     business.

         (J) We express no opinion as to the compliance of the Company, any
     Purchaser or the sale of the Units to the Purchaser with the provisions of
     the SBIA Laws.

         (K) We express no opinion as to the effect of subsequent issuances of
     securities of the Company to the extent that further issuances which may be
     integrated with the Closing may include purchasers that do not meet the
     definition of "accredited investors" under Rule 501 of Regulation D and
     equivalent definitions under state securities or "blue sky" laws.

         (L) We have assumed that the approval by the Company's Board of
     Directors of the Transaction Agreements and the transactions contemplated
     thereby did not violate the business judgment rule and we further assume
     that the Transaction Agreements and the transactions contemplated thereby
     were entirely fair to the Company as of the time the Company's Board of
     Directors approved them.

         (M) We express no opinion as to:

             (1) The enforceability under certain circumstances of provisions
     expressly or by implication waiving broadly or vaguely stated rights,
     unknown future rights, or defenses to obligations or rights granted by law,
     when such waivers are against public policy or prohibited by law;

             (2) The enforceability under certain circumstances of provisions to
     the effect that rights or remedies may be exercised without notice, that
     failure to exercise or delay in exercising rights or remedies will not
     operate as a waiver of any such right or remedy, that rights or remedies
     are not exclusive, that every right or remedy is cumulative and may be
     exercised in addition to or with any other right or remedy, or that
     election of a particular remedy or remedies does not preclude recourse to
     one or more remedies;

             (3) Any provision providing for the exclusive jurisdiction of a
     particular court or purporting to waive rights to trial by jury, service of
     process or objections to

                                       C-5

<PAGE>

     May 29, 2002
     Page 6

     the laying of venue or to forum on the basis of forum non conviens, in
     connection with any litigation arising out of or pertaining to the
     Transaction Agreements;

         This opinion letter is rendered as of the date first written above
     solely for your benefit in connection with the Securities Purchase
     Agreement and may not be delivered to, quoted or relied upon by any person
     other than you, or for any other purpose, without our prior written
     consent. Our opinion is expressly limited to the matters set forth above
     and we render no opinion, whether by implication or otherwise, as to any
     other matters relating to the Company. We assume no obligation to advise
     you of facts, circumstances, events or developments which hereafter may be
     brought to our attention and which may alter, affect or modify the opinions
     expressed herein.

                                            Very truly yours,



                                            BROBECK, PHLEGER & HARRISON LLP

                                       C-6

<PAGE>

                                    EXHIBIT D

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
     OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
     OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
     PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
     ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
     TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

                         SERIES A STOCK PURCHASE WARRANT

                   To Purchase ____ Shares of Common Stock of

                           IRVINE SENSORS CORPORATION

                THIS CERTIFIES that, for value received, ________ (the
     "Holder"), is entitled, upon the terms and subject to the limitations on
     exercise and the conditions hereinafter set forth, at any time on or after
     the date hereof (the "Initial Exercise Date") and on or prior to the close
     of business on May 29, 2005 (the "Termination Date") but not thereafter, to
     subscribe for and purchase from Irvine Sensors Corporation, a corporation
     incorporated in Delaware (the "Company"), up to ______ shares (the "Warrant
     Shares") of Common Stock, $0.01 par value per share, of the Company (the
     "Common Stock"). The purchase price of one share of Common Stock (the
     "Exercise Price") under this Warrant shall be $2.34. The Exercise Price and
     the number of Warrant Shares for which the Warrant is exercisable shall be
     subject to adjustment as provided herein. This is the Series A Warrant
     referred to in the Purchase Agreement (as defined below). In the event of
     any conflict between the terms of this Warrant and the Securities Purchase
     Agreement dated as of May 29, 2002 pursuant to which this Warrant has been
     issued (the "Purchase Agreement"), the Purchase Agreement shall control.
     Capitalized terms used and not otherwise defined herein shall have the
     meanings set forth for such terms in the Purchase Agreement.

                1. Title to Warrant. Prior to the Termination Date and subject
     to compliance with applicable laws, this Warrant and all rights hereunder
     are transferable, in whole or in part, at the office or agency of the
     Company by the Holder in person or by duly authorized attorney, upon
     surrender of this Warrant together with the Assignment Form annexed hereto
     properly endorsed.

                2. Authorization of Shares. The Company covenants that all
     Warrant Shares which may be issued upon the exercise of the purchase rights
     represented by this Warrant will, upon exercise of the purchase rights
     represented by this Warrant, be duly authorized, validly

                                       D-1

<PAGE>

     issued, fully paid and nonassessable and free from all taxes, liens and
     charges in respect of the issue thereof (other than taxes in respect of any
     transfer occurring contemporaneously with such issue).

             3.   Exercise of Warrant.

                  (a) Except as provided in Section 4 herein, exercise of the
         purchase rights represented by this Warrant may be made at any time or
         times on or after the Initial Exercise Date and on or before the close
         of business on the Termination Date by the surrender of this Warrant
         and the Notice of Exercise Form annexed hereto duly executed, at the
         office of the Company (or such other office or agency of the Company as
         it may designate by notice in writing to the registered Holder at the
         address of such Holder appearing on the books of the Company), with a
         copy of said notice to the law firm set forth in the Purchase
         Agreement, and upon payment of the Exercise Price of the shares thereby
         purchased by wire transfer or cashier's check drawn on a United States
         bank, or by means of a cashless exercise, the Holder shall be entitled
         to receive a certificate for the number of Warrant Shares so purchased.
         Certificates for shares purchased hereunder shall be delivered to the
         Holder within five (5) Trading Days after the date on which this
         Warrant shall have been exercised as aforesaid. This Warrant shall be
         deemed to have been exercised and such certificate or certificates
         shall be deemed to have been issued, and Holder or any other person so
         designated to be named therein shall be deemed to have become a holder
         of record of such shares for all purposes, as of the date the Warrant
         has been exercised by payment to the Company of the Exercise Price and
         all taxes required to be paid by the Holder, if any, with respect to
         the issuance of such shares, have been paid. If the Company fails to
         deliver to the Holder a certificate or certificates representing the
         Warrant Shares pursuant to this Section 3(a) by the seventh Trading Day
         after the date of exercise, then the Holder will have the right to
         rescind such exercise. In addition to any other rights available to the
         Holder, if the Company fails to deliver to the Holder a certificate or
         certificates representing the Warrant Shares pursuant to an exercise by
         the ninth Trading Day after the date of exercise, and if after such
         ninth Trading Day the Holder purchases (in an open market transaction
         or otherwise) shares of Common Stock to deliver in satisfaction of a
         sale by the Holder of the Warrant Shares which the Holder anticipated
         receiving upon such exercise (a "Buy-In"), then the Company shall (1)
         pay in cash to the Holder the amount by which (x) the Holder's total
         purchase price (including brokerage commissions, if any) for the shares
         of Common Stock so purchased exceeds (y) the amount obtained by
         multiplying (A) the number of Warrant Shares that the Company was
         required to deliver to the Holder in connection with the exercise at
         issue times (B) the closing bid price of the Common Stock at the time
         of the obligation giving rise to such purchase obligation, and (2) at
         the option of the Holder, either reinstate the portion of the Warrant
         and equivalent number of Warrant Shares for which such exercise was not
         honored or deliver to the Holder the number of shares of Common Stock
         that would have been issued had the Company timely complied with its
         exercise and delivery obligations hereunder. For example, if the Holder
         purchases Common Stock having a total purchase price of $11,000 to
         cover a Buy-In with respect to an attempted exercise of shares of
         Common Stock with a market price on the date of exercise totaled
         $10,000, under clause (1) of the immediately preceding sentence the
         Company shall be

                                       D-2

<PAGE>

     required to pay the Holder $1,000. The Holder shall provide the Company
     written notice indicating the amounts payable to the Holder in respect of
     the Buy-In. Nothing herein shall limit a Holder's right to pursue any other
     remedies available to it hereunder, at law or in equity including, without
     limitation, a decree of specific performance and/or injunctive relief with
     respect to the Company's failure to timely deliver certificates
     representing shares of Common Stock upon exercise of the Warrant as
     required pursuant to the terms hereof.

              (b) If this Warrant shall have been exercised in part, the Company
     shall, at the time of delivery of the certificate or certificates
     representing Warrant Shares, deliver to Holder a new Warrant evidencing the
     rights of Holder to purchase the unpurchased Warrant Shares called for by
     this Warrant, which new Warrant shall in all other respects be identical
     with this Warrant.

              (c) Anytime beginning one year from the Initial Exercise Date, if
     a registration statement registering the resale of the Warrant Shares is
     not then effective, this Warrant shall also be exercisable by means of a
     "cashless exercise" in which the Holder shall be entitled to receive a
     certificate for the number of Warrant Shares equal to the quotient obtained
     by dividing [(A-B) (X)] by (A), where:

              (A) = the average of the high and low trading prices per share of
              Common Stock on the Trading Day preceding the date of such
              election on the Principal Market;

              (B) = the Exercise Price of this Warrant; and

              (X) = the number of Warrant Shares issuable upon exercise of this
              Warrant in accordance with the terms of this Warrant and the
              Notice of Exercise.

              (d) Notwithstanding anything herein to the contrary, in no event
     shall the Holder be permitted to exercise this Warrant for Warrant Shares
     to the extent that (i) the number of shares of Common Stock owned by such
     Holder (other than Warrant Shares issuable upon exercise of this Warrant)
     plus (ii) the number of Warrant Shares issuable upon exercise of this
     Warrant, would be equal to or exceed 4.999% of the number of shares of
     Common Stock then issued and outstanding, including shares issuable upon
     exercise of this Warrant held by such Holder after application of this
     Section 3(d). As used herein, beneficial ownership shall be determined in
     accordance with Section 13(d) of the Exchange Act. To the extent that the
     limitation contained in this Section 3(d) applies, the determination of
     whether this Warrant is exercisable (in relation to other securities owned
     by the Holder) and of which a portion of this Warrant is exercisable shall
     be in the sole discretion of such Holder, and the submission of a Notice of
     Exercise shall be deemed to be such Holder's determination of whether this
     Warrant is exercisable (in relation to other securities owned by such
     Holder) and of which portion of this Warrant is exercisable, in each case
     subject to such aggregate percentage limitation, and the Company shall have
     no obligation to verify or confirm the accuracy of such

                                       D-3

<PAGE>

          determination. Nothing contained herein shall be deemed to restrict
          the right of a Holder to exercise this Warrant into Warrant Shares at
          such time as such exercise will not violate the provisions of this
          Section 3(d). The provisions of this Section 3(d) may be waived by the
          Holder upon, at the election of the Holder, with not less than 61
          days' prior notice to the Company, and the provisions of this Section
          3(d) shall continue to apply until such 61st day (or such later date
          as may be specified in such notice of waiver). No exercise of this
          Warrant in violation of this Section 3(d) but otherwise in accordance
          with this Warrant shall affect the status of the Warrant Shares as
          validly issued, fully-paid and nonassessable.

              4.  No Fractional Shares or Scrip. No fractional shares or scrip
     representing fractional shares shall be issued upon the exercise of this
     Warrant. As to any fraction of a share which Holder would otherwise be
     entitled to purchase upon such exercise, the Company shall pay a cash
     adjustment in respect of such final fraction in an amount equal to such
     fraction multiplied by the Exercise Price.

              5.  Charges, Taxes and Expenses. Issuance of certificates for
     Warrant Shares shall be made without charge to the Holder for any issue or
     transfer tax or other incidental expense in respect of the issuance of such
     certificate, all of which taxes and expenses shall be paid by the Company,
     and such certificates shall be issued in the name of the Holder or in such
     name or names as may be directed by the Holder; provided, however, that in
     the event certificates for Warrant Shares are to be issued in a name other
     than the name of the Holder, this Warrant when surrendered for exercise
     shall be accompanied by the Assignment Form attached hereto duly executed
     by the Holder; and the Company may require, as a condition thereto, the
     payment of a sum sufficient to reimburse it for any transfer tax incidental
     thereto.

              6.  Closing of Books. The Company will not close its stockholder
     books or records in any manner which prevents the timely exercise of this
     Warrant.

              7.  Transfer, Division and Combination.

                  (a) Subject to compliance with any applicable securities laws,
          transfer of this Warrant and all rights hereunder, in whole or in
          part, shall be registered on the books of the Company to be maintained
          for such purpose, upon surrender of this Warrant at the principal
          office of the Company, together with a written assignment of this
          Warrant substantially in the form attached hereto duly executed by the
          Holder or its agent or attorney and funds sufficient to pay any
          transfer taxes payable upon the making of such transfer. Upon such
          surrender and, if required, such payment, the Company shall execute
          and deliver a new Warrant or Warrants in the name of the assignee or
          assignees and in the denomination or denominations specified in such
          instrument of assignment, and shall issue to the assignor a new
          Warrant evidencing the portion of this Warrant not so assigned, and
          this Warrant shall promptly be cancelled. A Warrant, if properly
          assigned, may be exercised by a new holder for the purchase of Warrant
          Shares without having a new Warrant issued.

                                       D-4

<PAGE>

                  (b) This Warrant may be divided or combined with other
          Warrants upon presentation hereof at the aforesaid office of the
          Company, together with a written notice specifying the names and
          denominations in which new Warrants are to be issued, signed by the
          Holder or its agent or attorney. Subject to compliance with Section
          7(a), as to any transfer which may be involved in such division or
          combination, the Company shall execute and deliver a new Warrant or
          Warrants in exchange for the Warrant or Warrants to be divided or
          combined in accordance with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
          expense (other than transfer taxes) the new Warrant or Warrants under
          this Section 7.

                  (d) The Company agrees to maintain, at its aforesaid office,
          books for the registration and the registration of transfer of the
          Warrants.

              8.  No Rights as Shareholder until Exercise. This Warrant does not
     entitle the Holder to any voting rights or other rights as a shareholder of
     the Company prior to the exercise hereof. Upon the surrender of this
     Warrant and the payment of the aggregate Exercise Price or by means of a
     cashless exercise, the Warrant Shares so purchased shall be and be deemed
     to be issued to such Holder as the record owner of such shares as of the
     close of business on the later of the date of such surrender or payment.

              9.  Loss, Theft, Destruction or Mutilation of Warrant. The Company
     covenants that upon receipt by the Company of evidence reasonably
     satisfactory to it of the loss, theft, destruction or mutilation of this
     Warrant or any stock certificate relating to the Warrant Shares, and in
     case of loss, theft or destruction, of indemnity or security reasonably
     satisfactory to it, and upon surrender and cancellation of such Warrant or
     stock certificate, if mutilated, the Company will make and deliver a new
     Warrant or stock certificate of like tenor and dated as of such
     cancellation, in lieu of such Warrant or stock certificate.

              10. Saturdays, Sundays, Holidays, etc. If the last or appointed
     day for the taking of any action or the expiration of any right required or
     granted herein shall be a Saturday, Sunday or a legal holiday, then such
     action may be taken or such right may be exercised on the next succeeding
     day not a Saturday, Sunday or legal holiday.

              11. Adjustments of Exercise Price and Number of Warrant Shares.

                  (a) Stock Splits, etc. The number and kind of securities
          purchasable upon the exercise of this Warrant and the Exercise Price
          shall be subject to adjustment from time to time upon the happening of
          any of the following. In case the Company shall (i) pay a dividend in
          shares of Common Stock or make a distribution in shares of Common
          Stock to holders of its outstanding Common Stock, (ii) subdivide its
          outstanding shares of Common Stock into a greater number of shares,
          (iii) combine its outstanding shares of Common Stock into a smaller
          number of shares of Common Stock, or (iv) issue any shares of its
          capital stock in a reclassification of the Common Stock, then the
          number of Warrant Shares purchasable upon exercise of this Warrant
          immediately prior thereto shall be adjusted so that the Holder shall
          be entitled to receive

                                       D-5

<PAGE>

          the kind and number of Warrant Shares or other securities of the
          Company which it would have owned or have been entitled to receive had
          such Warrant been exercised in advance thereof. Upon each such
          adjustment of the kind and number of Warrant Shares or other
          securities of the Company which are purchasable hereunder, the Holder
          shall thereafter be entitled to purchase the number of Warrant Shares
          or other securities resulting from such adjustment at an Exercise
          Price per Warrant Share or other security obtained by multiplying the
          Exercise Price in effect immediately prior to such adjustment by the
          number of Warrant Shares purchasable pursuant hereto immediately prior
          to such adjustment and dividing by the number of Warrant Shares or
          other securities of the Company resulting from such adjustment. An
          adjustment made pursuant to this paragraph shall become effective
          immediately after the effective date of such event retroactive to the
          record date, if any, for such event.

                  (b) Voluntary Adjustment by the Company. The Company may at
          any time during the term of this Warrant reduce the then current
          Exercise Price to any amount and for any period of time deemed
          appropriate by the Board of Directors of the Company.

                  (c) Notice of Adjustment. Whenever the number of Warrant
          Shares or number or kind of securities or other property purchasable
          upon the exercise of this Warrant or the Exercise Price is adjusted,
          as herein provided, the Company shall promptly mail by registered or
          certified mail, return receipt requested, to the Holder notice of such
          adjustment or adjustments setting forth the number of Warrant Shares
          (and other securities or property) purchasable upon the exercise of
          this Warrant and the Exercise Price of such Warrant Shares (and other
          securities or property) after such adjustment, setting forth a brief
          statement of the facts requiring such adjustment and setting forth the
          computation by which such adjustment was made. Such notice, in the
          absence of manifest error, shall be conclusive evidence of the
          correctness of such adjustment.

              12. Reorganization, Reclassification, Merger, Consolidation or
     Disposition of Assets. In case the Company shall reorganize its capital,
     reclassify its capital stock, consolidate or merge with or into another
     corporation (where the Company is not the surviving corporation or where
     there is a change in or distribution with respect to the Common Stock of
     the Company), or sell, transfer or otherwise dispose of all or
     substantially all its property, assets or business to another corporation
     and, pursuant to the terms of such reorganization, reclassification,
     merger, consolidation or disposition of assets, shares of common stock of
     the successor or acquiring corporation, or any cash, shares of stock or
     other securities or property of any nature whatsoever (including warrants
     or other subscription or purchase rights) in addition to or in lieu of
     common stock of the successor or acquiring corporation ("Other Property"),
     are to be received by or distributed to the holders of Common Stock of the
     Company, then the Holder shall have the right thereafter to receive, at
     their option, (a) upon exercise of this Warrant, the number of shares of
     Common Stock of the successor or acquiring corporation or of the Company,
     if it is the surviving corporation, and Other Property receivable upon or
     as a result of such reorganization, reclassification, merger, consolidation
     or disposition of assets by a Holder of the number of shares of Common
     Stock for which this Warrant is exercisable immediately prior to such
     event,

                                       D-6

<PAGE>

     or (b) cash equal to the value of this Warrant as determined in accordance
     with the Black-Sholes option pricing formula. In case of any such
     reorganization, reclassification, merger, consolidation or disposition of
     assets, the successor or acquiring corporation (if other than the Company)
     shall expressly assume the due and punctual observance and performance of
     each and every covenant and condition of this Warrant to be performed and
     observed by the Company and all the obligations and liabilities hereunder,
     subject to such modifications as may be deemed appropriate (as determined
     in good faith by resolution of the Board of Directors of the Company) in
     order to provide for adjustments of Warrant Shares for which this Warrant
     is exercisable which shall be as nearly equivalent as practicable to the
     adjustments provided for in this Section 12. For purposes of this Section
     12, "common stock of the successor or acquiring corporation" shall include
     stock of such corporation of any class which is not preferred as to
     dividends or assets over any other class of stock of such corporation and
     which is not subject to redemption and shall also include any evidences of
     indebtedness, shares of stock or other securities which are convertible
     into or exchangeable for any such stock, either immediately or upon the
     arrival of a specified date or the happening of a specified event and any
     warrants or other rights to subscribe for or purchase any such stock. The
     foregoing provisions of this Section 12 shall similarly apply to successive
     reorganizations, reclassifications, mergers, consolidations or disposition
     of assets.

              13. Notice of Corporate Action. If at any time:


                  (a) the Company shall take a record of the holders of its
          Common Stock for the purpose of entitling them to receive a dividend
          or other distribution, or any right to subscribe for or purchase any
          evidences of its indebtedness, any shares of stock of any class or any
          other securities or property, or to receive any other right, or

                  (b) there shall be any capital reorganization of the Company,
          any reclassification or recapitalization of the capital stock of the
          Company or any consolidation or merger of the Company with, or any
          sale, transfer or other disposition of all or substantially all the
          property, assets or business of the Company to, another corporation
          or,

                  (c) there shall be a voluntary or involuntary dissolution,
          liquidation or winding up of the Company;

     then, in any one or more of such cases, the Company shall give to Holder,
     if lawful to do so, (i) at least 10 days' prior written notice of the date
     on which a record date shall be selected for such dividend, distribution or
     right or for determining rights to vote in respect of any such
     reorganization, reclassification, merger, consolidation, sale, transfer,
     disposition, liquidation or winding up, and (ii) in the case of any such
     reorganization, reclassification, merger, consolidation, sale, transfer,
     disposition, dissolution, liquidation or winding up, at least 10 days'
     prior written notice of the date when the same shall take place. Such
     notice in accordance with the foregoing clause also shall specify (i) the
     date on which any such record is to be taken for the purpose of such
     dividend, distribution or right, the date on which the holders of Common
     Stock shall be entitled to any such dividend, distribution or right, and
     the amount and character thereof, and (ii) the date on which any such
     reorganization, reclassification, merger, consolidation, sale,

                                       D-7

<PAGE>

     transfer, disposition, dissolution, liquidation or winding up is to take
     place and the time, if any such time is to be fixed, as of which the
     holders of Common Stock shall be entitled to exchange their Warrant Shares
     for securities or other property deliverable upon such disposition,
     dissolution, liquidation or winding up. Each such written notice shall be
     sufficiently given if addressed to Holder at the last address of Holder
     appearing on the books of the Company and delivered in accordance with
     Section 16(d).

              14. Authorized Shares. The Company covenants that during the
     period the Warrant is outstanding, it will reserve from its authorized and
     unissued Common Stock a sufficient number of shares to provide for the
     issuance of the Warrant Shares upon the exercise of any purchase rights
     under this Warrant. The Company further covenants that its issuance of this
     Warrant shall constitute full authority to its officers who are charged
     with the duty of executing stock certificates to execute and issue the
     necessary certificates for the Warrant Shares upon the exercise of the
     purchase rights under this Warrant. The Company will take all such
     reasonable action as may be necessary to assure that such Warrant Shares
     may be issued as provided herein without violation of any applicable law or
     regulation, or of any requirements of the Principal Market upon which the
     Common Stock may be listed.

                  The Company shall not by any action, including, without
     limitation, amending its certificate of incorporation or through any
     reorganization, transfer of assets, consolidation, merger, dissolution,
     issue or sale of securities or any other voluntary action, avoid or seek to
     avoid the observance or performance of any of the terms of this Warrant,
     but will at all times in good faith assist in the carrying out of all such
     terms and in the taking of all such actions as may be necessary or
     appropriate to protect the rights of Holder against impairment. Without
     limiting the generality of the foregoing, the Company will (a) not increase
     the par value of any Warrant Shares above the amount payable therefor upon
     such exercise immediately prior to such increase in par value, (b) take all
     such action as may be necessary or appropriate in order that the Company
     may validly and legally issue fully paid and nonassessable Warrant Shares
     upon the exercise of this Warrant, and (c) use commercially reasonable
     efforts to obtain all such authorizations, exemptions or consents from any
     public regulatory body having jurisdiction thereof as may be necessary to
     enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
     in the number of Warrant Shares for which this Warrant is exercisable or in
     the Exercise Price, the Company shall obtain all such authorizations or
     exemptions thereof, or consents thereto, as may be necessary from any
     public regulatory body or bodies having jurisdiction thereof.

              15. Miscellaneous.

                  (a) Jurisdiction. This Warrant shall constitute a contract
         under the laws of New York, without regard to its conflict of law,
         principles or rules, and be subject to arbitration pursuant to the
         terms set forth in the Purchase Agreement.

                                       D-8

<PAGE>

              (b) Restrictions. The Holder acknowledges that the Warrant Shares
     acquired upon the exercise of this Warrant, if not registered, will have
     restrictions upon resale imposed by state and federal securities laws.

              (c) Nonwaiver and Expenses. No course of dealing or any delay or
     failure to exercise any right hereunder on the part of Holder shall operate
     as a waiver of such right or otherwise prejudice Holder's rights, powers or
     remedies, notwithstanding all rights hereunder terminate on the Termination
     Date. If the Company willfully and knowingly fails to comply with any
     provision of this Warrant, which results in any material damages to the
     Holder, the Company shall pay to Holder such amounts as shall be sufficient
     to cover any costs and expenses including, but not limited to, reasonable
     attorneys' fees, including those of appellate proceedings, incurred by
     Holder in collecting any amounts due pursuant hereto or in otherwise
     enforcing any of its rights, powers or remedies hereunder.

              (d) Notices. Any notice, request or other document required or
     permitted to be given or delivered to the Holder by the Company shall be
     delivered in accordance with the notice provisions of the Purchase
     Agreement.

              (e) Limitation of Liability. No provision hereof, in the absence
     of affirmative action by Holder to purchase Warrant Shares, and no
     enumeration herein of the rights or privileges of Holder, shall give rise
     to any liability of Holder for the purchase price of any Common Stock or as
     a stockholder of the Company, whether such liability is asserted by the
     Company or by creditors of the Company.

              (f) Remedies. Holder, in addition to being entitled to exercise
     all rights granted by law, including recovery of damages, will be entitled
     to specific performance of its rights under this Warrant. The Company
     agrees that monetary damages would not be adequate compensation for any
     loss incurred by reason of a breach by it of the provisions of this Warrant
     and hereby agrees to waive the defense in any action for specific
     performance that a remedy at law would be adequate.

              (g) Successors and Assigns. Subject to applicable securities laws
     and the provisions of this Warrant, this Warrant and the rights and
     obligations evidenced hereby shall inure to the benefit of and be binding
     upon the successors of the Company and the successors and permitted assigns
     of Holder. The provisions of this Warrant are intended to be for the
     benefit of all Holders from time to time of this Warrant and shall be
     enforceable by any such Holder or holder of Warrant Shares.

              (h) Amendment. This Warrant may be modified or amended or the
     provisions hereof waived with the written consent of the Company and the
     Holder.

              (i) Severability. Wherever possible, each provision of this
     Warrant shall be interpreted in such manner as to be effective and valid
     under applicable law, but if any provision of this Warrant shall be
     prohibited by or invalid under applicable law,

                                       D-9

<PAGE>

     such provision shall be ineffective to the extent of such prohibition or
     invalidity, without invalidating the remainder of such provisions or the
     remaining provisions of this Warrant.

              (j) Headings. The headings used in this Warrant are for the
     convenience of reference only and shall not, for any purpose, be deemed a
     part of this Warrant.

                               ******************

                                      D-10

<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
     executed by its officer thereunto duly authorized.

     Dated: May ___, 2002

                                      IRVINE SENSORS CORPORATION

                                      By:_______________________________________
                                      Name:
                                      Title:

                                      D-11

<PAGE>

                               NOTICE OF EXERCISE

     To:  Irvine Sensors Corporation

              (1) The undersigned hereby elects to purchase ________ Warrant
     Shares (the "Common Stock"), of Irvine Sensors Corporation pursuant to the
     terms of the attached Warrant, and tenders herewith payment of the exercise
     price in full, together with all applicable transfer taxes, if any.

              (2) Please issue a certificate or certificates representing said
     Warrant Shares in the name of the undersigned or in such other name as is
     specified below:

                           _______________________________


     The Warrant Shares shall be delivered to the following:

                           _______________________________

                           _______________________________

                           _______________________________




                                              [PURCHASER]


                                              By: ______________________________
                                                  Name:
                                                  Title:

                                              Dated: ___________________________


     Deliver a copy of this notice to the law firm set forth in the Purchase
     Agreement

                                      D-12

<PAGE>

     NOTICE OF EXERCISE OF COMMON STOCK WARRANT
                    PURSUANT TO CASHLESS EXERCISE PROVISIONS



     To: Irvine Sensors Corporation

     Aggregate Price of Warrant Before Exercise: $________________

     Aggregate Price Being Exercised: $___________
     Exercise Price: $_______________ per share
     Number of Shares of Common Stock to be Issued Under this Notice: __________
     Remaining Aggregate Price (if any) After Issuance: $__________


     Gentlemen:


     The undersigned, registered Holder of the Warrant delivered herewith,
     hereby irrevocably exercises such Warrant for, and purchases thereunder,
     shares of the Common Stock of Irvine Sensors Corporation a Delaware
     corporation, as provided below. Capitalized terms used herein, unless
     otherwise defined herein, shall have the meanings given in the Warrant. The
     portion of the Exercise Price (as defined in the Warrant) to be applied
     toward the purchase of Common Stock pursuant to this Notice of Exercise is
     $_______, thereby leaving a remaining Exercise Price (if any) equal to
     $________. Such exercise shall be pursuant to the cashless exercise
     provisions of Section 3 of the Warrant; therefore, Holder makes no payment
     with this Notice of Exercise. The number of shares to be issued pursuant to
     this exercise shall be determined by reference to the formula in Section 3
     of the Warrant which, by reference to Section 3, requires the use of the
     high and low trading price of the Company's Common Stock on the Trading Day
     preceding the date of such election. The high and low trading price of the
     Company's Common Stock has been determined by Holder to be $______ and
     $_________, respectively, which figure is acceptable to Holder for
     calculations of the number of shares of Common Stock issuable pursuant to
     this Notice of Exercise. Holder requests that the certificates for the
     purchased shares of Common Stock be issued in the name of
     _________________________ and delivered to
     ______________________________________________. To the extent the foregoing
     exercise is for less than the full Aggregate Price of the Warrant, a
     replacement Warrant representing the remainder of the Aggregate Price (and
     otherwise of like form, tenor and effect) shall be delivered to Holder
     along with the share certificate evidencing the Common Stock issued in
     response to this Notice of Exercise.

                                             [Purchaser]


                                             By:________________________________
                                                    Name:
                                                    Title:

                                             Date:


                                      NOTE

              The execution to the foregoing Notice of Exercise must exactly
     correspond to the name of the Holder on the Warrant

                                      D-13

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

              FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
     thereby are hereby assigned to

     _______________________________________________ whose address is

     _______________________________________________________________.



     _______________________________________________________________

                                           Dated:  ______________, _______


                   Holder's Signature:  _____________________________

                   Holder's Address:    _____________________________

                                        _____________________________



     Signature Guaranteed:  ________________________________________




     NOTE: The signature to this Assignment Form must correspond with the name
     as it appears on the face of the Warrant, without alteration or enlargement
     or any change whatsoever, and must be guaranteed by a bank or trust
     company. Officers of corporations and those acting in an fiduciary or other
     representative capacity should file proper evidence of authority to assign
     the foregoing Warrant.

                                      D-14

<PAGE>

                                    EXHIBIT E

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
     OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
     OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
     PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
     ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
     TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

                         SERIES B STOCK PURCHASE WARRANT

                  To Purchase _______ Shares of Common Stock of

                              INETWORKS CORPORATION

              THIS CERTIFIES that, for value received, ________ (the "Holder"),
     is entitled, upon the terms and subject to the limitations on exercise and
     the conditions hereinafter set forth, at any time on or after the date
     hereof (the "Initial Exercise Date") and on or prior to the close of
     business on May 29, 2005 (the "Termination Date") but not thereafter, to
     subscribe for and purchase from iNetWorks Corporation, a corporation
     incorporated in Delaware (the "Company"), up to ______ shares (the "Warrant
     Shares") of Common Stock, $.001 par value per share, of the Company (the
     "Common Stock"). The purchase price of one share of Common Stock (the
     "Exercise Price") under this Warrant shall be $0.25. The Exercise Price and
     the number of Warrant Shares for which the Warrant is exercisable shall be
     subject to adjustment as provided herein. This is the Series B Warrant
     referred to in the Purchase Agreement (as defined below). In the event of
     any conflict between the terms of this Warrant and the Securities Purchase
     Agreement dated as of May 29, 2002 pursuant to which this Warrant has been
     issued (the "Purchase Agreement"), the Purchase Agreement shall control.
     Capitalized terms used and not otherwise defined herein shall have the
     meanings set forth for such terms in the Purchase Agreement.

              1. Title to Warrant. Prior to the Termination Date and subject to
     compliance with applicable laws, this Warrant and all rights hereunder are
     transferable, in whole or in part, at the office or agency of the Company
     by the Holder in person or by duly authorized attorney, upon surrender of
     this Warrant together with the Assignment Form annexed hereto properly
     endorsed.

              2. Authorization of Shares. The Company covenants that all Warrant
     Shares which may be issued upon the exercise of the purchase rights
     represented by this Warrant will, upon exercise of the purchase rights
     represented by this Warrant, be duly authorized, validly issued, fully paid
     and nonassessable and free from all taxes, liens and charges in respect of
     the

                                       E-1

<PAGE>

     issue thereof (other than taxes in respect of any transfer occurring
     contemporaneously with such issue).

               3. Exercise of Warrant.

                  (a) Except as provided in Section 4 herein, exercise of the
         purchase rights represented by this Warrant may be made at any time or
         times on or after the Initial Exercise Date and on or before the close
         of business on the Termination Date by the surrender of this Warrant
         and the Notice of Exercise Form annexed hereto duly executed, at the
         office of the Company (or such other office or agency of the Company as
         it may designate by notice in writing to the registered Holder at the
         address of such Holder appearing on the books of the Company), with a
         copy of said notice to the law firm set forth in the Purchase
         Agreement, and upon payment of the Exercise Price of the shares thereby
         purchased by wire transfer or cashier's check drawn on a United States
         bank, the Holder shall be entitled to receive a certificate for the
         number of Warrant Shares so purchased. Certificates for shares
         purchased hereunder shall be delivered to the Holder within five (5)
         Trading Days after the date on which this Warrant shall have been
         exercised as aforesaid. This Warrant shall be deemed to have been
         exercised and such certificate or certificates shall be deemed to have
         been issued, and Holder or any other person so designated to be named
         therein shall be deemed to have become a holder of record of such
         shares for all purposes, as of the date the Warrant has been exercised
         by payment to the Company of the Exercise Price and all taxes required
         to be paid by the Holder, if any, with respect to the issuance of such
         shares, have been paid.

                  (b) If this Warrant shall have been exercised in part, the
         Company shall, at the time of delivery of the certificate or
         certificates representing Warrant Shares, deliver to Holder a new
         Warrant evidencing the rights of Holder to purchase the unpurchased
         Warrant Shares called for by this Warrant, which new Warrant shall in
         all other respects be identical with this Warrant.

               4. No Fractional Shares or Scrip. No fractional shares or scrip
     representing fractional shares shall be issued upon the exercise of this
     Warrant. As to any fraction of a share which Holder would otherwise be
     entitled to purchase upon such exercise, the Company shall pay a cash
     adjustment in respect of such final fraction in an amount equal to such
     fraction multiplied by the Exercise Price.

               5. Charges, Taxes and Expenses. Issuance of certificates for
     Warrant Shares shall be made without charge to the Holder for any issue or
     transfer tax or other incidental expense in respect of the issuance of such
     certificate, all of which taxes and expenses shall be paid by the Company,
     and such certificates shall be issued in the name of the Holder or in such
     name or names as may be directed by the Holder; provided, however, that in
     the event certificates for Warrant Shares are to be issued in a name other
     than the name of the Holder, this Warrant when surrendered for exercise
     shall be accompanied by the Assignment Form attached hereto duly executed
     by the Holder; and the Company may require, as a condition thereto, the
     payment of a sum sufficient to reimburse it for any transfer tax incidental
     thereto.

                                       E-2

<PAGE>

              6. Closing of Books. The Company will not close its stockholder
     books or records in any manner which prevents the timely exercise of this
     Warrant.

              7. Transfer, Division and Combination.

                 (a) Subject to compliance with any applicable securities laws,
         transfer of this Warrant and all rights hereunder, in whole or in part,
         shall be registered on the books of the Company to be maintained for
         such purpose, upon surrender of this Warrant at the principal office of
         the Company, together with a written assignment of this Warrant
         substantially in the form attached hereto duly executed by the Holder
         or its agent or attorney and funds sufficient to pay any transfer taxes
         payable upon the making of such transfer. Upon such surrender and, if
         required, such payment, the Company shall execute and deliver a new
         Warrant or Warrants in the name of the assignee or assignees and in the
         denomination or denominations specified in such instrument of
         assignment, and shall issue to the assignor a new Warrant evidencing
         the portion of this Warrant not so assigned, and this Warrant shall
         promptly be cancelled. A Warrant, if properly assigned, may be
         exercised by a new holder for the purchase of Warrant Shares without
         having a new Warrant issued.

                 (b) This Warrant may be divided or combined with other
         Warrants upon presentation hereof at the aforesaid office of the
         Company, together with a written notice specifying the names and
         denominations in which new Warrants are to be issued, signed by the
         Holder or its agent or attorney. Subject to compliance with Section
         7(a), as to any transfer which may be involved in such division or
         combination, the Company shall execute and deliver a new Warrant or
         Warrants in exchange for the Warrant or Warrants to be divided or
         combined in accordance with such notice.

                 (c) The Company shall prepare, issue and deliver at its own
         expense (other than transfer taxes) the new Warrant or Warrants under
         this Section 7.

                 (d) The Company agrees to maintain, at its aforesaid office,
         books for the registration and the registration of transfer of the
         Warrants.

              8. No Rights as Shareholder until Exercise. This Warrant does not
     entitle the Holder to any voting rights or other rights as a shareholder of
     the Company prior to the exercise hereof. Upon the surrender of this
     Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
     so purchased shall be and be deemed to be issued to such Holder as the
     record owner of such shares as of the close of business on the later of the
     date of such surrender or payment.

              9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
     covenants that upon receipt by the Company of evidence reasonably
     satisfactory to it of the loss, theft, destruction or mutilation of this
     Warrant or any stock certificate relating to the Warrant Shares, and in
     case of loss, theft or destruction, of indemnity or security reasonably
     satisfactory to it, and upon surrender and cancellation of such Warrant or
     stock certificate, if mutilated, the

                                       E-3

<PAGE>

     Company will make and deliver a new Warrant or stock certificate of like
     tenor and dated as of such cancellation, in lieu of such Warrant or stock
     certificate.

              10. Saturdays, Sundays, Holidays, etc. If the last or appointed
     day for the taking of any action or the expiration of any right required or
     granted herein shall be a Saturday, Sunday or a legal holiday, then such
     action may be taken or such right may be exercised on the next succeeding
     day not a Saturday, Sunday or legal holiday.

              11. Adjustments of Exercise Price and Number of Warrant Shares.

                  (a) Stock Splits, etc. The number and kind of securities
         purchasable upon the exercise of this Warrant and the Exercise Price
         shall be subject to adjustment from time to time upon the happening of
         any of the following. In case the Company shall (i) pay a dividend in
         shares of Common Stock or make a distribution in shares of Common Stock
         to holders of its outstanding Common Stock, (ii) subdivide its
         outstanding shares of Common Stock into a greater number of shares,
         (iii) combine its outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, or (iv) issue any shares of its
         capital stock in a reclassification of the Common Stock, then the
         number of Warrant Shares purchasable upon exercise of this Warrant
         immediately prior thereto shall be adjusted so that the Holder shall be
         entitled to receive the kind and number of Warrant Shares or other
         securities of the Company which it would have owned or have been
         entitled to receive had such Warrant been exercised in advance thereof.
         Upon each such adjustment of the kind and number of Warrant Shares or
         other securities of the Company which are purchasable hereunder, the
         Holder shall thereafter be entitled to purchase the number of Warrant
         Shares or other securities resulting from such adjustment at an
         Exercise Price per Warrant Share or other security obtained by
         multiplying the Exercise Price in effect immediately prior to such
         adjustment by the number of Warrant Shares purchasable pursuant hereto
         immediately prior to such adjustment and dividing by the number of
         Warrant Shares or other securities of the Company resulting from such
         adjustment. An adjustment made pursuant to this paragraph shall become
         effective immediately after the effective date of such event
         retroactive to the record date, if any, for such event.

                  (b) Voluntary Adjustment by the Company. The Company may at
         any time during the term of this Warrant reduce the then current
         Exercise Price to any amount and for any period of time deemed
         appropriate by the Board of Directors of the Company.

                  (c) Notice of Adjustment. Whenever the number of Warrant
         Shares or number or kind of securities or other property purchasable
         upon the exercise of this Warrant or the Exercise Price is adjusted, as
         herein provided, the Company shall promptly mail by registered or
         certified mail, return receipt requested, to the Holder notice of such
         adjustment or adjustments setting forth the number of Warrant Shares
         (and other securities or property) purchasable upon the exercise of
         this Warrant and the Exercise Price of such Warrant Shares (and other
         securities or property) after such adjustment, setting forth a brief
         statement of the facts requiring such adjustment and

                                       E-4

<PAGE>

         setting forth the computation by which such adjustment was made. Such
         notice, in the absence of manifest error, shall be conclusive evidence
         of the correctness of such adjustment.

              12. Reorganization, Reclassification, Merger, Consolidation or
     Disposition of Assets. In case the Company shall reorganize its capital,
     reclassify its capital stock, consolidate or merge with or into another
     corporation (where the Company is not the surviving corporation or where
     there is a change in or distribution with respect to the Common Stock of
     the Company), or sell, transfer or otherwise dispose of all or
     substantially all its property, assets or business to another corporation
     and, pursuant to the terms of such reorganization, reclassification,
     merger, consolidation or disposition of assets, shares of common stock of
     the successor or acquiring corporation, or any cash, shares of stock or
     other securities or property of any nature whatsoever (including warrants
     or other subscription or purchase rights) in addition to or in lieu of
     common stock of the successor or acquiring corporation ("Other Property"),
     are to be received by or distributed to the holders of Common Stock of the
     Company, then the Holder shall have the right thereafter to receive, at
     their option, (a) upon exercise of this Warrant, the number of shares of
     Common Stock of the successor or acquiring corporation or of the Company,
     if it is the surviving corporation, and Other Property receivable upon or
     as a result of such reorganization, reclassification, merger, consolidation
     or disposition of assets by a Holder of the number of shares of Common
     Stock for which this Warrant is exercisable immediately prior to such
     event, or (b) cash equal to the value of this Warrant as determined in
     accordance with the Black-Sholes option pricing formula. In case of any
     such reorganization, reclassification, merger, consolidation or disposition
     of assets, the successor or acquiring corporation (if other than the
     Company) shall expressly assume the due and punctual observance and
     performance of each and every covenant and condition of this Warrant to be
     performed and observed by the Company and all the obligations and
     liabilities hereunder, subject to such modifications as may be deemed
     appropriate (as determined in good faith by resolution of the Board of
     Directors of the Company) in order to provide for adjustments of Warrant
     Shares for which this Warrant is exercisable which shall be as nearly
     equivalent as practicable to the adjustments provided for in this Section
     12. For purposes of this Section 12, "common stock of the successor or
     acquiring corporation" shall include stock of such corporation of any class
     which is not preferred as to dividends or assets over any other class of
     stock of such corporation and which is not subject to redemption and shall
     also include any evidences of indebtedness, shares of stock or other
     securities which are convertible into or exchangeable for any such stock,
     either immediately or upon the arrival of a specified date or the happening
     of a specified event and any warrants or other rights to subscribe for or
     purchase any such stock. The foregoing provisions of this Section 12 shall
     similarly apply to successive reorganizations, reclassifications, mergers,
     consolidations or disposition of assets.

              13. Notice of Corporate Action. If at any time:

                  (a) the Company shall take a record of the holders of its
         Common Stock for the purpose of entitling them to receive a dividend or
         other distribution, or any right to subscribe for or purchase any
         evidences of its indebtedness, any shares of stock of any class or any
         other securities or property, or to receive any other right, or

                                       E-5

<PAGE>

                  (b) there shall be any capital reorganization of the Company,
         any reclassification or recapitalization of the capital stock of the
         Company or any consolidation or merger of the Company with, or any
         sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                  (c) there shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

     then, in any one or more of such cases, the Company shall give to Holder,
     if lawful to do so, (i) at least 10 days' prior written notice of the date
     on which a record date shall be selected for such dividend, distribution or
     right or for determining rights to vote in respect of any such
     reorganization, reclassification, merger, consolidation, sale, transfer,
     disposition, liquidation or winding up, and (ii) in the case of any such
     reorganization, reclassification, merger, consolidation, sale, transfer,
     disposition, dissolution, liquidation or winding up, at least 10 days'
     prior written notice of the date when the same shall take place. Such
     notice in accordance with the foregoing clause also shall specify (i) the
     date on which any such record is to be taken for the purpose of such
     dividend, distribution or right, the date on which the holders of Common
     Stock shall be entitled to any such dividend, distribution or right, and
     the amount and character thereof, and (ii) the date on which any such
     reorganization, reclassification, merger, consolidation, sale, transfer,
     disposition, dissolution, liquidation or winding up is to take place and
     the time, if any such time is to be fixed, as of which the holders of
     Common Stock shall be entitled to exchange their Warrant Shares for
     securities or other property deliverable upon such disposition,
     dissolution, liquidation or winding up. Each such written notice shall be
     sufficiently given if addressed to Holder at the last address of Holder
     appearing on the books of the Company and delivered in accordance with
     Section 16(d).

              14. Authorized Shares. The Company covenants that during the
     period the Warrant is outstanding, it will reserve from its authorized and
     unissued Common Stock a sufficient number of shares to provide for the
     issuance of the Warrant Shares upon the exercise of any purchase rights
     under this Warrant. The Company further covenants that its issuance of this
     Warrant shall constitute full authority to its officers who are charged
     with the duty of executing stock certificates to execute and issue the
     necessary certificates for the Warrant Shares upon the exercise of the
     purchase rights under this Warrant. The Company will take all such
     reasonable action as may be necessary to assure that such Warrant Shares
     may be issued as provided herein without violation of any applicable law or
     regulation, or of any requirements of the Principal Market upon which the
     Common Stock may be listed.

                  The Company shall not by any action, including, without
     limitation, amending its certificate of incorporation or through any
     reorganization, transfer of assets, consolidation, merger, dissolution,
     issue or sale of securities or any other voluntary action, avoid or seek to
     avoid the observance or performance of any of the terms of this Warrant,
     but will at all times in good faith assist in the carrying out of all such
     terms and in the taking of all such actions as may be necessary or
     appropriate to protect the rights of Holder against impairment. Without
     limiting the generality of the foregoing, the Company will (a) not increase
     the par value of any Warrant Shares above the amount payable therefor upon
     such exercise immediately prior to such

                                       E-6

<PAGE>

     increase in par value, (b) take all such action as may be necessary or
     appropriate in order that the Company may validly and legally issue fully
     paid and nonassessable Warrant Shares upon the exercise of this Warrant,
     and (c) use commercially reasonable efforts to obtain all such
     authorizations, exemptions or consents from any public regulatory body
     having jurisdiction thereof as may be necessary to enable the Company to
     perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
     in the number of Warrant Shares for which this Warrant is exercisable or in
     the Exercise Price, the Company shall obtain all such authorizations or
     exemptions thereof, or consents thereto, as may be necessary from any
     public regulatory body or bodies having jurisdiction thereof.

              15. Piggy-Back Registration Rights. If, in connection with an
     initial public offering ("IPO") or at any time after an IPO, the Company
     shall determine to proceed with the preparation and filing of a
     registration statement pursuant to the Securities Act, in connection with
     the proposed offer and sale of any of its securities by it or any of its
     security holders (other than a registration statement on Form S-4, S-8 or
     other similar limited purpose form), the Company will give written notice
     of its determination to Holder. Upon receipt of a written request from
     Holder within thirty (30) days after receipt of any such notice from the
     Company, the Company will, except as herein provided, cause all the shares
     of Common Stock issuable upon exercise of the Warrant requested by Holder
     to be included in such registration statement, all to the extent required
     to permit the sale or other disposition by Holder of such shares of Common
     Stock. If any registration pursuant to this Section 15 shall be
     underwritten in whole or in part, the Company may require that the shares
     of Common Stock requested for inclusion pursuant to this Section 15 (to the
     extent issued) be included in the underwriting on the same terms and
     conditions as the securities otherwise being sold through the underwriters.
     In the event that the shares of Common Stock requested for inclusion
     pursuant to this Section 15 together with any other shares would, in the
     good faith judgment of the managing underwriter of such public offering,
     reduce the number of shares to be offered by the Company or interfere with
     the successful marketing of the securities offered by the Company, the
     Company will include in such registration the number of Holder's shares of
     Common Stock which is pro rata, based on the number of securities which in
     the opinion of such underwriters can be sold and on the number of
     securities which all holders request be included in the registration,
     provided that any shares of Common Stock proposed to be included in such
     registration statement that are owned by directors or officers of the
     Company or their affiliates shall be excluded prior to exclusion of any
     shares of Common Stock requested to be included by Holder. The obligation
     of the Company under this Section 15 shall be unlimited as to the number of
     registration statements to which it applies, until such time that the
     Holder may freely trade all of its Common Stock without the volume
     limitations imposed pursuant to Rule 144 under the Securities Act.

              16. Miscellaneous.

                  (a) Jurisdiction. This Warrant shall constitute a contract
         under the laws of New York, without regard to its conflict of law,
         principles or rules, and be subject to arbitration pursuant to the
         terms set forth in the Purchase Agreement.

                                       E-7

<PAGE>

              (b) Restrictions. The Holder acknowledges that the Warrant Shares
     acquired upon the exercise of this Warrant, if not registered, will have
     restrictions upon resale imposed by state and federal securities laws.

              (c) Nonwaiver and Expenses. No course of dealing or any delay or
     failure to exercise any right hereunder on the part of Holder shall operate
     as a waiver of such right or otherwise prejudice Holder's rights, powers or
     remedies, notwithstanding all rights hereunder terminate on the Termination
     Date. If the Company willfully and knowingly fails to comply with any
     provision of this Warrant, which results in any material damages to the
     Holder, the Company shall pay to Holder such amounts as shall be sufficient
     to cover any costs and expenses including, but not limited to, reasonable
     attorneys' fees, including those of appellate proceedings, incurred by
     Holder in collecting any amounts due pursuant hereto or in otherwise
     enforcing any of its rights, powers or remedies hereunder.

              (d) Notices. Any notice, request or other document required or
     permitted to be given or delivered to the Holder by the Company shall be
     delivered in accordance with the notice provisions of the Purchase
     Agreement.

              (e) Limitation of Liability. No provision hereof, in the absence
     of affirmative action by Holder to purchase Warrant Shares, and no
     enumeration herein of the rights or privileges of Holder, shall give rise
     to any liability of Holder for the purchase price of any Common Stock or as
     a stockholder of the Company, whether such liability is asserted by the
     Company or by creditors of the Company.

              (f) Remedies. Holder, in addition to being entitled to exercise
     all rights granted by law, including recovery of damages, will be entitled
     to specific performance of its rights under this Warrant. The Company
     agrees that monetary damages would not be adequate compensation for any
     loss incurred by reason of a breach by it of the provisions of this Warrant
     and hereby agrees to waive the defense in any action for specific
     performance that a remedy at law would be adequate.

              (g) Successors and Assigns. Subject to applicable securities laws
     and the provisions of this Warrant, this Warrant and the rights and
     obligations evidenced hereby shall inure to the benefit of and be binding
     upon the successors of the Company and the successors and permitted assigns
     of Holder. The provisions of this Warrant are intended to be for the
     benefit of all Holders from time to time of this Warrant and shall be
     enforceable by any such Holder or holder of Warrant Shares.

              (h) Amendment. This Warrant may be modified or amended or the
     provisions hereof waived with the written consent of the Company and the
     Holder.

              (i) Severability. Wherever possible, each provision of this
     Warrant shall be interpreted in such manner as to be effective and valid
     under applicable law, but if any provision of this Warrant shall be
     prohibited by or invalid under applicable law,

                                       E-8

<PAGE>

     such provision shall be ineffective to the extent of such prohibition or
     invalidity, without invalidating the remainder of such provisions or the
     remaining provisions of this Warrant.

              (j) Headings. The headings used in this Warrant are for the
     convenience of reference only and shall not, for any purpose, be deemed a
     part of this Warrant.

                             **********************

                                       E-9

<PAGE>

              IN WITNESS WHEREOF, the Company has caused this Warrant to be
     executed by its officer thereunto duly authorized.

     Dated: May ___, 2002
                                      INETWORKS CORPORATION

                                      By:_______________________________________
                                      Name:
                                      Title:

                                      E-10

<PAGE>

                               NOTICE OF EXERCISE

     To:   INetWorks Corporation

              (1) The undersigned hereby elects to purchase ________ Warrant
     Shares (the "Common Stock"), of INetWorks Corporation pursuant to the terms
     of the attached Warrant, and tenders herewith payment of the exercise price
     in full, together with all applicable transfer taxes, if any.

              (2) Please issue a certificate or certificates representing said
     Warrant Shares in the name of the undersigned or in such other name as is
     specified below:

                         _______________________________


     The Warrant Shares shall be delivered to the following:

                         _______________________________

                         _______________________________

                         _______________________________




                                                [PURCHASER]


                                                By: ____________________________
                                                    Name:
                                                    Title:

                                                Dated:  ________________________

     Deliver a copy of this notice to the law firm set forth in the Purchase
     Agreement.

                                      E-11

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

              FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
     thereby are hereby assigned to

     _______________________________________________ whose address is

     _______________________________________________________________.



     _______________________________________________________________

                                        Dated:  ______________, _______


                   Holder's Signature: __________________________

                   Holder's Address:   __________________________

                                       __________________________



     Signature Guaranteed:  ________________________________________




     NOTE: The signature to this Assignment Form must correspond with the name
     as it appears on the face of the Warrant, without alteration or enlargement
     or any change whatsoever, and must be guaranteed by a bank or trust
     company. Officers of corporations and those acting in an fiduciary or other
     representative capacity should file proper evidence of authority to assign
     the foregoing Warrant.

                                      E-12