Document:

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                          LA JOLLA COVE INVESTORS, INC.
                          1795 UNION STREET, 3rd FLOOR
                         SAN FRANCISCO, CALIFORNIA 94123
                            TELEPHONE: (415) 409-8703
                            FACSIMILE: (415) 409-8704
                            E-MAIL: LJCI@PACBELL.NET

LA JOLLA                     www.ljcinvestors.com                  SAN FRANCISCO
--------------------------------------------------------------------------------

                                October ___, 2003

Mr. D. Ronald Allen
Integrated Performance Systems Inc.
17300 North Dallas
Parkway, Suite 2040
Dallas, TX 75248

Re: Warrant Prepayment

Dear Ronald:

This  letter  will set forth our  agreement  for the  prepayment  toward  future
Warrant  exercises under the Warrant  Agreement dated as of October ___, 2003 by
and between Integrated Performance Systems Inc. ("Integrated") and La Jolla Cove
Investors,  Inc.  ("LJCI").  Capitalized  terms used  herein  and not  otherwise
defined herein shall have the definitions set forth in the Convertible Debenture
dated October ___, 2003 issued by Integrated to LJCI.

On the effective date of the Registration Statement,  LJCI shall wire the sum of
$400,000 to  Integrated.  Such funds shall  represent a  prepayment  towards the
future exercise of Warrant Shares under the Warrant Agreement. The timing of the
application of the prepaid funds shall be at LJCI's sole discretion.  Integrated
shall not be able to prevent LJCI from converting the Debenture and shall not be
able  to  prepay  the  Debenture,  regardless  of the  price  of the  Stock,  in
connection  with  the  Debenture   conversions   associated  with  such  Warrant
prepayments.

If this letter correctly reflects our agreement regarding the prepayment by LJCI
to Integrated  toward Warrant  exercises,  please  acknowledge your agreement by
signing below.

Sincerely,

Travis W. Huff
Portfolio Manager

Integrated Performance Systems Inc.

By: __________________________

Title: ________________________<PAGE>

                         LA JOLLA COVE INVESTORS, INC.
                          1795 UNION STREET, 3rd FLOOR
                         SAN FRANCISCO, CALIFORNIA 94123
                            TELEPHONE: (415) 409-8703
                            FACSIMILE: (415) 409-8704
                            E-MAIL: LJCI@PACBELL.NET

LA JOLLA                      www.ljcinvestors.com                 SAN FRANCISCO
--------------------------------------------------------------------------------

                                October ___, 2003

Mr. D. Ronald Allen
Integrated Performance Systems Inc.
17300 North Dallas Parkway, Suite 2040
Dallas, TX 75248

Re: Registration Statement Legal and Accounting Fees

Dear Ronald:

This letter will set forth our agreement for the payment of the  attorneys'  and
accounting  fees  necessary  for  the  filing  of a  registration  statement  by
Integrated Performance Systems Inc. ("Integrated") to cover, among other things,
the shares of Integrated common stock necessary for the 8% Convertible Debenture
and the warrants issued to La Jolla Cove Investors, Inc. ("LJCI").

Under  the  Securities  Purchase  Agreement,  LJCI  is to  advance  $250,000  to
Integrated  upon  closing.  It is agreed  that LJCI will  retain  $50,000 of the
initial  advance for the payment of legal and accounting  fees for the filing of
the Registration Statement for the Conversion Shares and the Warrant Shares. Any
amount not used for such  purposes  will be paid to  Integrated on the effective
date of the Registration Statement.

Integrated agrees that it is responsible for the payment of legal and accounting
fees, if any, over and above the $50,000 covered herein.

If this  letter  correctly  reflects  our  agreement  regarding  the  payment of
Integrated's  attorneys' and accounting  fees for the  preparation and filing of
the Registration Statement, please acknowledge your agreement by signing below.

Sincerely,

Travis W. Huff
Portfolio Manager

Integrated Performance Systems Inc.

By: __________________________

Title: ________________________<PAGE>

                         LA JOLLA COVE INVESTORS, INC.
                          1795 UNION STREET, 3rd FLOOR
                         SAN FRANCISCO, CALIFORNIA 94123
                            TELEPHONE: (415) 409-8703
                            FACSIMILE: (415) 409-8704
                            E-MAIL: LJCI@PACBELL.NET

LA JOLLA                       www.ljcinvestors.com               SAN FRANCISCO
--------------------------------------------------------------------------------

                                October ___, 2003

Mr. D. Ronald Allen
Integrated Performance Systems Inc.
17300 North Dallas Parkway, Suite 2040
Dallas, TX 75248

Re: Amount Due from Integrated Performance Systems, Inc.
to La Jolla Cove Investors, Inc.

Dear Ronald:

This letter will set forth our  agreement for the payment of the amount due from
Integrated  Performance Systems Inc.  ("Integrated") to La Jolla Cove Investors,
Inc.  ("LJCI") in the amount of  $56,909.42,  plus interest on such amount at 9%
from July 1, 2003.

Under  the  Securities  Purchase  Agreement,  LJCI  is to  advance  $250,000  to
Integrated  upon closing.  It is agreed that LJCI will retain  $56,909.42,  plus
interest  on such amount at 9% from July 1, 2003,  from the initial  advance for
the payment of the amount due from Integrated to LJCI.

If this letter  correctly  reflects our  agreement  regarding the payment of the
amount owed from  Integrated  to LJCI,  please  acknowledge  your  agreement  by
signing below.

Sincerely,

Travis W. Huff
Portfolio Manager

Integrated Performance Systems Inc.

By: __________________________

Title: ________________________<PAGE>

THIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED (THE  "SECURITIES  ACT"),  OR THE SECURITIES  LAWS OF ANY STATE,  AND IS
BEING  OFFERED  AND  SOLD  PURSUANT  TO  AN  EXEMPTION  FROM  THE   REGISTRATION
REQUIREMENTS  OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE
SECURITIES  ACT OR  PURSUANT TO AN  AVAILABLE  EXEMPTION  FROM THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.

                            8 % CONVERTIBLE DEBENTURE

COMPANY: Integrated Performance Systems Inc.
COMPANY ADDRESS: 17300 North Dallas Parkway, Dallas, Texas 75248
MATURITY DATE: October ___, 2005
PRINCIPAL AMOUNT: $250,000

         Integrated  Performance  Systems Inc., a New York corporation,  and any
successor  or resulting  corporation  by way of merger,  consolidation,  sale or
exchange of all or substantially all of the assets or otherwise (the "COMPANY"),
for  value  received,  hereby  promises  to pay to the  Holder  (as such term is
hereinafter defined), or such other Person (as such term is hereinafter defined)
upon order of the  Holder,  on October  ___,  2005 (the  "MATURITY  DATE"),  the
principal sum of two hundred fifty thousand dollars ($250,000),  as such sum may
be adjusted  pursuant to Article 3, and to pay  interest  thereon  from the date
hereof,  monthly in arrears,  on the 15th day of each month  (each an  "INTEREST
PAYMENT  DUE  DATE"  and  collectively,   the  "INTEREST  PAYMENT  DUE  DATES"),
commencing  on  December15,  2003,  at the rate of eight percent (8 %) per annum
(the "DEBENTURE  INTEREST  RATE"),  until the Principal  Amount (as such term is
hereinafter  defined)  of this  Debenture  has been paid in full.  All  interest
payable on the  Principal  Amount of this  Debenture  shall be calculated on the
basis of a 360-day  year for the  actual  number  of days  elapsed.  Payment  of
interest on this Debenture  shall be in cash.  This Debenture may not be prepaid
without the written consent of the Holder.

                                   ARTICLE 1

                                   DEFINITIONS

         SECTION 1.1  Definitions.  The terms  defined in this Article  whenever
used in this Debenture have the following respective meanings:

         (I)  "AFFILIATE"  has the  meaning  ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.

         (II) "BANKRUPTCY CODE" means the United States Bankruptcy Code of 1986,
as amended (11 U.S.C.ss.ss.101 et. -- seq.).

         (III) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of California are authorized or obligated to
close.

                                       1
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         (IV)  "CAPITAL  SHARES"  means the Common Stock and any other shares of
any other class or series of capital stock,  whether now or hereafter authorized
and however designated,  which have the right to participate in the distribution
of earnings and assets (upon  dissolution,  liquidation  or  winding-up)  of the
Company.

         (V) "CLOSING DATE" means October ___, 2003.

         (VI) "COMMON  SHARES" or "COMMON  STOCK" means shares of the  Company's
Common Stock.

         (VII) "COMMON STOCK ISSUED AT CONVERSION",  when used with reference to
the securities  deliverable upon conversion of this Debenture,  means all Common
Shares now or hereafter  Outstanding and securities of any other class or series
into which this  Debenture  hereafter  shall have been  changed or  substituted,
whether now or hereafter created and however designated.

         (VIII)  "CONVERSION" or "CONVERSION" means the repayment by the Company
of the Principal  Amount of this Debenture (and, to the extent the Holder elects
as  permitted  by Section  3.1,  accrued  and unpaid  interest  thereon)  by the
delivery of Common Stock on the terms  provided in Section  3.2, and  "CONVERT,"
"CONVERTED," "CONVERTIBLE" and like words shall have a corresponding meaning.

         (IX) "CONVERSION DATE" means any day on which all or any portion of the
Principal  Amount  of  this  Debenture  is  converted  in  accordance  with  the
provisions hereof.

         (X)   "CONVERSION   NOTICE"  means  a  written   notice  of  conversion
substantially in the form annexed hereto as Exhibit A.

         (XI)  "CONVERSION  PRICE"  on  any  date  of  determination  means  the
applicable price for the conversion of this Debenture into Common Shares on such
day as set forth in Section 3.1(a).

         (XII)  "CURRENT  MARKET PRICE" on any date of  determination  means the
closing  price of a Common  Share on such day as  reported  on the NASDAQ  OTCBB
Exchange;  provided  that, if such security is not listed or admitted to trading
on the NASDAQ OTCBB, as reported on the principal  national security exchange or
quotation  system on which  such  security  is quoted or listed or  admitted  to
trading,  or, if not quoted or listed or  admitted  to  trading on any  national
securities  exchange or quotation system, the closing bid price of such security
on the  over-the-counter  market on the day in question as reported by Bloomberg
LP or a similar generally accepted reporting service, as the case may be.

         (XIII)  "DEADLINE" means the date that is the 90th day from the Closing
Date,  provided,  however,  the  Deadline  shall be  extended by such time as is
necessary  for the  Company to respond to  comments  by the SEC,  so long as the
Company  files  the  appropriate  registration  statement  within 30 days of the
Closing Date and thereafter responds to all SEC comments within 10 business days
of receipt thereof.

                                       2
<PAGE>

         (XIV) "DEBENTURE" or "DEBENTURES" means this 8 % Convertible  Debenture
of the  Company or such other  convertible  debenture(s)  exchanged  therefor as
provided in Section 2.1. (xv) "DISCOUNT MULTIPLIER" has the meaning set forth in
Section 3.1(a).

         (XVI) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.

         (XVII)  "HOLDER"  means La Jolla Cove  Investors,  Inc.,  any successor
thereto,  or any Person to whom this  Debenture is  subsequently  transferred in
accordance with the provisions hereof.

         (XVIII)  "INTEREST  PAYMENT  DUE DATE" has the meaning set forth in the
opening paragraph of this Debenture.

         (XIX)  "MARKET  DISRUPTION  EVENT"  means any event  that  results in a
material suspension or limitation of trading of the Common Shares.

         (XX)  "MARKET  PRICE" per Common  Share  means the lowest  price of the
Common Shares  during any Trading Day as reported on the NASDAQ OTCBB;  provided
that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
as reported on the principal  national  security exchange or quotation system on
which such  security  is quoted or listed or  admitted  to  trading,  or, if not
quoted or listed or admitted to trading on any national  securities  exchange or
quotation  system,  the lowest price of the Common Shares during any Trading Day
on  the  over-the-counter  market  as  reported  by  Bloomberg  LP or a  similar
generally accepted reporting service, as the case may be.

         (XXI) "MAXIMUM RATE" has the meaning set forth in Section 6.4.

         (XXII)  "OUTSTANDING"  when used  with  reference  to Common  Shares or
Capital Shares (collectively, "SHARES") means, on any date of determination, all
issued and outstanding  Shares, and includes all such Shares issuable in respect
of outstanding scrip or any certificates  representing  fractional  interests in
such Shares;  provided,  however,  that any such Shares  directly or  indirectly
owned or held by or for the  account  of the  Company or any  Subsidiary  of the
Company shall not be deemed "OUTSTANDING" for purposes hereof.

         (XXIII) "PERSON" means an individual, a corporation, a partnership,  an
association,   a  limited  liability   company,   an   unincorporated   business
organization,  a trust or other entity or  organization,  and any  government or
political subdivision or any agency or instrumentality thereof.

         (XXIV)  "PRINCIPAL  AMOUNT"  means,  for any date of  calculation,  the
principal sum set forth in the first  paragraph of this Debenture (but only such
principal  amount as to which the Holder has (a) actually  advanced  pursuant to
the Securities  Purchase  Agreement (b) not  theretofore  furnished a Conversion
Notice in compliance with Section 3.2).

                                       3
<PAGE>

         (XXV) "REGISTRATION  RIGHTS AGREEMENT" means that certain  Registration
Rights Agreement of even date herewith by and between the Company and Holder, as
the same may be amended from time to time.

         (XXVI)  "SEC"  means  the  United   States   Securities   and  Exchange
Commission.

         (XXVII)  "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and  regulations  of the SEC  thereunder,  all as in effect at the
time.

         (XXVIII)  "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement of even date herewith by and among the Company and Holder, as
the same may be amended from time to time.

         (XXIX)  "SUBSIDIARY"  means  any  entity of which  securities  or other
ownership  interests  having  ordinary  voting  power to elect a majority of the
board of directors  or other  persons  performing  similar  functions  are owned
directly or indirectly by the Company.

         (XXX)  "TRADING  DAY" means any day on which (i) purchases and sales of
securities on the principal  national  security  exchange or quotation system on
which the Common  Shares are traded are reported  thereon,  or, if not quoted or
listed or admitted to trading on any national  securities  exchange or quotation
system,  as reported by Bloomberg LP or a similar generally  accepted  reporting
service,  as the case may be,  (ii) at least one bid for the  trading  of Common
Shares is reported and (iii) no Market Disruption Event occurs.

         All  references  to "cash" or "$" herein  means  currency of the United
States of America.

                                   ARTICLE 2

                   EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION

         SECTION 2.1  Registration  of Transfer of Debentures.  This  Debenture,
when  presented  for  registration  of  transfer,  shall (if so  required by the
Company) be duly endorsed, or be accompanied by a written instrument of transfer
in form reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.

         SECTION 2.2 Loss,  Theft,  Destruction  of  Debenture.  Upon receipt of
evidence  satisfactory  to  the  Company  of the  loss,  theft,  destruction  or
mutilation  of this  Debenture  and,  in the  case of any  such  loss,  theft or
destruction,  upon receipt of indemnity or security  reasonably  satisfactory to
the  Company,  or,  in the  case of any  such  mutilation,  upon  surrender  and
cancellation of this Debenture,  the Company shall make,  issue and deliver,  in
lieu of such lost, stolen,  destroyed or mutilated Debenture, a new Debenture of
like tenor and unpaid  Principal Amount dated as of the date hereof (which shall
accrue  interest  from the most  recent  Interest  Payment  Due Date on which an
interest payment was made in full).  This Debenture shall be held and owned upon
the express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated,  destroyed,  lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any law
or statute  existing or hereafter  enacted to the  contrary  with respect to the
replacement of negotiable  instruments or other securities without the surrender
thereof.

                                       4
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         SECTION 2.3 Who Deemed Absolute Owner.  The Company may deem the Person
in whose name this Debenture  shall be registered upon the registry books of the
Company  to be,  and may  treat it as,  the  absolute  owner  of this  Debenture
(whether or not this  Debenture  shall be overdue)  for the purpose of receiving
payment of or on  account of the  Principal  Amount of this  Debenture,  for the
conversion of this Debenture and for all other  purposes,  and the Company shall
not be  affected  by any  notice to the  contrary.  All such  payments  and such
conversions  shall be valid and effectual to satisfy and discharge the liability
upon this  Debenture to the extent of the sum or sums so paid or the  conversion
or conversions so made.

         SECTION 2.4 Repayment at Maturity.  At the Maturity  Date,  the Company
shall repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon,  in cash, to the Maturity
Date.

                                   ARTICLE 3

                             CONVERSION OF DEBENTURE

         SECTION 3.1 Conversion;  Conversion Price;  Valuation Event. (a) At the
option of the Holder,  this  Debenture may be  converted,  either in whole or in
part,  up to the full  Principal  Amount  hereof  (in  increments  of  $1,000 in
Principal  Amount) into Common Shares  (calculated as to each such conversion to
the  nearest  1/100th  of a  share),  at any time  and from  time to time on any
Business  Day,  subject to  compliance  with  Section  3.2. The number of Common
Shares into which this  Debenture may be converted is equal to the dollar amount
of the Debenture being converted  multiplied by eleven, minus the product of the
Conversion Price multiplied by six and two-thirds times the dollar amount of the
Debenture being  converted,  and the entire foregoing result shall be divided by
the Conversion  Price.  In addition,  the Company shall pay to the Holder on the
Conversion Date, in cash, any accrued and unpaid interest on the Debenture being
converted  not  included  at the  option  of the  Holder  in  clause  (i) of the
immediately  preceding  sentence.  The "CONVERSION  PRICE" shall be equal to the
lesser of (i) $1.50, or (ii) eighty percent (80%) of the average of the 5 lowest
volume  weighted  average  prices  during the twenty (20)  Trading Days prior to
Holder's election to convert (a "DISCOUNT MULTIPLIER").

For a period of 6 months  following  the Closing  Date,  the Holder shall not be
able to convert the  Debenture  on any day that the Market Price is below $0.75.
After 6 months from the Closing  Date, if the Holder elects to convert a portion
of the Debenture  and, on the day that the election is made, the Market Price is
below  $0.75,  the Company  shall have the right to prepay  that  portion of the
Debenture that Holder elected to convert,  plus any accrued and unpaid interest,
at 115% of such  amount.  In the event that the  Company  elects to prepay  that
portion of the Debenture, Holder shall have the right to withdraw its Conversion
Notice.

Beginning in the first full calendar month after the  Registration  Statement is
declared effective, Holder shall convert at least 5%, but no more than 10% (such
10% maximum amount to be cumulative from the Deadline), of the face value of the
Debenture per calendar  month into Common  Shares of the Company,  provided that
the Common Shares are available, registered and freely tradable. The 10% monthly
maximum amount shall not be applicable if the Current Market Price of the Common
Stock at anytime during the  applicable  month is higher than the Current Market
Price of the Common Stock on the Closing Date. In the event Holder breaches this
provision, Holder shall not be entitled to collect interest on the Debenture for
that month.

                                       5
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         (b)  Notwithstanding the provisions of Section 3.1(a), in the event the
Company's Registration Statement has not been declared effective by the Deadline
or, if the Registration Statement has theretofore been declared effective but is
not  thereafter  effective,  the  following  will also apply in  addition to any
damages incurred by the Holder as a result thereof:

              (i) The  Holder  may  demand   repayment   of  one   hundred   and
twenty-five  percent (125%) of the Principal  Amount of the Debenture,  together
with all accrued and unpaid interest thereon,  in cash, at any time prior to the
Company's  Registration  Statement being declared effective by the SEC or during
the period that the  Company's  Registration  Statement is not  effective,  such
repayment to be made within three (3) business days of such demand. In the event
that the  Debenture  is so  accelerated,  in  addition to the  repayment  of one
hundred and  twenty-five  percent (125%) of the Principal  Amount  together with
accrued interest as aforesaid,  the Company shall  immediately issue and pay, as
the case may be, to the Holder 10,000 Shares of Common Stock and $5,000 for each
thirty (30) day period,  or portion thereof,  during which the Principal Amount,
including interest thereon,  remains unpaid,  with the monthly payment amount to
increase to $10,000 for each thirty (30) day period,  or portion thereof,  after
the first ninety (90) day period;

              (ii) If the  Holder  does not elect to  accelerate  the Debenture,
the Company shall immediately issue or pay, as the case may be, to Holder 10,000
Shares of Common  Stock and $5,000 for each thirty  (30) day period,  or portion
thereof, that the Registration Statement is not effective.

         SECTION 3.2 Exercise of Conversion  Privilege.  (a)  Conversion of this
Debenture may be exercised on any Business Day by the Holder by  telecopying  an
executed and completed  Conversion  Notice to the Company.  Each date on which a
Conversion Notice is telecopied to the Company in accordance with the provisions
of this  Section 3.2 shall  constitute  a  Conversion  Date.  The Company  shall
convert this  Debenture  and issue the Common Stock Issued at  Conversion in the
manner  provided  below in this  Section  3.2,  and all voting and other  rights
associated  with  the  beneficial  ownership  of  the  Common  Stock  Issued  at
Conversion  shall vest with the Holder,  effective as of the Conversion  Date at
the time specified in the Conversion  Notice.  The Conversion  Notice also shall
state the name or names  (with  addresses)  of the persons who are to become the
holders  of the  Common  Stock  Issued at  Conversion  in  connection  with such
conversion.  As promptly  as  practicable  after the  receipt of the  Conversion
Notice as  aforesaid,  but in any event not more than  three (3)  Business  Days
after the Company's  receipt of such  Conversion  Notice,  the Company shall (i)
issue the Common Stock Issued at Conversion in accordance with the provisions of
this Article 3 and (ii) cause to be mailed for delivery by overnight courier, or
if a  Registration  Statement  covering  the  Common  Stock  has  been  declared
effective  by the SEC  cause  to be  electronically  transferred,  to  Holder  a
certificate or certificate(s)  representing the number of Common Shares to which
the Holder is entitled by virtue of such  conversion.  Such conversion  shall be
deemed  to have  been  effected  at the  time at  which  the  Conversion  Notice
indicates,  and at such time the rights of the Holder of this Debenture, as such
(except  if and  to  the  extent  that  any  Principal  Amount  thereof  remains
unconverted),  shall cease and the Person and Persons in whose name or names the
Common  Stock  Issued at  Conversion  shall be issuable  shall be deemed to have
become the holder or holders of record of the Common Shares represented thereby,
and all voting and other rights associated with the beneficial ownership of such
Common  Shares  shall at such  time  vest  with  such  Person  or  Persons.  The
Conversion  Notice  shall  constitute  a  contract  between  the  Holder and the
Company,  whereby  the  Holder  shall be deemed to  subscribe  for the number of
Common Shares which it will be entitled to receive upon such  conversion and, in
payment and  satisfaction of such  subscription  (and for any cash adjustment to
which it is entitled  pursuant to Section 3.4), to surrender  this Debenture and
to release the Company from all liability  thereon  (except if and to the extent
that any Principal Amount thereof remains unconverted).

                                       6
<PAGE>

         (b) If, at any time after the date of this  Debenture,  (i) the Company
challenges,  disputes  or denies  the right of the  Holder  hereof to effect the
conversion  of this  Debenture  into Common  Shares or  otherwise  dishonors  or
rejects any Conversion  Notice  delivered in accordance with this Section 3.2 or
(ii) any third  party who is not and has never been an  Affiliate  of the Holder
commences any lawsuit or legal proceeding or otherwise  asserts any claim before
any court or public or governmental  authority  which seeks to challenge,  deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares,  then the Holder shall have
the right, by written notice to the Company,  to require the Company to promptly
redeem this  Debenture  for cash at one hundred  and  twenty-five  (125%) of the
Principal Amount thereof,  together with all accrued and unpaid interest thereon
to the date of redemption.  Under any of the  circumstances set forth above, the
Company  shall be  responsible  for the payment of all costs and expenses of the
Holder,  including  reasonable legal fees and expenses,  as and when incurred in
defending  itself in any such  action  or  pursuing  its  rights  hereunder  (in
addition to any other rights of the Holder).

         (c) The Holder shall be entitled to exercise its  conversion  privilege
notwithstanding  the  commencement of any case under the Bankruptcy Code. In the
event the Company is a debtor  under the  Bankruptcy  Code,  the Company  hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C.  ss. 362 in respect of the  Holder's  conversion  privilege.  The Company
hereby waives to the fullest  extent  permitted any rights to relief it may have
under 11 U.S.C.  ss. 362 in respect of the  conversion  of this  Debenture.  The
Company agrees, without cost or expense to the Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. ss. 362.

         SECTION 3.3  Fractional  Shares.  No fractional  Common Shares or scrip
representing fractional Common Shares shall be delivered upon conversion of this
Debenture.  Instead of any  fractional  Common Shares which  otherwise  would be
delivered  upon  conversion  of this  Debenture,  the  Company  shall pay a cash
adjustment  in respect of such  fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the  Conversion  Date. No cash payment
of less than $1.00 shall be required to be given unless  specifically  requested
by the Holder.

         SECTION 3.4 Adjustments.  The Conversion Price and the number of shares
deliverable  upon  conversion of this  Debenture are subject to adjustment  from
time to time as follows:

                                       7
<PAGE>

         (i)  Reclassification,  Etc. In case the Company shall  reorganize  its
capital, reclassify its capital stock, consolidate or merge with or into another
Person  (where the Company is not the  survivor or where there is a change in or
distribution  with respect to the Common Stock of the  Company),  sell,  convey,
transfer or otherwise dispose of all or substantially  all its property,  assets
or business to another Person,  or effectuate a transaction or series of related
transactions  in which more than fifty  percent (50%) of the voting power of the
Company is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to
the terms of such Fundamental  Corporate  Change,  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 of
this  Debenture  shall have the right  thereafter,  at its sole  option,  to (x)
require  the  Company  to prepay  this  Debenture  for cash at one  hundred  and
twenty-five  percent (125%) of the Principal  Amount thereof,  together with all
accrued and unpaid interest  thereon to the date of prepayment,  (y) receive 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  as is
receivable upon or as a result of such Fundamental  Corporate Change by a holder
of the number of shares of Common Stock into which such the outstanding  portion
of  this  Debenture  may  be  converted  at  the  Conversion   Price  applicable
immediately  prior to such  Fundamental  Corporate  Change  or (z)  require  the
Company, or such successor, resulting or purchasing corporation, as the case may
be, to, without benefit of any additional  consideration  therefor,  execute and
deliver to the Holder a debenture with substantial identical rights, privileges,
powers, restrictions and other terms as this Debenture in an amount equal to the
amount  outstanding  under this Debenture  immediately prior to such Fundamental
Corporate  Change.  For  purposes  hereof,  "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  prepayment  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 shall similarly apply to successive  Fundamental  Corporate
Changes.

         SECTION 3.5 Certain Conversion Limits.

         Notwithstanding  anything herein to the contrary,  if and to the extent
that, on any date, the holding by the Holder of this  Debenture  would result in
the  Holder's  being deemed the  beneficial  owner of more than 4.9% of the then
Outstanding  shares of Common  Stock,  then the Holder shall not have the right,
and the Company  shall not have the  obligation,  to convert any portion of this
Debenture as shall cause such Holder to be deemed the  beneficial  owner of more
than  4.9% of the then  Outstanding  shares  of  Common  Stock.  If any court of
competent   jurisdiction  shall  determine  that  the  foregoing  limitation  is
ineffective to prevent a Holder from being deemed the  beneficial  owner of more
than 4.9% of the then Outstanding shares of Common Stock, then the Company shall
prepay such  portion of this  Debenture  as shall cause such Holder to be deemed
the beneficial owner of more than 4.9% of the then Outstanding  shares of Common
Stock. Upon such determination by a court of competent jurisdiction,  the Holder
shall have no interest in or rights under such portion of the Debenture. Any and
all interest paid on or prior to the date of such determination  shall be deemed
interest paid on the  remaining  portion of this  Debenture  held by the Holder.
Such  prepayment  shall be for cash at a  prepayment  price of one  hundred  and
twenty-five  percent (125%) of the Principal  Amount thereof,  together with all
accrued and unpaid interest thereon to the date of prepayment.

                                       8
<PAGE>

         SECTION  3.6  Surrender  of  Debentures.  Upon any  redemption  of this
Debenture  pursuant to Sections  3.2, 3.5 or 6.2, or upon  maturity  pursuant to
Section  2.4, the Holder  shall  either  deliver  this  Debenture by hand to the
Company at its principal  executive offices or surrender the same to the Company
at such  address by  nationally  recognized  overnight  courier.  Payment of the
redemption  price or the amount due on maturity  specified in Section 2.4, shall
be made by the  Company to the Holder  against  receipt  of this  Debenture  (as
provided in this Section 3.5) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify by written notice to the Company. If
payment of such redemption  price is not made in full by the redemption date, or
the amount due on maturity is not paid in full by the Maturity  Date, the Holder
shall again have the right to convert  this  Debenture  as provided in Article 3
hereof or to declare an Event of Default.

                                   ARTICLE 4

                        STATUS; RESTRICTIONS ON TRANSFER

         SECTION 4.1 Status of Debenture.  This  Debenture  constitutes a legal,
valid and binding obligation of the Company,  enforceable in accordance with its
terms  subject,  as to  enforceability,  to general  principles of equity and to
principles of bankruptcy,  insolvency,  reorganization and other similar laws of
general  applicability  relating to or affecting  creditors' rights and remedies
generally.

         SECTION 4.2  Restrictions on Transfer.  This Debenture,  and any Common
Shares  deliverable upon the conversion  hereof,  have not been registered under
the  Securities  Act. The Holder by accepting  this  Debenture  agrees that this
Debenture  and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) the  Company  has  received  the opinion of counsel for the Holder
that this  Debenture or such shares may be sold  pursuant to an  exemption  from
registration under the Securities Act or (ii) a registration  statement relating
to this  Debenture  or such shares has been filed by the  Company  and  declared
effective by the SEC.

         Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend  as  follows  unless  and  until  such  securities  have been sold
pursuant to an effective registration statement under the Securities Act:

                  "The securities  represented by this certificate have not been
                  registered  under the  Securities Act of 1933, as amended (the
                  "Securities Act"). The securities may not be offered for sale,
                  sold  or  otherwise  transferred  except  (i)  pursuant  to an
                  effective  registration  statement under the Securities Act or
                  (ii)  pursuant to an  exemption  from  registration  under the
                  Securities  Act  in  respect  of  which  the  issuer  of  this
                  certificate has received an opinion of counsel satisfactory to
                  the issuer of this  certificate to such effect.  Copies of the
                  agreement  covering  both the purchase of the  securities  and
                  restrictions  on their  transfer may be obtained at no cost by
                  written   request  made  by  the  holder  of  record  of  this
                  certificate to the Secretary of the issuer of this certificate
                  at the  principal  executive  offices  of the  issuer  of this
                  certificate."

                                       9

<PAGE>

                                    ARTICLE 5

                                    COVENANTS

         SECTION 5.1 Conversion. The Company shall cause the transfer agent, not
later than three (3) Business Days after the  Company's  receipt of a Conversion
Notice,  to issue and deliver to the Holder the requisite shares of Common Stock
Issued  at  Conversion.  Such  delivery  shall be by  electronic  transfer  if a
Registration  Statement covering the Common Stock has been declared effective by
the SEC.

         SECTION  5.2 Notice of Default.  If any one or more events  occur which
constitute or which,  with notice,  lapse of time, or both,  would constitute an
Event of  Default,  the  Company  shall  forthwith  give  notice to the  Holder,
specifying the nature and status of the Event of Default or such other event(s),
as the case may be.

         SECTION 5.3 Payment of Obligations.  So long as this Debenture shall be
outstanding,  the Company shall pay, extend, or discharge at or before maturity,
all its respective  material  obligations and  liabilities,  including,  without
limitation,  tax  liabilities,  except  where the same may be  contested in good
faith by appropriate proceedings.

         SECTION 5.4 Compliance  with Laws. So long as this  Debenture  shall be
outstanding,  the Company  shall comply with all  applicable  laws,  ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance  which would not have a material  adverse  effect on the business,
properties,   prospects,  condition  (financial  or  otherwise)  or  results  of
operations of the Company and the Subsidiaries.

         SECTION 5.5 Inspection of Property,  Books and Records. So long as this
Debenture  shall be  outstanding,  the Company shall keep proper books of record
and  account  in which  full,  true  and  correct  entries  shall be made of all
material  dealings and  transactions  in relation to its business and activities
and shall permit  representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records,  not reasonably deemed  confidential by
the Company,  and to discuss its respective affairs,  finances and accounts with
its  respective  officers  and  independent  public  accountants,  all  at  such
reasonable times and as often as may reasonably be desired.

                                   ARTICLE 6

                                    REMEDIES

         SECTION 6.1 Events of Default.  "EVENT OF DEFAULT" wherever used herein
means any one of the following events:

         (i) the  Company  shall  default  in the  payment  of  principal  of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest  payment  default,  such default shall continue for five
(5) Business Days after the date such  interest  payment was due, or the Company
shall  fail to  perform  or  observe  in any other  covenant,  agreement,  term,
provision,  undertaking  or  commitment  under this  Debenture,  the  Conversion
Warrants  (as defined in the  Securities  Purchase  Agreement),  the  Securities
Purchase  Agreement or the Registration  Rights Agreement and such default shall
continue  for a period  of ten (10)  Business  Days  after the  delivery  to the
Company  of  written  notice  that  the  Company  is  in  default  hereunder  or
thereunder;

                                       10
<PAGE>

         (ii)  any of the  representations  or  warranties  made by the  Company
herein, in the Securities Purchase Agreement,  the Registration Rights Agreement
or in any  certificate  or financial or other written  statements  heretofore or
hereafter  furnished  by or on  behalf of the  Company  in  connection  with the
execution and delivery of this Debenture,  the Warrants, the Securities Purchase
Agreement or the Registration Rights Agreement shall be false or misleading in a
material respect on the Closing Date;

         (iii)  under the laws of any  jurisdiction  not  otherwise  covered  by
clauses (iv) and (v) below,  the Company (A) becomes  insolvent or generally not
able to pay its debts as they become due, (B) admits in writing its inability to
pay its  debts  generally  or makes a  general  assignment  for the  benefit  of
creditors,  (C) institutes or has instituted  against it any proceeding  seeking
(x) to  adjudicate  it a bankrupt or  insolvent,  (y)  liquidation,  winding-up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors  including  any plan of  compromise  or  arrangement  or other
corporate proceeding involving or affecting its creditors or (z) the entry of an
order for relief or the  appointment  of a  receiver,  trustee or other  similar
person for it or for any substantial  part of its properties and assets,  and in
the  case of any  such  official  proceeding  instituted  against  it  (but  not
instituted by it), either the proceeding  remains  undismissed or unstayed for a
period  of sixty  (60)  calendar  days,  or any of the  actions  sought  in such
proceeding  (including  the  entry  of an order  for  relief  against  it or the
appointment of a receiver,  trustee,  custodian or other similar official for it
or for any  substantial  part of its  properties and assets) occurs or (D) takes
any corporate action to authorize any of the above actions;

         (iv) the entry of a decree or order by a court having  jurisdiction  in
the  premises  adjudging  the Company a bankrupt or  insolvent,  or approving as
properly filed a petition  seeking  reorganization,  arrangement,  adjustment or
composition  of or in respect of the Company  under the  Bankruptcy  Code or any
other  applicable  Federal or state law, or  appointing a receiver,  liquidator,
assignee,  trustee or sequestrator (or other similar official) of the Company or
of  any  substantial  part  of its  property,  or  ordering  the  winding-up  or
liquidation  of its  affairs,  and any such  decree  or order  continues  and is
unstayed and in effect for a period of sixty (60) calendar days;

         (v) the  institution  by the Company of proceedings to be adjudicated a
bankrupt or insolvent,  or the consent by it to the institution of bankruptcy or
insolvency  proceedings  against it, or the filing by it of a petition or answer
or consent  seeking  reorganization  or relief under the Bankruptcy  Code or any
other applicable federal or state law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee, trustee
or sequestrator (or other similar official) of the Company or of any substantial
part of its property,  or the making by it of an  assignment  for the benefit of
creditors,  or the  admission by it in writing of its inability to pay its debts
generally as and when they become due, or the taking of corporate  action by the
Company in furtherance of any such action;

                                       11
<PAGE>

         (vi) a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent  jurisdiction  against the
Company and remains  undischarged  for a period (during which execution shall be
effectively  stayed) of thirty (30) days,  provided that the aggregate amount of
all such  judgments  at any time  outstanding  (to the  extent not paid or to be
paid, as evidenced by a written communication to that effect from the applicable
insurer, by insurance) exceeds One Hundred Thousand Dollars ($100,000);

         (vii) it becomes unlawful for the Company to perform or comply with its
obligations  under  this  Debenture,  the  Conversion  Warrant,  the  Securities
Purchase Agreement or the Registration Rights Agreement in any respect;

         (viii) the Common  Shares shall be delisted  from the NASDAQ OTCBB (the
"TRADING  MARKET"  or, to the extent the  Company  becomes  eligible to list its
Common Stock on any other national security  exchange or quotation system,  upon
official  notice of listing on any such exchange or system,  as the case may be,
it shall be the  "TRADING  MARKET")  or  suspended  from  trading on the Trading
Market, and shall not be reinstated,  relisted or such suspension lifted, as the
case may be, within five (5) days or;

         (ix) the Company shall default  (giving effect to any applicable  grace
period)  in the  payment of  principal  or  interest  as and when the same shall
become  due  and  payable,  under  any  indebtedness,  individually  or  in  the
aggregate, of more than One Hundred Thousand Dollars ($100,000);

         SECTION 6.2 Acceleration of Maturity;  Rescission and Annulment.  If an
Event of  Default  occurs  and is  continuing,  then and in every  such case the
Holder  may,  by a notice in writing to the  Company,  rescind  any  outstanding
Conversion  Notice and declare that all amounts  owing or otherwise  outstanding
under  this  Debenture  are  immediately  due and  payable  and  upon  any  such
declaration this Debenture shall become immediately due and payable in cash at a
price of one hundred and  twenty-five  percent  (125%) of the  Principal  Amount
thereof,  together with all accrued and unpaid  interest  thereon to the date of
payment;  provided,  however,  in the case of any Event of Default  described in
clauses  (iii),  (iv),  (v) or (vii) of Section 6.1,  such amount  automatically
shall become  immediately due and payable without the necessity of any notice or
declaration as aforesaid.

         SECTION 6.3 Late Payment Penalty. If any portion of the principal of or
interest on this Debenture  shall not be paid within ten (10) days of when it is
due, the Company shall pay a late payment  penalty equal to five percent (5%) of
the payment due.

         SECTION 6.4 Maximum Interest Rate.  Notwithstanding  anything herein to
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance  with any  applicable  law (the "MAXIMUM
RATE"),  the rate of interest  applicable to this Debenture  shall be limited to
the Maximum Rate. To the greatest  extent  permitted  under  applicable law, the
Company  hereby waives and agrees not to allege or claim that any  provisions of
this Note could give rise to or result in any actual or  potential  violation of
any applicable usury laws.

                                       12
<PAGE>

         SECTION  6.5  Remedies  Not  Waived.  No course of dealing  between the
Company and the Holder or any delay in  exercising  any rights  hereunder  shall
operate as a waiver by the Holder.

                                   ARTICLE 7

                                  MISCELLANEOUS

         SECTION 7.1 Notice of Certain Events.  In the case of the occurrence of
any event described in Section 3.4 of this Debenture, the Company shall cause to
be mailed to the Holder of this  Debenture  at its last address as it appears in
the  Company's  security  registry,  at  least  twenty  (20)  days  prior to the
applicable  record,  effective or expiration date hereinafter  specified (or, if
such twenty (20) days' notice is not  possible,  at the earliest  possible  date
prior to any such  record,  effective or  expiration  date),  a notice  thereof,
including, if applicable, a statement of (y) the date on which a record is to be
taken for the purpose of such  dividend,  distribution,  issuance or granting of
rights,  options or warrants,  or if a record is not to be taken, the date as of
which the holders of record of Common  Stock to be  entitled  to such  dividend,
distribution,  issuance  or granting  of rights,  options or warrants  are to be
determined  or (z)  the  date on  which  such  reclassification,  consolidation,
merger,  sale, transfer,  dissolution,  liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Common Stock will be entitled to exchange their shares for  securities,  cash
or other property deliverable upon such reclassification, consolidation, merger,
sale transfer, dissolution, liquidation or winding-up.

         SECTION 7.2 Register.  The Company shall keep at its principal office a
register  in which  the  Company  shall  provide  for the  registration  of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
4 hereof, the Company shall register such transfer on the Debenture register.

         SECTION 7.3 Withholding.  To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing  authority in the United States  having  jurisdiction
over the Company from any payments made pursuant to this Debenture.

         SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided
herein,  any notice or other  communication  or delivery  required or  permitted
hereunder  shall be in writing  and shall be  delivered  personally,  or sent by
telecopier machine or by a nationally  recognized overnight courier service, and
shall be deemed given when so delivered personally,  or by telecopier machine or
overnight courier service as follows:

         (1)      if to the Company, to:

                  Integrated Performance Systems Inc.
                  17300 North Dallas Parkway, Suite 2040
                  Dallas, Texas 75248
                  Telephone:       972-381-1212
                  Facsimile:       972-381-1211

                                       13
<PAGE>

         (2)      if to the Holder, to:

                  La Jolla Cove Investors, Inc.
                  7817 Herschel Avenue, Suite 200
                  La Jolla, California 92037
                  Telephone:       858-551-8789
                  Facsimile:       858-551-0987

Each of the Holder or the  Company  may change the  foregoing  address by notice
given pursuant to this Section 7.4.

         SECTION 7.5 Attorneys' Fees. Should any party hereto employ an attorney
for the purpose of enforcing or construing this Debenture, or any judgment based
on this Debenture,  in any legal proceeding  whatsoever,  including  insolvency,
bankruptcy, arbitration,  declaratory relief or other litigation, the prevailing
party  shall be  entitled  to receive  from the other  party or parties  thereto
reimbursement  for all  reasonable  attorneys'  fees and all  reasonable  costs,
including  but not limited to service of process,  filing fees,  court and court
reporter costs,  investigative  costs,  expert witness fees, and the cost of any
bonds,  whether taxable or not, and that such reimbursement shall be included in
any judgment or final order issued in that  proceeding.  The "prevailing  party"
means  the  party  determined  by the  court  to  most  nearly  prevail  and not
necessarily the one in whose favor a judgment is rendered.

         SECTION 7.6  Governing  Law. This  Debenture  shall be governed by, and
construed  in  accordance  with,  the laws of the State of  California  (without
giving effect to conflicts of laws principles). With respect to any suit, action
or proceedings  relating to this Debenture,  the Company  irrevocably submits to
the exclusive  jurisdiction of the courts of the State of California  sitting in
San Diego and the United States  District Court located in the City of San Diego
and hereby waives,  to the fullest extent permitted by applicable law, any claim
that any such suit,  action or  proceeding  has been brought in an  inconvenient
forum. Subject to applicable law, the Company agrees that final judgment against
it in any  legal  action  or  proceeding  arising  out of or  relating  to  this
Debenture  shall be  conclusive  and may be enforced  in any other  jurisdiction
within or outside the United States by suit on the judgment, a certified copy of
which  judgment  shall be  conclusive  evidence  thereof  and the  amount of its
indebtedness, or by such other means provided by law.

         SECTION 7.7 Waiver of Jury Trial.  To the fullest  extent  permitted by
law, each of the parties hereto hereby knowingly,  voluntarily and intentionally
waives  its  respective  rights to a jury  trial of any claim or cause of action
based  upon or  arising  out of this  Debenture  or any  other  document  or any
dealings between them relating to the subject matter of this Debenture and other
documents.  Each party hereto (i)  certifies  that  neither of their  respective
representatives,  agents or attorneys has  represented,  expressly or otherwise,
that such  party  would not,  in the event of  litigation,  seek to enforce  the
foregoing  waivers and (ii)  acknowledges that it has been induced to enter into
this  Debenture by, among other things,  the mutual  waivers and  certifications
herein.

         SECTION 7.8 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.

                                       14
<PAGE>

         SECTION 7.9 Payment Dates.  Whenever any payment hereunder shall be due
on a day other  than a  Business  Day,  such  payment  shall be made on the next
succeeding Business Day.

         SECTION 7.10 Binding  Effect.  Each Holder by accepting  this Debenture
agrees  to be  bound  by and  comply  with  the  terms  and  provisions  of this
Debenture.

         SECTION  7.11 No  Stockholder  Rights.  Except  as  otherwise  provided
herein,  this  Debenture  shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive  dividends and other  distributions,  or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent  converted into shares of Common Stock in accordance  with the
terms hereof.

         SECTION 7.12 Facsimile  Execution.  Facsimile execution shall be deemed
originals.

         IN WITNESS WHEREOF,  the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.

                                    Integrated Performance Systems Inc.

                                    By:
                                        ----------------------------------------

                                    Title:
                                          --------------------------------------

<PAGE>

                                    EXHIBIT A

                           DEBENTURE CONVERSION NOTICE

TO:      Integrated Performance Systems Inc.

         The  undersigned  owner of this 8 %  Convertible  Debenture due October
___, 2005 (the "DEBENTURE")  issued by Integrated  Performance Systems Inc. (the
"COMPANY")  hereby  irrevocably  exercises  its  option to  convert  $__________
Principal Amount of the Debenture into shares of Common Stock in accordance with
the terms of the  Debenture.  The  undersigned  hereby  instructs the Company to
convert the portion of the Debenture specified above into shares of Common Stock
Issued at  Conversion  in  accordance  with the  provisions  of Article 3 of the
Debenture.  The  undersigned  directs  that the  Common  Stock and  certificates
therefor  deliverable upon conversion,  the Debenture  reissued in the Principal
Amount not being  surrendered  for  conversion  hereby,  [the check or shares of
Common Stock in payment of the accrued and unpaid  interest  thereon to the date
of this Notice,] together with any check in payment for fractional Common Stock,
be  registered  in the name of  and/or  delivered  to the  undersigned  unless a
different  name has been indicated  below.  All  capitalized  terms used and not
defined herein have the respective  meanings  assigned to them in the Debenture.
The conversion pursuant hereto shall be deemed to have been effected at the date
and time specified  below,  and at such time the rights of the  undersigned as a
Holder of the Principal  Amount of the Debenture set forth above shall cease and
the  Person  or  Persons  in whose  name or names  the  Common  Stock  Issued at
Conversion  shall be  registered  shall be deemed to have  become  the holder or
holders of record of the Common  Shares  represented  thereby and all voting and
other rights  associated  with the  beneficial  ownership of such Common  Shares
shall at such time vest with such Person or Persons.

Date and time:  __________________

------------------------------

By: ___________________________

Title: _________________________

Fill in for registration of Debenture:  Please print name and address (including
ZIP code number):

                                      A-1

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