COMPENSATION AGREEMENT
                             ----------------------


         THIS COMPENSATION  AGREEMENT (this "Agreement"),  made and entered into
as of _____________,  1996, is by and between ILC Technology, Inc., a California
corporation with its principal offices in Sunnyvale, California (the "Company"),
and  _______________,  an  individual  residing in  _______________,  California
("Employee").


                                R E C I T A L S:
                                ----------------

A.  Employee serves as an officer or employee of the Company; and

B. The Company  desires to retain the  services of Employee,  whose  experience,
knowledge and abilities  with respect to the business and affairs of the Company
and its subsidiaries are extremely valuable to the Company; and

C. The Board of  Directors of the Company  (the  "Board")  and the  Compensation
Committee  (the   "Committee")  of  the  Board  recognize  that  the  continuing
possibility of an acquisition  proposal,  including  unsolicited tender offer or
other  takeover  bid,  for the Company may be  unsettling  to Employee and other
senior  executives of the Company,  and that  uncertainty  as to the  Employee's
future position with the Company and future compensation could affect Employee's
objectivity in assessing and advising the Board with respect to the proposal and
could detract from Employee's  continuing  performance and willingness to remain
with the Company; and

D. The  Board  and the  Committee  believe  it is in the best  interests  of the
Company and its shareholders to adopt a compensation  arrangement  that,  should
the Company receives any acquisition  proposals from third parties,  will enable
Employee,  without being  influenced  by the  uncertainties  of  Employees'  own
situation,  to continue the faithful  performance  of  Employee's  duties to the
Company, to assess and advise the Board objectively whether such proposals would
be in the best  interests of the Company and its  shareholders  and to take such
other  action  regarding  such  proposals  as the Board  might  determine  to be
appropriate.

E. The Board and the Committee  also wish to  demonstrate  to Employee and other
senior  employees of the Company that the Company is concerned  with the welfare
of its employees and intends to see that loyal  employees are treated  fairly in
respect of their  past  service on behalf of the  Company  and their  continuing
value to the Company.

F. In view of the foregoing and in further consideration of Employee's continued
employment with the Company, the Board and the Committee have determined that it
is in the best interests of the Company and its  shareholders for the Company to
agree to pay Employee  the  compensation  set forth below in the event  Employee
should leave the employ of the Company under certain circumstances, as set forth
below;





                                       1
<PAGE>





                                                                       428044.2

     NOW,  THEREFORE,  in consideration of the mutual agreements and promises of
the parties, the parties hereby agree as follows:

1. Term.  This  Agreement  shall  terminate upon the earliest of (a) three years
from the date hereof if a Change in Control of the  Company (as defined  herein)
has  not  occurred  within  such  three  year  period,  (b) the  termination  of
Employee's  employment  with the Company (i) prior to a Change in Control of the
Company or (ii) after a Change in Control of the Company, if such termination is
based upon Employee's death,  Employee's  Disability (as defined herein),  Cause
(as defined  herein) or  Employee's  Retirement  (as  defined  herein) or is the
result of Employee's  voluntary  resignation for Good Reason (as defined herein)
or (c) two years after the date of a Change in Control of the Company.

2. Change in Control.  No  compensation  shall be payable  under this  Agreement
unless and until (a) there  shall  have been a Change in Control of the  Company
while the  Employee  is still an  employee of the  Company,  and (b)  Employee's
employment shall thereafter have terminated (i)  involuntarily for reasons other
than  death,  Disability,  Retirement  or Cause,  or (ii)  voluntarily  for Good
Reason.  For  purposes of this  Agreement,  a "Change in Control of the Company"
shall mean any of the following:

     (a)  A  consolidation  or merger of the Company in which the Company is not
          the continuing or surviving company,  other than a transaction (1) the
          sole purpose of which is to change the state of  incorporation  of the
          Company,  (2) in which  the  proportionate  beneficial  ownership  (as
          determined  immediately prior to such  consolidation or merger) of the
          combined  voting  power of the  outstanding  shares of the Company and
          combined  voting  power of the  outstanding  shares  (or other  voting
          interests) of the surviving company remains substantially unchanged or
          (3) in which the Company is  effectively  the  continuing or surviving
          corporation  but changes its name to that of the other  company (or to
          another name);

     (b)  A  consolidation  merger or other  acquisition of the Company in which
          the Company  becomes a subsidiary  of another  person and resulting in
          less  than 51% of the  outstanding  voting  shares  (or  other  voting
          interests)  of such other  person being held,  immediately  after such
          merger  or  consolidation,  by the  holders  of  voting  shares of the
          Company   immediately   prior  to  such   consolidation,   merger   or
          acquisition;

     (c)  Any "person" (as such term is used in Sections  13(d) and 14(d) of the
          Securities  Exchange  Act of 1934,  as amended (the  "Exchange  Act"))
          becomes  the  "beneficial  owner" (as  defined in Rule 13d-3 under the
          Exchange Act), directly or indirectly,  of 50% or more of the combined
          voting power of the Company's then outstanding shares,  unless, within
          30 days  after  notice to the  Company  of such  event,  the Board (as
          constituted  immediately prior to such event) adopts a resolution that
          for  purposes  of this  Agreement  no Change in Control of the Company
          shall be deemed to have occurred  (which  resolution may be revoked by
          the  Board at any  time,  in which  case a Change  in  Control  of the
          Company will be deemed to have occurred as of the date such revocation
          becomes effective);

     (d)  During  any  period  of  two  consecutive  years,  members  who at the
          beginning of such period  constitute the Board cease for any reason to
          constitute a majority thereof,  unless the election, or nomination for
          election by the Company's  shareholders,  of each director is approved
          by the vote of at least  two-thirds  of the  directors  then  still in
          office who were directors at the beginning of such period; or


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<PAGE>



  
     (e)  An  acquisition  of all or  substantially  all  of the  assets  of the
          Company or the  acquisition  of the  Company  pursuant  to a tender or
          exchange offer  resulting in less than 51% of the  outstanding  voting
          shares of the surviving corporation being held, immediately after such
          acquisition  or offer,  by the  holders  of the  voting  shares of the
          Company outstanding immediately prior to such acquisition or offer.

3.    Termination After Change in Control. If, within two years after a Change
in Control of the Company,  Employee's employment with the Company is terminated
(i)  by  the  Company  for  reasons  other  than  Employee's  death,  Employee's
Disability  or Cause,  or (ii) by Employee  upon  Retirement or for Good Reason,
then Employee will be entitled to the benefits provided in Section 4 hereof.

     (a)  "Disability,"  as used in this  Agreement,  means a physical or mental
          illness or injury  which,  as  determined  an  independent  physician,
          continuously  prevents Employee from performing Employee's duties with
          the Company for a period of six months prior to termination.

     (b)  "Cause," as used in this Agreement,  means (i) gross negligence,  (ii)
          material  dishonesty,  (iii)  violation  of  any  reasonable  rule  or
          regulation  of the Board  that  results in  significant  damage to the
          Company,  and with respect to which Employee fails to correct within a
          reasonable  time,  (iv)  Employee's   continued   failure  to  perform
          Employee's  duties with the Company (other than such failure resulting
          from  incapacity  due to physical or mental  illness),  after Employee
          shall have been given  written  demand  for such  performance  setting
          forth the  specific  respects in which  Employee is deemed not to have
          satisfactorily   performed  such  duties,  (v)  Employee's   willfully
          engaging  in gross  misconduct  that is  materially  and  demonstrably
          injurious to the Company,  (vi)  Employee's  committing a felony or an
          act  of  fraud  against  the  Company  or  its  affiliates,  or  (vii)
          Employee's  breaching  materially  the  terms of  Employee's  employee
          confidentiality  and  proprietary   information   agreement  with  the
          Company.  No act, or failure to act, by Employee  shall be  considered
          "willful" if done,  or omitted to be done,  by Employee in  Employee's
          good faith and reasonable  belief that such act or omission was in the
          best  interest of the Company or required  by  applicable  law.  Cause
          shall be determined only by the affirmative  vote of a majority of the
          authorized  number of the Board of  Directors  at a meeting  for which
          notice has been given that it is proposed to consider  the issue or at
          a meeting  occurring not less than seven days after a meeting at which
          one or more  directors  indicates  an intention to present a motion to
          such  effect.  Notice of such  meeting  shall be provided  promptly to
          Employee,  and Employee,  together with Employee's  counsel,  shall be
          given an opportunity  to be heard before the Board.  No termination of
          Employee  for Cause  shall be  effective  until the Board  shall  have
          delivered to Employee a Notice of Termination.

     (c)  "Notice of  Termination,"  as used in this Agreement,  means a written
          notice that shall indicate those  specific  termination  provisions in
          this Agreement relied upon,  shall set forth in reasonable  detail the
          facts and circumstances  claimed to provide a basis for termination of
          Employee's  employment  under the  provisions  so indicated  and shall
          state that,  in the good faith  opinion of the Board,  the Company has
          Cause (as defined above) to terminate Employee. For


                                       4
                                                                               
             


<PAGE>



          purposes of this  Agreement,  no purported  termination by the Company
          shall be  effective  without  Employee's  being  furnished a Notice of
          Termination.

     (d)  "Date of Termination," as used in this Agreement,  means the effective
          date of Employee's termination of employment.

     (e)  "Retirement,"   as  used  in  this  Agreement,   means  the  voluntary
          termination  of Employee's  employment  with the Company in accordance
          with the Company's retirement policy as of the date of this Agreement,
          including  (at  Employee's  election,  set  forth  in  writing)  early
          retirement,  generally  applicable  to its  salaried  employees  or in
          accordance with any retirement arrangement established with Employee's
          written  consent with respect to Employee.  (f) "Good Reason," as used
          in this Agreement, means the occurrence of one of the following events
          within two years  after a Change in Control of the Company and without
          Employee's express written consent:

          (i)  The  assignment  by the  Company to  Employee  of any duties that
               materially  diminish the position  held by Employee or the duties
               assigned to Employee  immediately  prior to the Change in Control
               of  the  Company,  or  a  significant   reduction  in  Employee's
               responsibilities,  titles or positions  as in effect  immediately
               prior to a Change in Control or the Company;

          (ii) A reduction by the Company in Employee's base salary as in effect
               immediately  prior  to the  Change  in  Control  of the  Company;
               provided  that  any  reduction  in base  salary  that  occurs  in
               connection  with an  across-the-board  reduction  in the level of
               base  salaries  payable to the  Company's  executive  officers or
               senior management (or the executive officers or senior management
               of a successor to the Company) as part of a general  cost-cutting
               program  shall not  constitute  Good  Reason  unless  it  reduces
               Employee's annual compensation by more than 10%;

          (iii)Failure  to  include  Employee  in the  executive  incentive  and
               benefit  programs in which other executives of the Company at the
               same level  participate;  or a material reduction in the benefits
               made  available  to Employee by the  Company  under any  employee
               benefit plan or any life, health, accident, disability or similar
               plan, or any material reduction in vacation benefits, as compared
               to such benefits made available to Employee  immediately prior to
               the Change in Control of the Company,  unless the  benefits  made
               available to Employee after such Change in Control of the Company
               are no less  favorable to Employee  than the  benefits  then made
               available  by the Company to the other  employees  of the Company
               whose positions and seniority with the Company are similar to the
               position and seniority of Employee.

          (iv) The  requirement  by the Company that Employee be based  anywhere
               other  than  within  a  50-mile  radius  of  Employee's  location
               immediately prior to the Change in Control of the Company, except
               for  required  travel  on the  Company's  business  to an  extent
               substantially consistent with Employee's duties;

          (v)  The  failure  of any  successor  of the  Company  to  assume  the
               Company's  obligations  under  this  Agreement,  as  provided  in
               Section 5.


                                       5
                                                                               
             


<PAGE>




Any occurrence  described in (i), (ii),  (iii) or (iv) of this Section 3(f) that
is caused by the termination of Employee's employment by Employer voluntarily or
by the Company for cause or as a result of Employee's  death or disability shall
not constitute Good Reason.

4.   Certain Benefits upon Termination of Employment.

     (a)  If Employee's  employment with the Company terminates  pursuant to the
          provisions  of Section 3(a),  then  Employee  shall be entitled to the
          benefits set forth below:

          (i)  The Company shall pay to Employee the amount of  Employee's  full
               base salary (which, for the purposes of this Agreement, shall not
               include any bonuses or other forms of  compensation)  through the
               Date of  Termination  at the rate in effect at the time Notice of
               Termination is given plus credit for any vacation  earned but not
               taken  and  the  amount,  if  any,  of  any  bonus  or  incentive
               compensation for a past fiscal year that has been awarded but not
               yet paid to Employee;

          (ii) The Company  shall pay to Employee in a lump sum, in cash, on the
               fifth  business  day  following  the  Date  of  Termination  (the
               "Termination  Payment")  an  amount  equal to % of the  amount of
               Employee's  annual full base salary at Employee's  salary rate at
               the time Notice of Termination is given;

          (iii)Employee's  participation  in, and terminating  distributions and
               vested rights  under,  any  applicable  retirement  plan,  profit
               sharing  plan and stock  incentive  plan of the Company  shall be
               governed by the terms of those respective plans;

          (iv) Any  benefits  of  indemnification  provided by the Bylaws of the
               Company or under any agreement  with Employee  shall be continued
               for the  benefit  of  Employee  for  such  period  of time  after
               termination  as may be  necessary  until  any  action  for  which
               indemnification  would  otherwise  be  available is barred by the
               applicable  statute of  limitation,  and, to the extent  required
               under  the  Bylaws  or any such  agreement,  any  directors'  and
               officers'  liability  insurance  that  may be  maintained  by the
               Company  and  outstanding  on the  date of  termination  shall be
               continued for the benefit of Employee for such reasonable  period
               of time as may be determined by the Board to afford protection to
               Employee; and

          (v)  The Company shall pay all reasonable legal fees and expenses that
               Employee may incur as a result of the  Company's  contesting  the
               validity,  enforceability  or  Employee's  interpretation  of, or
               determinations  under,  this Agreement,  provided such dispute is
               finally determined substantially in Employee's favor.

     (b)  Notwithstanding  any provision in this  Agreement to the contrary,  in
          the event that any  payment or benefit  received  or to be received by
          Employee in connection  with a Change in Control of the Company or the
          termination of Employee's employment,  whether payable pursuant to the
          terms of this  Agreement or any other plan,  arrangement  or agreement
          with  the  Company   (collectively,   the  "Total  Payments"),   would
          constitute  a  "parachute  payment" as defined in Section  280G of the
          Internal  Revenue  Code of 1986,  as amended (the  "Code"),  the Total
          Payments  shall be reduced to the largest  amount that would result in
          no portion of such benefits being subject to the excise tax imposed by


                                       6
                                                                               
             


<PAGE>


          Section 4999 of the Code.  The  determination  of any reduction in the
          benefits  available under this Section pursuant to the foregoing shall
          be made by the  Company  in good  faith and any such  reduction  shall
          reduce first the cash payable under Section 4 of this  Agreement.  For
          purposes of this limitation: (i) no portion of the Total Payments, the
          receipt or enjoyment of which Employee shall have  effectively  waived
          in writing  prior to the date of payment of the  Termination  Payment,
          shall be taken into  account;  (ii) no  portion of the Total  Payments
          shall be taken into  account  which,  in the  opinion  of tax  counsel
          selected by the Company and  reasonably  acceptable to Employee,  does
          not  constitute  a "parachute  payment"  within the meaning of Section
          280G(b)(2) of the Code; (iii) the Termination Payment shall be reduced
          only to the extent  necessary  so that the Total  Payments  (excluding
          payments  referred  to in  clause  (i)  or  (ii))  in  their  entirety
          constitute  reasonable  compensation  for services  actually  rendered
          within the meaning of Section  280G(b)(4)  of the Code, in the opinion
          of the tax counsel  referred to in clause (ii);  and (iv) the value of
          any non-cash  benefit or any deferred  payment or benefit  included in
          the Total  Payments  shall be determined by the Company's  independent
          auditors in accordance  with the  principles of Sections  280(G)(d)(3)
          and (4) of the Code and the regulations thereunder.

     (c)  Employee's   benefits   hereunder  shall  be  considered   payment  in
          consideration  of Employee's  past service and continued  service from
          the date hereof, and Employee's  entitlement  thereto shall not be (i)
          governed  by any duty of  Employee  to  mitigate  damages  by  seeking
          further  employment or (ii) offset by any  compensation  that Employee
          may received from future employment.

     (d)  In the event that Employee's employment with the Company is terminated
          in a manner so that the benefits  under this Section 4 become  payable
          to Employee,  the arrangements  provided for by this Section 4, by any
          stock  option or other  agreement  between the Company and Employee in
          effect at the time and by any  other  applicable  plan of the  Company
          shall constitute the entire  obligation of the Company to Employee and
          performance thereof shall constitute full settlement of any claim that
          Employee might otherwise assert against the Company on account of such
          termination.

5.   Successor to the Company.

     (a)  The Company shall require any successor or assignee (whether direct or
          indirect, by purchase,  merger,  consolidation or otherwise) to all or
          substantially  all of  the  business  and/or  assets  of the  Company,
          absolutely and  unconditionally  to assume (including an assumption by
          operation of law) all the Company's  obligations  under this Agreement
          in the same manner and to the same  extent  that the Company  would be
          required  to perform if no such  succession  or  assignment  had taken
          place. Upon such assumption, such successor or assignee shall be bound
          by the  provisions  of this  Agreement  as if it were the Company and,
          thereupon,  the term  "Company",  as used  herein,  shall be deemed to
          include such  successor or assignee.  Any failure of such successor or
          assignee to assume such obligations  prior to the effectiveness of any
          such  succession  or assignment  shall be deemed a material  breach of
          this Agreement by the Company and shall entitle  Employee to terminate
          Employee's  employment  voluntarily  for Good  Reason,  as provided in
          Section 3(f).



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<PAGE>



     (b)  If  during  the  term of this  Agreement  Employee  is  employed  by a
          subsidiary  of the  Company  (including  any company a majority of the
          voting securities of which is then owned,  directly or indirectly,  by
          the  Company),  the term  "Company"  as used in  Sections 3 and 4 will
          include such employer and the Company shall pay or cause such employer
          to pay any amounts owed to Employee pursuant to Section 4.

     (c)  The rights of Employee  under this  Agreement are personal to Employee
          and may not be assigned by Employee.  However, such rights shall inure
          to the  benefit  of,  and  this  Agreement  shall be  enforceable  by,
          Employee's    personal   and   legal    representatives,    executors,
          administrators,   successors,   heirs,   distributees,   devisees  and
          legatees.  If Employee  should die while any amounts are still payable
          hereunder,  all such amounts,  unless otherwise provided herein, shall
          be paid in accordance  with the terms of this  Agreement to Employee's
          devisee, legatee, or other designee, or, if there is no such designee,
          to Employee's estate.

6.   Approval  by  Company.  This  Agreement  has been  approved by the Board in
     accordance with the authority granted and restrictions imposed by action of
     the Board.  It shall be executed by the  President or other duly  qualified
     officer.  Upon request, the Company shall furnish Employee with a certified
     copy of the portion of the  minutes of the  meeting of the Board  approving
     this Agreement and authorizing such execution.

7.   Modification.  Any alteration or  modification  of any of the provisions of
     this Agreement or  cancellation  or replacement of this Agreement shall not
     be valid unless made in writing and signed by the parties hereto.

8.   No Employment Rights.  This Agreement does not extend to Employee any right
     to continued  employment with the Company or any subsidiary of the Company,
     nor does it limit the Company's right to terminate Employee's employment at
     any  time.  This  Agreement  does  not  create  a trust  of any kind or any
     fiduciary relationship.

9.   No Assignment of Rights.  Employee's  rights under this Agreement  shall be
     nontransferable except by will or the laws of descent and distribution.

10.  Unfunded   Agreement.   This   Agreement   is  not  intended  to  meet  the
     qualification  requirements of Section 401 of the Code. Neither the Company
     nor the Board  shall be required to  segregate  any assets with  respect to
     amounts  payable  under this  Agreement.  Neither the Company nor the Board
     shall be  deemed to be a  trustee  of any  amounts  to be paid  under  this
     Agreement.  All benefits under this Agreement  shall be payable solely from
     the general  assets of the Company or any  appropriate  subsidiary,  and no
     obligation  created by this Agreement  shall be deemed to be secured by any
     pledge or any encumbrance on any property of the Company.

11.  Severability.  Any  provision  in  this  Agreement  that is  prohibited  or
     unenforceable  in any  jurisdiction  shall,  as to  such  jurisdiction,  be
     ineffective  only to the extent of such  prohibition  or  unenforceability,
     without  invalidating or affecting the remaining provisions hereof, and any
     such  prohibition  or   unenforceability  in  any  jurisdiction  shall  not
     invalidate   or  render   unenforceable   such   provision   in  any  other
     jurisdiction.



                                       8
                                                                              
              


<PAGE>



12.  Construction.  This Agreement shall be governed by the laws of the State of
     California applicable to contracts made and to be performed in California.

13.  Confidentiality.   Employee   shall  retain  in  confidence   any  and  all
     confidential  information  known to Employee  concerning  the Company,  its
     business  any  subsidiary  of the  Company  or  the  business  of any  such
     subsidiary,   so  long  as  such  information  is  not  otherwise  publicly
     disclosed.  This Section 13 shall not supersede any other  nondisclosure or
     confidentiality  agreement  between  Employee  and the  Company or any such
     subsidiary.

14.  Sole  Agreement.  This Agreement  represents the entire  agreement  between
     Employee and the Company and (except for Section 13) supersedes any and all
     prior concurrent (a) agreements,  amendments,  memoranda and understandings
     between the Company and Employee with respect to the subject  matter hereof
     and (b) any representations by or on behalf of the Company or Employee with
     respect to the subject matter hereof.

15.  Waiver.  Waiver  by  either  party of a  breach  of any  provision  of this
     Agreement  shall not operate or be construed as a waiver of any  subsequent
     breach.

16.  Counterparts.  This  Agreement  may be  executed  in a number of  identical
     counterparts,  each of which  shall be  construed  as an  original  for all
     purposes, but all of which taken together shall constitute one and the same
     agreement.

17.  Notices.  Any notice required or permitted to be given under this Agreement
     shall be in  writing  and shall be deemed  to have  been  duly  given  when
     delivered,  deposited with a commercial courier, fees prepaid, or mailed by
     first class United States mail, postage prepaid, as follows:

         If to the Company:                 ILC Technology, Inc.
                                            399 Java Drive
                                            Sunnyvale, California 94089


         If to Employee:



Either party may change its address for receipt of notices by written  notice to
the other party, which shall be effective upon receipt.


                                       9
                                                                               
                        


<PAGE>


         IN WITNESS WHEREOF,  the parties hereto have executed this Compensation
Agreement the day and year first above written.


EMPLOYEE                                             ILC TECHNOLOGY, INC.


                                                     By:
[Employee Signature]
 


                                                    Title:
                                       
 





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