Document:

Execution Copy

THIS OFFER AND SALE OF THE SECURITIES  OFFERED  HEREBY HAVE NOT BEEN  REGISTERED
UNDER  THE  SECURITIES  ACT OF 1933,  AS  AMENDED  (THE  "SECURITIES  ACT"),  OR
QUALIFIED  UNDER ANY STATE OR  NON-U.S.  SECURITIES  LAWS.  THE WARRANT IS BEING
OFFERED  AND  SOLD IN  RELIANCE  ON THE  EXEMPTIONS  AFFORDED  BY  REGULATION  D
PROMULGATED  UNDER THE  SECURITIES  ACT. THE WARRANT MAY NOT BE  TRANSFERRED  OR
RESOLD  WITHOUT  REGISTRATION  AND  QUALIFICATION  UNDER THE  SECURITIES ACT AND
APPLICABLE  STATE  AND  NON-U.S.  SECURITIES  LAWS,  UNLESS  AN  EXEMPTION  FROM
REGISTRATION  AND  QUALIFICATION  UNDER THE SECURITIES ACT AND SUCH LAWS IS THEN
AVAILABLE.

THIS  WARRANT  AGREEMENT  HAS NOT BEEN FILED WITH OR REVIEWED OR APPROVED BY THE
SECURITIES  AND EXCHANGE  COMMISSION  OR BY THE ATTORNEY  GENERAL OR  SECURITIES
AGENCY OF ANY STATE OR NON-U.S.  JURISDICTION.  NONE OF THE FOREGOING HAS PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE WARRANT.  ANY REPRESENTATION
TO THE CONTRARY IS ILLEGAL.

                                WARRANT AGREEMENT

                                     between

                         L-3 COMMUNICATIONS CORPORATION,

                                 as the Investor

                                       and

                       INNOVATIVE MICRO TECHNOLOGY, INC.,

                                 as the Company

                           Dated as of August 1, 2002

<PAGE>
     WARRANT  AGREEMENT  dated as of August 1, 2002 (the  "Warrant  Agreement"),
between L-3 Communications Corporation, a Delaware corporation (the "Investor"),
and Innovative Micro Technology, Inc., a Delaware corporation (the "Company").

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

     WHEREAS,  the Company  and the  Investor  are  parties to a Stock  Purchase
Agreement dated as of August 1, 2002 (as modified and supplemented and in effect
from time to time, the "Purchase  Agreement") that provides for the issuance and
sale by the Company to the  Investor at the  Closing  (as defined  therein),  of
935,000 shares of the Company's  common stock,  par value $0.0001 per share (the
"Common Stock"); and

     WHEREAS,  it is a condition to the obligations of the Investor  pursuant to
the Purchase  Agreement  that the parties  execute and deliver  this  Agreement,
providing  for the  issuance  and  delivery to the  Investor of warrants for the
purchase of (i) a warrant for the purchase of up to 167,000 additional shares of
Common Stock at $5.35 per share,  for a period of 18 months from the date hereof
(the  "18-Month  Warrant")  and (ii) a warrant for the purchase of up to 700,000
additional  shares of Common  Stock at $7.29  per  share,  for a period of three
years from the date hereof (the "Three-Year Warrant" and,  collectively with the
18-Month Warrant and warrants issued in substitution or on subdivision of either
of them, the "Warrants").

     NOW,  THEREFORE,  in  consideration  of the mutual  covenants,  agreements,
representations   and  warranties  made  herein  and  other  good  and  valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties hereto agree as follows:

                                   Article I
                                   DEFINITIONS

     Section 1.1 Definitions. The terms defined in this Agreement, whenever used
in herein,  shall have the respective  meanings indicated below for all purposes
of this Agreement.  Capitalized terms used in this Agreement without  definition
shall have the respective meanings given to them in the Purchase Agreement.

                                   Article II
                              GRANT OF THE WARRANTS

     Section 2.1 Grant of Warrants.  The Company  hereby  grants to the Investor
(i) the 18-Month Warrant,  providing for the purchase of up to 167,000 shares of
Common  Stock at $5.35 per share at any time  prior to  February  1, 2004  third
anniversary of the date of this Warrant  Agreement,  representing on the date of
this Agreement  approximately 2.28 percent of the outstanding Common Stock after
exercise  of the Warrant  and  issuance  of the Common  Stock as provided in the
Purchase Agreement, and assuming issuance of all shares of Common Stock pursuant
to  any  options,  warrants,  convertible  securities,  subscription  rights  or
otherwise which are in existence or outstanding as of the date of this Agreement
plus shares of Common  Stock  issuable  upon the  issuance  and  exercise of all
unissued  stock options  available  for grant under the  Company's  Stock Option
Plan,  but not the exercise of the Three-Year  Warrant;  and (ii) the Three-Year

<PAGE>
Warrant,  providing for the purchase of up to 700,000  shares of Common Stock at
$7.29 per share at any time  prior to  August 1, 2005 (the  "Expiration  Date"),
representing  on the date of this  Agreement  approximately  7.87 percent of the
outstanding  Common  Stock after  exercise  of the  Warrant and  issuance of the
Common Stock as provided in the Purchase Agreement, and assuming issuance of all
shares  of  Common  Stock  pursuant  to  any  options,   warrants,   convertible
securities,   subscription  rights  or  otherwise  which  are  in  existence  or
outstanding  as of the  date of this  Agreement  plus  shares  of  Common  Stock
issuable upon the issuance and exercise of all unissued stock options  available
for grant under the  Company's  Stock Option  Plan,  but not the exercise of the
18-Month  Warrant.  The shares of Common Stock  deliverable to the Investor upon
exercise of the Warrants are sometimes  collectively referred to as the "Warrant
Shares".  The  last  day for  exercise  of each of the  respective  warrants  is
referred to herin as the "Expiration Date."

     Section 2.2 Forms of Warrant.  The Warrants  will be in the form of Annex A
and Annex B to this  Agreement.  On the date hereof the Company shall deliver to
the Investor a single certificate  representing each of the Warrants  registered
in the name of the  Investor,  except  that,  if the  Investor  shall notify the
Company  in  writing  at any  time  following  such  issuance  that  it  desires
certificates  representing  the Warrant in other  denominations or registered in
the name or names of any nominee or nominees  for its  benefit,  then subject to
Section  2.3  certificates  representing  the  Warrant  shall be  issued  to the
Investor in the  denominations  and registered in the name or names specified in
such notice.

     Section 2.3 Securities Act Compliance.  The Investor  understands  that the
Company  has not  registered  the  Warrants  or the  Warrant  Shares  under  the
Securities Act and the Investor agrees that neither the Warrants nor the Warrant
Shares shall be sold, transferred or offered for sale without registration under
the Securities Act or the availability of an exemption therefrom.

     Section 2.4 Investor  Representations  and Warranties.  The Investor hereby
represents and warrants to the Company that:

     Purchase  Entirely  for Own  Account.  The  Warrants  and the Common  Stock
issuable  upon  exercise  thereof  (collectively,  the  "Securities")  are being
acquired  for  investment  for the  Investor's  own  account not as a nominee or
agent,  and not with a view to the resale or  distribution  of any part thereof,
and  that the  Investor  has no  present  intention  of  selling,  granting  any
participation in, or otherwise distributing same.

     (a) Disclosure of  Information.  The Investor  believes it has received all
the information it considers  necessary or appropriate  for deciding  whether to
purchase the  Securities.  The Investor  further  represents  that it has had an
opportunity to ask questions and receive answers from the Company  regarding the
terms  and  conditions  of the  offering  of the  Securities  and the  business,
properties, prospects and financial condition of the Company.

     (b)  Investment  Experience.  The Investor is an investor in  securities of
companies in the development  stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits  and  risks  of the  investment  in the  Securities.  The  Investor  also

                                       2
<PAGE>
represents  it  has  not  been  organized  for  the  purpose  of  acquiring  the
Securities.  Such Investor  acknowledges  that any  investment in the Securities
involves  a high  degree  of  risk,  and  represents  that it is  able,  without
materially  impairing its financial  condition,  to hold the  Securities  for an
indefinite period of time and to suffer a complete loss of its investment.

     (c) Accredited  Investor.  The Investor is an "accredited  investor" within
the meaning of Rule 501 of Regulation D under the  Securities  Act, as presently
in effect;  the Investor is a corporation not formed for the specific purpose of
acquiring the Securities, with total assets in excess of $5,000,000.

     (d) Restricted Securities.  The Investor understands that the Securities it
is purchasing are  characterized  as "restricted  securities"  under the federal
securities  laws  inasmuch  as they are being  acquired  from the  Company  in a
transaction  not  involving  a public  offering  and that  under  such  laws and
applicable  regulations such securities may be resold without registration under
the Act only in certain limited circumstances.  In this connection, the Investor
represents  that it is familiar  with SEC Rule 144, as presently in effect,  and
understands the resale limitations  imposed thereby and by the Act. THE INVESTOR
UNDERSTANDS  AND  ACKNOWLEDGES  HEREIN  THAT  AN  INVESTMENT  IN  THE  COMPANY'S
SECURITIES  INVOLVES  AN  EXTREMELY  HIGH  DEGREE  OF RISK AND MAY  RESULT  IN A
COMPLETE LOSS OF ITS INVESTMENT.  The Investor  understands  that the Securities
have not been and will not be registered  under the  Securities Act and have not
been and will not be  registered  or  qualified  in any state in which  they are
offered,  and thus the Investor will not be able to resell or otherwise transfer
the  Securities  unless  they are  registered  under the Act and  registered  or
qualified  under  applicable  state  securities  laws, or an exemption from such
registration or qualification  is available.  The Investor has no immediate need
for liquidity in connection  with this  investment and does not anticipate  that
the Investor will be required to the Securities in the foreseeable future.

     (e) Further  limitations  on  Disposition.  Without in any way limiting the
representations  set forth above,  the Investor  further  agrees not to make any
disposition  of all or any  portion  of the  Securities  unless  and  until  the
transferee  has agreed in writing  for the benefit of the Company to be bound by
this Section 2.4.

     (f) Legends.  The Securities  shall bear legends  substantially as shown in
the Form of Warrant attached hereto.

     (g) No Reliance on Others. The Investor acknowledges that it is not relying
upon any person,  firm or  corporation,  other than the Company and its officers
and directors, in making its investment or decision to invest in the Company.

                                  Article III
                                  MISCELLANEOUS

     Section 3.1 Severability. If any provision of this Agreement, including any
phrase, sentence,  clause, Section or subsection is inoperative or unenforceable
for any reason,  such  circumstances  shall not have the effect of rendering the

                                       3
<PAGE>
provision  in  question  inoperative  or  unenforceable  in any  other  case  or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.

     Section 3.2 Notices. All notices, requests, demands,  approvals,  consents,
waivers and other  communications  required or  permitted to be given under this
Agreement  (each,  a "Notice")  shall be in writing  and shall be (a)  delivered
personally,  (b)  mailed  by  first-class  or  certified  mail,  return  receipt
requested,  postage prepaid, (c) sent by next-day or overnight mail or delivery,
or (d) sent by facsimile  transmission,  provided that the original copy thereof
also is sent by first class or certified mail or by overnight delivery.

(a)      if to the Investor, to:

                  L-3 Communications Corporation
                  600 Third Avenue
                  New York, NY  10016
                  Facsimile:  (212) 805-5494
                  Attention:  Christopher C. Cambria, Esq.

(b)      if to the Company, to:

                  Innovative Micro Technology, Inc.
                  75 Robin Hill Road
                  Santa Barbara, CA 93117
                  Facsimile:  (805) 967-2677
                  Attention:  John Foster, President

         with a copy to (which shall not comprise Notice) to:

                  James J. Slaby, Esq.
                  Sheppard, Mullin, Richter & Hampton LLP
                  333 South Hope Street
                  Los Angeles, CA  90081
                  Facsimile:  (213) 620-1398

or, in each case,  at such other  address as may be specified in a Notice to the
other  party  hereto.  All  Notices  shall be deemed  effective  and given  upon
receipt.

     Section 3.3 Attorneys' Fees. If any party hereto initiates any legal action
arising out of or in connection with this Agreement,  the prevailing party shall
be entitled  to recover  from the other party all  reasonable  attorneys'  fees,
expert witness fees and expenses  incurred by the prevailing party in connection
therewith.

     Section 3.4 Liability for Transfer Taxes.  The Company shall be responsible
for and pay in a timely manner all sales, use, value added, documentary,  stamp,
gross receipts,  registration,  transfer, conveyance, excise, recording, license
and  other  similar  taxes and fees  ("Transfer  Taxes"),  arising  out of or in
connection with or attributable to the  transactions  effected  pursuant to this
Agreement.  Each party  hereto  shall  prepare  and timely  file all Tax Returns
required  to be  filed  in  respect  of  Transfer  Taxes  that  are the  primary

                                       4
<PAGE>
responsibility of such party under applicable law; provided,  however, that such
party's  preparation  of any such Tax  Returns  shall be  subject  to the  other
party's approval, which approval shall not be withheld or delayed unreasonably.

     Section 3.5  Headings  The headings  contained  in this  Agreement  are for
purposes of convenience only and shall not affect the meaning or  interpretation
of this Agreement.

     Section 3.6 Entire Agreement. This Agreement (including the Annexes hereto)
and the Stock Purchase Agreement constitutes the entire agreement and supersedes
all prior  agreements  and  understandings,  both written and oral,  between the
parties with respect to the subject matter hereof.

     Section 3.7  Counterparts.  This  Agreement  may be executed  (including by
facsimile   transmission)  with  counterpart   signature  pages  or  in  several
counterparts,  each of which shall be deemed an original  and all of which shall
together constitute one and the same instrument.

     Section 3.8 GOVERNING LAW, ETC.

     (a) THIS  AGREEMENT  SHALL BE GOVERNED  IN ALL  RESPECTS,  INCLUDING  AS TO
VALIDITY,  INTERPRETATION  AND EFFECT,  BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.

     (b) EACH OF THE INVESTOR AND THE COMPANY HEREBY IRREVOCABLY  SUBMITS TO THE
EXCLUSIVE  JURISDICTION  OF THE COURTS OF THE STATE OF NEW YORK AND THE  FEDERAL
COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF NEW YORK SOLELY IN
RESPECT  OF THE  INTERPRETATION  AND  ENFORCEMENT  OF  THE  PROVISIONS  OF  THIS
AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT,  AND HEREBY WAIVE,
AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION,  SUIT OR PROCEEDING FOR THE
INTERPRETATION  OR ENFORCEMENT  HEREOF OR OF ANY SUCH  DOCUMENT,  THAT IT IS NOT
SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS
NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE
OR THAT THIS AGREEMENT OR ANY OF SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SAID
COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO
SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A NEW YORK STATE
OR FEDERAL COURT.  EACH OF THE INVESTOR AND THE COMPANY  HEREBY  CONSENTS TO AND
GRANTS ANY SUCH COURT  JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE
SUBJECT  MATTER OF ANY SUCH  DISPUTE AND AGREES THAT MAILING OF PROCESS OR OTHER
PAPERS IN CONNECTION  WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER  PROVIDED
IN SECTION 3.2, OR IN SUCH OTHER  MANNER AS MAY BE  PERMITTED  BY LAW,  SHALL BE
VALID AND SUFFICIENT SERVICE THEREOF.

     (c) JURY TRIAL  WAIVER.  THE INVESTOR AND THE COMPANY EACH WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY  ACTION  OR  PROCEEDING  INSTITUTED  BY  EITHER  OF THEM
AGAINST THE OTHER THAT PERTAINS  DIRECTLY OR INDIRECTLY TO THIS  AGREEMENT,  THE
WARRANT,  ANY ALLEGED TORTIOUS CONDUCT BY THE INVESTOR OR THE COMPANY, OR IN ANY
WAY,  DIRECTLY  OR  INDIRECTLY,  ARISES OUT OF OR  RELATES  TO THE  RELATIONSHIP
BETWEEN INVESTOR AND COMPANY.

                                       5
<PAGE>

     Section 3.9 Binding Effect.  This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,  successors and
permitted assigns.

     Section  3.10  Assignment.  This  Agreement  shall  not  be  assignable  or
otherwise  transferable by any party hereto without the prior written consent of
the other parties hereto.

     Section 3.11 Amendment;  Waivers, etc. No discharge of this Agreement,  and
no waiver  hereunder,  shall be valid or binding unless set forth in writing and
duly executed by the holders of Warrants evidencing  two-thirds in number of the
total  number of Stock Units at the time  purchasable  upon the  exercise of all
then outstanding Warrants. For the purpose of determining whether the holders of
outstanding  Warrants  entitled to purchase a requisite number of Stock Units at
any time have taken any action authorized by this Warrant, any Warrants owned by
the  Company  or  any  Affiliate  of  the  Company  shall  be  deemed  not to be
outstanding. The terms and conditions at this Warrant Agreement may be waived or
discharged only in writing.  Any such waiver shall constitute a waiver only with
respect to the  specific  matter  described  in such writing and shall in no way
impair the rights of the party  granting  such waiver in any other respect or at
any other time.  Neither the waiver by any of the parties  hereto of a breach of
or a default under any of the provisions of this  Agreement,  nor the failure by
any of the parties,  on one or more occasions,  to enforce any of the provisions
of this  Agreement  or to exercise any right or  privilege  hereunder,  shall be
construed as a waiver of any other breach or default of a similar nature,  or as
a waiver of any of such provisions, rights or privileges hereunder. No amendment
or  modification  of this  Agreement  shall be  effective  unless  in a  writing
executed by the holders of two-thirds of the Warrant Shares.

     Section  3.12  Specific   Performance.   The  parties   hereto  agree  that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or  injunctions  to prevent  breaches of this  Agreement and to
enforce  specifically the terms and provisions hereof in any court of the United
States or any state  having  jurisdiction,  this being in  addition to any other
remedy to which they are entitled at law or in equity.

                            [Signature Page Follows]

                                       6
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have duly  executed  this Warrant
Agreement as of the date first above written.

                                     L-3 COMMUNICATIONS CORPORATION

                                     By:_________________________
                                         Name:
                                         Title:

                                     INNOVATIVE MICRO TECHNOLOGY, INC.

                                     By:_________________________
                                         Name:
                                         Title:

<PAGE>
                                     ANNEX A

                                 Form of Warrant

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT OF 1933 OR THE  SECURITIES  LAW OF ANY STATE AND MAY NOT BE
SOLD OR  OTHERWISE  DISPOSED  OF EXCEPT  PURSUANT TO AN  EFFECTIVE  REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE  STATE  SECURITIES LAWS OR AN OPINION OF
COUNSEL THAT  REGISTRATION IS NOT REQUIRED UNDER THE ACT OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER THE ACT OR ANY OTHER LEGAL EXEMPTION UNDER THE ACT.

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE ARE SUBJECT TO A STOCK PURCHASE
AGREEMENT  BETWEEN  INNOVATIVE  MICRO  TECHNOLOGY,  INC. (THE "COMPANY") AND L-3
COMMUNICATIONS CORPORATION, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT,  EXCHANGE,  LICENSE,  MORTGAGE,  PLEDGE,
CREATION  OF A  SECURITY  INTEREST  IN OR  LIEN  UPON,  HYPOTHECATION  OR  OTHER
VOLUNTARY OR  INVOLUNTARY  DISPOSITION  (EACH,  A "TRANSFER")  OF THE SECURITIES
REPRESENTED  BY THIS  CERTIFICATE  MAY BE MADE  EXCEPT  IN  ACCORDANCE  WITH THE
PROVISIONS OF THE STOCK PURCHASE AGREEMENT.  THE HOLDER OF THIS CERTIFICATE,  BY
ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL THE PROVISIONS OF SUCH
STOCK PURCHASE AGREEMENT.

                                     WARRANT
            to purchase Common Stock, par value $0.0001 per share, of
                        INNOVATIVE MICRO TECHNOLOGY, INC.
             Commencing August 1, 2002 and expiring February 1, 2004

     THIS IS TO  CERTIFY  THAT L-3  COMMUNICATIONS  CORPORATION,  or  registered
assigns,  is entitled to purchase  from  INNOVATIVE  MICRO  TECHNOLOGY,  INC., a
Delaware  corporation (the  "Company"),  at any time on and after August 1, 2002
but not  later  than  5:00  P.M.,  New York  Time,  on  February  1,  2004  (the
"Expiration  Date"),  167,000  Stock Units,  in whole or in part,  at a purchase
price of $5.35 per share of Common Stock (the "Exercise Price"),  or $893,450 in
the aggregate, all on the terms and conditions hereinbelow provided.
<PAGE>
                                   Article I
                               CERTAIN DEFINITIONS

     Section  1.1  Certain  Definitions.  As used in this  Warrant,  unless  the
context otherwise requires:

     "Additional  Shares of Common  Stock":  means  all  shares of Common  Stock
issued by the Company after the date hereof,  other than (i) the Warrant Shares,
(ii) shares  issued upon the exercise of any  options,  warrants or other rights
presently outstanding to subscribe for or purchase any shares of Common Stock or
Convertible securities,  or (iii) shares which may be granted or issued upon the
exercise of any options  which may  hereafter be granted or exercised  under the
Company's 2001 Stock Incentive Plan or under any other employee  benefit plan of
the Company approved by the Company's Board of Directors;  or (iv) any shares of
Common Stock sold to the public or the underwriter in a public offering, or upon
exercise of warrants  comprising or  underlying  any units sold in the Company's
initial  public  offering,  including  any  shares or  warrants  underlying  the
underwriter's warrants or securities purchase option. The shares of Common Stock
and  warrants  to be issued  pursuant to the  Company's  Third  Amended  Plan or
Reorganization  Under Chapter 11 of the Bankruptcy  Code,  dated as of September
24, 2001,  and any  securities to be issued on exercise or  conversion  thereof,
regardless of the actual date of issuance, shall not be deemed Additional Shares
of Common Stock.

     "Affiliate":  of a  specified  Person  means  a  Person  that  directly  or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with,  such specified  Person or a member of such specified
Person's  immediate family.  "Control"  (including the terms "controlled by" and
"under common control with") means the  possession,  directly or indirectly,  of
the power to  direct or cause the  direction  of the  management  policies  of a
Person,  whether  through the  ownership  of voting  securities,  by contract or
credit arrangement, as trustee or executor, or otherwise.

     "Board": means the Board of Directors of the Company.

     "Business  Day":  means any day which is not a  Saturday,  Sunday or day on
which banks are authorized by law to be closed in the State of New York.

     "Common  Stock":  means the Company's  authorized  Common Stock,  par value
$0.0001  per  share,  irrespective  of  class  unless  otherwise  specified,  as
constituted on the date of original issuance of this Warrant, and any stock into
which such Common Stock may thereafter be changed,  and also shall include stock
of the Company of any other  class which is not  preferred  as to  dividends  or
assets  over any other class of stock of the Company and which is not subject to
redemption that the Company hereafter may issue.

     "Convertible Securities": means evidences of indebtedness,  shares of stock
or other  securities  which are convertible  into or exchangeable for Additional
Shares of Common Stock,  either  immediately  or upon the arrival of a specified
date or the happening of a specified event.

     "Current Market Value": is defined in Section 4.2.

                                       2
<PAGE>
     "Exercise Price": per share of Common Stock,  means, for the purpose of any
provision  of this  Warrant,  $5.35  on the  Original  Issue  Date  and,  at any
subsequent date, $5.35 per share as adjusted pursuant to Section 4.11 hereof.

     "holder":  in respect  of any  security  at any time means the Person  then
registered on the books of the Company as the owner of such security.

     "Original Issue Date": means August 1, 2002.

     "Person":  means  any  natural  person,  firm,  partnership,   association,
corporation,   company,   limited  liability  company,  trust,  business  trust,
governmental authority or other entity.

     "Securities  Act":  means the  Securities  Act of 1933, as amended,  or any
successor or similar law then in force.

     "Stock  Purchase  Agreement":  means that certain Stock Purchase  Agreement
between L-3  Communications  Corporation  and the Company  dated as of August 1,
2002, as amended or modified from time to time.

     "Stock  Unit":  means one share of Common  Stock,  as such Common Stock was
constituted on the date of original issue of this Warrant,  and thereafter shall
mean such number of shares (including any fractional shares) of Common Stock and
other  securities,  cash or other  property,  if any,  as shall  result from the
adjustments specified in Article IV hereof.

     "Subsidiaries":  means each  corporation  or other Person in which a Person
owns or  controls,  directly  or  indirectly,  capital  stock  or  other  equity
interests  representing  more than 50% of the outstanding  voting stock or other
equity interests.

     "Warrant":  means  the  Warrant  dated  as  of  the  Original  Issue  Date,
originally issued by the Company to L-3 Communications  Corporation  pursuant to
the Stock Purchase Agreement, evidencing rights to purchase Stock Units, and all
Warrants  issued upon transfer,  division or combination  of, or in substitution
therefor.  All  Warrants  shall  at all  times  be  identical  as to  terms  and
conditions  and date,  except as to the number of Stock Units for which they may
be exercised.

     "Warrant Agreement": means the Warrant Agreement dated as of August 1, 2002
between the  Company  and L-3  Communications  Corporation  for the  purchase of
Common Shares at $5.35 per share,  as such Warrant  Agreement  shall be modified
and supplemented and in effect from time to time.

     "Warrant  Shares":  means the  shares of Common  Stock  purchasable  by the
holders of the Warrant upon the exercise thereof.

                                   Article II
                               EXERCISE OF WARRANT

     Section 2.1 Procedure for  Exercise.  Subject to the  provisions of Section
2.2,  the holder of this  Warrant  may, at any time on and after August 1, 2002,

                                       3
<PAGE>
but not later than the  Expiration  Date,  exercise this Warrant in whole at any
time or in part  from  time to time for the  number of Stock  Units  which  such
holder  is then  entitled  to  purchase  hereunder.  In order to  exercise  this
Warrant, in whole or in part, the holder hereof shall deliver to the Company, at
its office  maintained for such purpose  pursuant to Section 11.1 hereof,  (a) a
written   notice  of  such  holder's   election  to  exercise  this  Warrant  (a
"Subscription Notice"),  which shall specify (i) the number of Stock Units to be
purchased  and  delivered to the holder,  provided  that such number shall be at
least  the  lesser of 1,000 or the  total  number  of Stock  Units for which the
Warrant may be exercised,  (ii) the aggregate Exercise Price therefor, (iii) the
denomination  or  denominations  of the  certificates  for Warrant  Shares to be
delivered  to the holder  and (iv) the name or names in which such  certificates
are to be issued,  (b) payment of the aggregate  Exercise  Price by certified or
official  bank check  payable to the order of the Company or by wire transfer of
immediately  available funds to the account  designated by the Company,  and (c)
this Warrant.  Such notice may be in the form of the Subscription Notice set out
at the end of this Warrant.

     Section 2.2  Fulfillment  by the Company.  Upon  receipt of a  Subscription
Notice,  payment  of the  aggregate  Exercise  Price and  receipt  of such other
information  reasonably  required  by the  Company or its  transfer  agent,  the
Company shall,  as promptly as practicable and in any event within five Business
Days  thereafter,  cause to be  executed  and  delivered  to the  holder:  (i) a
certificate or certificates  representing the aggregate number of fully paid and
nonassessable  Warrant Shares issuable upon such exercise,  free from all taxes,
liens and  charges  with  respect to the  issuance  thereof  (except  income tax
liability  of the  holder,  if  any),  (ii)  in the  case of  partial  exercise,
statement of total number of Stock Units still  eligible for exercise  under the
warrant  (i.e.,  167,000  less number  already  exercised),  and (iii) any other
documentation reasonably required by the Investor.

     Section 2.3 Names and  Denominations of Issuance.  The stock certificate or
certificates  for Warrant Shares so delivered shall be in such  denominations as
may be specified in the Subscription  Notice and shall be registered in the name
of such  holder  or such  other  name or names as  shall  be  designated  in the
Exercise Notice.  Such certificate or certificates  shall be deemed to have been
issued and such holder or any other  person so  designated  to be named  therein
shall be deemed to have become a holder of record of such  shares,  including to
the extent  permitted  by law the right to vote such  shares or to consent or to
receive  notice  as a  stockholder,  as of the time the  Subscription  Notice is
received by the Company as aforesaid.  If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of said  certificate or
certificates,  either (i) deliver to such holder a new Warrant dated the date it
is issued,  evidencing the rights of such holder to purchase the remaining Stock
Units called for by this Warrant,  which new Warrant shall in all other respects
be  identical  with  this  Warrant,  or (ii),  at the  request  of such  holder,
appropriate  notation may be made on this Warrant and the same  returned to such
holder.

     Section 2.4 No Fractional  Shares;  Current Market Value. The Company shall
not be required to issue  fractions of shares,  upon exercise of this Warrant or
otherwise,  or to distribute  certificates that evidence fractional shares. With
respect to any  fraction of a share  called for upon any  exercise  hereof,  the
Company  shall  pay to the  holder  an  amount  in cash  equal to such  fraction
multiplied by the "Current Market Value," determined as follows:

                                       4
<PAGE>

          (1) If the Common Stock is listed on a national securities exchange or
     listed for  trading on the  Nasdaq  National  Market  System  ("NMS"),  the
     Current  Market Value shall be the average of the last  reported sale price
     of the Common Stock on such  exchange on each of the last ten business days
     prior to the date of  determination,  or for any day  which no such sale is
     made or no closing sale price is quoted, the average of the closing bid and
     asked prices for such day on such exchange or system; or

          (2) If the Common Stock is not listed,  the Current Market Value shall
     be an amount  determined in such reasonable  manner as may be prescribed in
     good faith by the Board of Directors of the Company.

                                  Article III
                       TRANSFER, DIVISION AND COMBINATION

     Section 3.1 Warrant Transferrable.  Subject to Sections 5.3, 5.4 and 5.5 of
the Stock Purchase Agreement and the Securities Act restrictions  referred to in
Section  3.1 of  this  Warrant,  this  Warrant  and  all  rights  hereunder  are
transferable,  in whole or in part, on the books of the Company to be maintained
for such  purpose,  upon  surrender of this Warrant at the office of the Company
maintained  for such purpose  pursuant to Section 10.1 hereof,  together  with a
written  assignment  of this Warrant duly  executed by the holder  hereof or its
agent or attorney  and  payment of funds  sufficient  to pay any stock  transfer
taxes payable upon the making of such transfer.  Upon such surrender and payment
the Company shall,  execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denominations  specified in such instrument
of assignment, and this Warrant shall promptly be canceled.

     Section 3.2 Division and Combination. This Warrant may, subject to Sections
5.3,  5.4  and 5.5 of the  Stock  Purchase  Agreement  and  the  Securities  Act
restrictions  referred to in Section 3.1 of this Warrant, be divided or combined
with other Warrants upon  presentation  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  hereof or its agent or
attorney.  Subject to compliance with the next preceding  paragraph and with any
applicable  Securities  Act  restrictions,,  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.

                                   Article IV
                   ADJUSTMENT OF STOCK UNIT AND EXERCISE PRICE

     Section  4.1  Adjustment  Generally.  The number of shares of Common  Stock
comprising a Stock Unit and the Exercise  Price at which a share of Common Stock
may be  purchased  upon  exercise  of this  Warrant  shall  each be  subject  to
adjustment from time to time as set forth in this Article IV.

     Section 4.2 Stock Dividends,  Subdivisions and Combinations. In case at any
time or from time to time the Company  shall (a) take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend payable

                                       5
<PAGE>
in, or other distribution of, Common Stock; (b) subdivide its outstanding shares
of Common Stock into a larger number of shares of Common  Stock;  or (c) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock,  then the  number  of  shares of Common  Stock  comprising  a Stock  Unit
immediately  after the  happening  of any such event  shall be adjusted so as to
consist of the  number of shares of Common  Stock  which a record  holder of the
number of shares of Common Stock  comprising a Stock Unit  immediately  prior to
the  happening  of such event  would own or be  entitled  to  receive  after the
happening of such event.

     Section 4.3 Certain Other Dividends and Distributions.  In case at any time
or from  time to time the  Company  shall  take a record of the  holders  of its
Common Stock for the purpose of entitling  them to receive any dividend or other
distribution of

     (a) cash (other than a cash dividend or  distribution  payable out of funds
legally   available  for  the  payment  of  dividends  under  the  laws  of  the
jurisdiction of  incorporation  of the Company,  to the extent,  but only to the
extent, that the aggregate of all such dividends paid or declared after the date
hereof,  does not exceed the  consolidated  net  income of the  Company  and its
consolidated  Subsidiaries,  if  any,  earned  subsequent  to  the  date  hereof
determined in accordance with generally accepted accounting principles); or

     (b) any evidence of its indebtedness  (other than Convertible  Securities),
any shares of its stock (other than  Additional  Shares of Common  Stock) or any
other securities or property of any nature whatsoever (other than cash and other
than Convertible Securities or Additional Shares of Common Stock); or

     (c) any warrants or other rights to subscribe for or purchase any evidences
of its indebtedness (other than Convertible Securities), any shares of its stock
(other  than  Additional  Shares of Common  Stock)  or any other  securities  or
property of any nature  whatsoever  (other than cash and other than  Convertible
Securities or Additional  Shares of Common Stock),  then the number of shares of
Common Stock thereafter comprising a Stock Unit shall be adjusted to that number
determined  by  multiplying  the number of shares of Common  Stock  comprising a
Stock Unit immediately  prior to such adjustment by a fraction (i) the numerator
of which shall be the Exercise Price at the date of taking such record, and (ii)
the  denominator  of which  shall be such  Exercise  Price per  share  minus the
portion   applicable  to  one  share  of  Common  Stock  of  any  such  cash  so
distributable  and  of  the  fair  value  of  any  and  all  such  evidences  of
indebtedness,  shares of stock,  other  securities  or property,  or warrants or
other  subscription or purchase rights, so distributable.  Such fair value shall
be determined in good faith by the Board, provided that if such determination is
objected to by the  holders of  Warrants  entitled to purchase a majority of the
Stock Units  covered by all  Warrants,  such  determination  shall be made by an
independent appraiser selected by the Board and not objected to by such holders.
A reclassification of the Common Stock into shares of Common Stock and shares of
any other  class of stock shall be deemed a  distribution  by the Company to the
holders of its Common  Stock of such shares of such other class of stock  within
the meaning of this Section 4.3 and, if the  outstanding  shares of Common Stock
shall be changed into a larger or smaller  number of shares of Common Stock as a
part of such reclassification,  shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.2 hereof.

                                       6
<PAGE>
     Section 4.4 Issuance of Additional  Shares of Common Stock.  In case at any
time or from time to time the Company  shall  (except as  hereinafter  provided)
issue any Additional  Shares of Common Stock for a consideration  per share less
than the  Current  Market  Value,  then the  number of  shares  of Common  Stock
thereafter  comprising a Stock Unit shall be adjusted to that number  determined
by  multiplying  the number of shares of Common  Stock  comprising  a Stock Unit
immediately  prior to such  adjustment  by a fraction (i) the numerator of which
shall be the number of shares of Common Stock  outstanding  immediately prior to
the issuance of such  Additional  Shares of Common Stock plus the number of such
Additional  Shares of Common Stock so issued,  and (ii) the denominator of which
shall be the number of shares of Common Stock  outstanding  immediately prior to
the issuance of such Additional Shares of Common Stock plus the number of shares
of Common Stock which the aggregate  consideration  for the total number of such
Additional  Shares of Common Stock so issued would  purchase at the then current
Exercise  Price.  For  purposes of this  Section  4.4,  the date as of which the
Current  Market Value shall be computed  shall be the earlier of (1) the date on
which the Company  shall  enter into a firm  contract  for the  issuance of such
Additional  Shares of Common  Stock and (2) the date of actual  issuance of such
Additional  Shares  of Common  Stock.  This  Section  4.4 shall not apply to any
issuance  of  Additional  Shares of Common  Stock  for  which an  adjustment  is
provided  under  Section 4.2 hereof.  No  adjustment  of the number of shares of
Common  Stock  comprising a Stock Unit shall be made under this Section 4.4 upon
the issuance of any Additional  Shares of Common Stock which are issued pursuant
to the  exercise of any  warrants or other  subscription  or purchase  rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities,  if any such  adjustment  shall  previously  have been made upon the
issuance  of such  warrants  or  other  rights  or  upon  the  issuance  of such
Convertible  Securities  (or upon the  issuance of any  warrant or other  rights
therefor) pursuant to Section 4.5 hereof.

     Section 4.5  Issuance of Warrants or Other  Rights.  In case at any time or
from time to time the  Company  shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a  distribution  of, or shall
otherwise  issue,  any warrants or other rights to subscribe for or purchase any
Additional  Shares  of  Common  Stock  or any  Convertible  Securities  and  the
consideration  per share for which additional  shares of Common Stock may at any
time  thereafter  be  issuable  pursuant  to such  warrants  or other  rights or
pursuant  to the  terms of such  Convertible  Securities  shall be less than the
Current  Market  Value,  then the  number of shares of Common  Stock  thereafter
comprising  a Stock Unit shall be  adjusted as provided in Section 4.4 hereof on
the basis  that (i) the  maximum  number of  Additional  Shares of Common  Stock
issuable  pursuant to all such  warrants or other  rights or necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been  issued  as of (and,  accordingly,  the date as of which the  Exercise
Price shall be computed  shall be) the  computation  date  specified in the last
sentence of this  Section  4.5, and (ii) the  aggregate  consideration  for such
maximum  number of  Additional  Shares of Common Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the issuance of
such Additional Shares of Common Stock pursuant to such warrants or other rights
or pursuant to the terms of such  Convertible  Securities.  For purposes of this
Section 4.5, the computation  date for clause (i) above shall be the earliest of
(A) the date on which the  Company  shall  take a record of the  holders  of its
Common Stock for the purpose of entitling  them to receive any such  warrants or
other rights, (B) the date on which the Company shall enter into a firm contract

                                       7
<PAGE>
for the issuance of such  warrants or other  rights,  and (C) the date of actual
issuance of such warrants or other rights.

     Section 4.6 Issuance of Convertible Securities. In case at any time or from
time to time the Company  shall take a record of the holders of its Common Stock
for the  purpose  of  entitling  them to  receive  a  distribution  of, or shall
otherwise issue, any Convertible  Securities and the consideration per share for
which  Additional  Shares of Common Stock may at any time thereafter be issuable
pursuant  to the  terms of such  Convertible  Securities  shall be less than the
Current  Market  Value,  then the  number of shares of Common  Stock  thereafter
comprising  a Stock Unit shall be  adjusted as provided in Section 4.4 hereof on
the basis  that (i) the  maximum  number of  Additional  Shares of Common  Stock
necessary  to  effect  the  conversion  or  exchange  of  all  such  Convertible
Securities  shall be  deemed  to have been  issued  as of the  computation  date
specified  in the  penultimate  sentence  of this  Section  4.6,  and  (ii)  the
aggregate  consideration  for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such Additional  Shares of Common Stock pursuant
to the terms of such Convertible  Securities.  For purposes of this Section 4.6,
the computation  date for clause (i) above shall be the earliest of (A) the date
on which the Company  shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive any such  Convertible  Securities,  (B)
the date on which the Company  shall enter into a firm contract for the issuance
of such  Convertible  Securities,  and (C) the date of actual  issuance  of such
Convertible  Securities.  No  adjustment of the number of shares of Common Stock
comprising  a Stock Unit shall be made under this  Section 4.6 upon the issuance
of any Convertible  Securities  which are issued pursuant to the exercise of any
warrants  or  other  subscription  or  purchase  rights  therefor,  if any  such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4.5 hereof.

     Section 4.7 Superseding Adjustment of Stock Unit. If, at any time after any
adjustment of the number of shares  comprising a Stock Unit shall have been made
pursuant to Sections  4.5 or 4.6 hereof on the basis of the issuance of warrants
or other rights or the issuance of other  Convertible  Securities,  or after any
new  adjustment of the number of shares  comprising a Stock Unit shall have been
made  pursuant to this Section 4.7, (a) such  warrants or rights or the right of
conversion or exchange in such other Convertible  Securities shall expire, and a
portion of such  warrants or rights,  or the right of  conversion or exchange in
respect of a portion of such other Convertible  Securities,  as the case may be,
shall not have been  exercised and (b) the  consideration  per share,  for which
shares of Common Stock are issuable  pursuant to such  warrants or rights or the
terms of such other Convertible Securities,  shall be increased solely by virtue
of provisions  therein contained for an automatic increase in such consideration
per share upon the arrival of a specified  date or the  happening of a specified
event, such previous  adjustment in the Warrants shall be rescinded and annulled
and the Additional  Shares of Common Stock which were deemed to have been issued
by virtue of the computation made in connection with the adjustment so rescinded
and  annulled  shall no longer  be deemed to have been  issued by virtue of such
computation.  Thereupon,  a  recomputation  shall be made of the  effect of such
rights or options or other  Convertible  Securities on the basis of treating the
number of Additional Shares of Common Stock, if any, theretofore actually issued
or issuable pursuant to the previous exercise of such warrants or rights or such
right of conversion  or exchange,  as having been issued on the date or dates of
such issuance as determined for purposes of such previous adjustment and for the

                                       8
<PAGE>
consideration  actually received and receivable therefor,  and treating any such
warrants or rights or any such other  Convertible  Securities  which then remain
outstanding as having been granted or issued  immediately after the time of such
increase  of the  consideration  per share for such  shares of Common  Stock are
issuable under such warrants or rights or other Convertible Securities,  and, if
and to the extent called for by the  foregoing  provisions of this Article IV on
the basis aforesaid, a new adjustment of the number of shares comprising a Stock
Unit shall be made, which new adjustment shall supersede the previous adjustment
so rescinded and annulled.

     Section 4.8 Other Provisions  Applicable to Adjustments  Under this Article
IV. The following provisions shall be applicable to the making of adjustments of
the  number of  shares of Common  Stock  comprising  a Stock  Unit  hereinbefore
provided for in this Article IV:

     (a) Treasury Stock.  The sale or other  disposition of any issued shares of
Common Stock owned or held by or for the account of the Company  shall be deemed
an  issuance  thereof  for the  consideration  paid at the time of such  sale or
disposition.

     (b) Computation of Consideration.  To the extent that any Additional Shares
of Common Stock or any Convertible Securities or any warrants or other rights to
subscribe  for  or  purchase  any  Additional  Shares  of  Common  Stock  or any
Convertible   Securities  shall  be  issued  for  a  cash   consideration,   the
consideration  received by the Company therefor shall be deemed to be the amount
of cash  received  by the Company  therefor,  or, if such  Additional  Shares of
Common  Stock  or  Convertible   Securities  are  offered  by  the  Company  for
subscription,  the subscription  price, or, if such Additional  Shares of Common
Stock or Convertible  Securities are sold to  underwriters or dealers for public
offering without a subscription  offering, the initial public offering price, in
any such case excluding any amounts paid or receivable  for accrued  interest or
accrued  dividends  and without  deduction  of any  compensation,  discounts  or
expenses  paid or incurred by the  Company  for and in the  underwriting  of, or
otherwise  in  connection  with,  the issue  thereof.  To the  extent  that such
issuance shall be for a consideration  other than cash,  then,  except as herein
otherwise expressly  provided,  the amount of such consideration shall be deemed
to be the fair  value of such  consideration  at the  time of such  issuance  as
determined in good faith by the Board,  provided that if such  determination  is
reasonably  objected  to by the  holders  of  Warrants  entitled  to  purchase a
majority of the Stock Units covered by all Warrants, such determination shall be
made by an  independent  appraiser  selected  by the  Board  and not  reasonably
objected to by such holders.  The  consideration  for any  Additional  Shares of
Common Stock issuable  pursuant to any warrants or other rights to subscribe for
or purchase the same shall be the  consideration  received or  receivable by the
Company  for  issuing  such  warrant  or  other  rights,   plus  the  additional
consideration payable to the Company upon the exercise of such warrants or other
rights.  The  consideration  for any Additional  Shares of Common Stock issuable
pursuant to the terms of any Convertible  Securities shall be the  consideration
received or  receivable  by the Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase of
such Convertible Securities, plus the additional consideration,  if any, payable
to the Company upon the exercise of the right of  conversion or exchange in such
Convertible  Securities.  In case of the issuance at any time of any  Additional
Shares of Common Stock or Convertible  Securities in payment or  satisfaction of

                                       9
<PAGE>
any dividend upon any class of stock other than Common Stock,  the Company shall
be deemed  to have  received  for such  Additional  Shares  of  Common  Stock or
Convertible  Securities a consideration  equal to the amount of such dividend so
paid or satisfied.

     (c) When Adjustments to Be Made. The adjustments  required by the foregoing
provisions  of this  Article  IV  shall  be made  whenever  and as  often as any
specified event requiring an adjustment  shall occur,  except that no adjustment
of the  number of shares of Common  Stock  comprising  a Stock  Unit that  would
otherwise  be required  shall be made  (except in the case of a  subdivision  or
combination  of shares of Common  Stock,  as provided for in Section 4.2 hereof)
unless and until such adjustment, either by itself or with other adjustments not
previously  made,  adds or subtracts at least $0.05 to the  Exercise  Price,  as
determined  in good  faith  by the  Board,  provided  that,  in any  event  such
adjustment  shall be made if such  adjustment  either by  itself  or with  other
adjustments  not previously made adds or subtracts at least 1/20th of a share to
or from the number of shares of Common Stock comprising a Stock Unit immediately
prior to the making of such adjustment.  Any adjustment representing a change of
less than such minimum amount (except as aforesaid) shall be carried forward and
made as soon as such  adjustment,  together with other  adjustments  required by
this Article IV and not previously made,  would result in a minimum  adjustment.
For the purpose of any  adjustment,  any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.

     (d) Fractional  Interests.  In computing adjustments under this Article IV,
fractional  interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.

     Section 4.9 When  Adjustment  Not  Required.  If the  Company  shall take a
record of the holders of its Common Stock for the purpose of  entitling  them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to stockholders,  legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights,  then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment  previously made in respect thereof shall
be rescinded and annulled.

     Section 4.10 Merger,  Consolidation  or Disposition of Assets.  In case the
Company  shall merge or  consolidate  into another  corporation,  or shall sell,
transfer  or  otherwise  dispose of all or  substantially  all of its  property,
assets or  business  to another  corporation  and  pursuant to the terms of such
merger,  consolidation  or disposition of assets,  shares of common stock of the
successor or acquiring  corporation  are to be received by or distributed to the
holders of Common  Stock of the  Company,  then the holder of the Warrant  shall
have the right thereafter to receive, upon exercise of the Warrant,  Stock Units
each  comprising  the  number  of shares of  common  stock of the  successor  or
acquiring   corporation   receivable  upon  or  as  a  result  of  such  merger,
consolidation  or  disposition  of assets by a holder of the number of shares of
Common  Stock  comprising  a Stock Unit  immediately  prior to such  event.  If,
pursuant to the terms of such merger,  consolidation  or  disposition of assets,
any  cash,  shares  of stock or  other  securities  or  property  of any  nature
whatsoever  (including  without  limitation  warrants or other  subscription  or
purchase  rights) are to be received by or  distributed to the holders of Common
Stock of the Company in addition to common  stock of the  successor or acquiring
corporation,  there shall be a reduction  of the  purchase  price per Stock Unit
equal to the  amount  applicable  to the  number of shares of Common  Stock then

                                       10
<PAGE>
comprising  a Stock  Unit of any such cash and of the fair  value of any and all
such  shares of stock or of other  securities  or  property to be received by or
distributed to the holders of Common Stock of the Company. Such fair value shall
be determined in good faith by the Board, provided that if such determination is
reasonably  objected  to by the  holders  of  Warrants  entitled  to  purchase a
majority of the Stock Units covered by all Warrants, such determination shall be
made by an  independent  appraiser  selected  by such  Board and not  reasonably
objected  to by such  holders.  In case of any  such  merger,  consolidation  or
disposition  of assets,  the successor  acquiring  corporation  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 of the obligations and  liabilities  hereunder,  subject to such
modification  as shall be  necessary to provide for  adjustments  of Stock Units
which shall be as nearly  equivalent as practicable to the adjustments  provided
for in this Article IV. For the purposes of this Article IV "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 4.10 shall  similarly
apply to successive mergers, consolidations or dispositions of assets.

     Section 4.11 Adjustment of Exercise Price. Whenever the number of shares of
Common  Stock  comprising  a Stock Unit  purchasable  upon the  exercise of this
Warrant is adjusted as herein provided, the Exercise Price payable upon exercise
of this  Warrant  also shall be  adjusted by  multiplying  such  Exercise  Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of shares of Common Stock comprising a Stock Unit purchasable upon
the  exercise of this  Warrant  immediately  prior to such  adjustment,  and the
denominator of which shall be the number of shares of Common Stock  comprising a
Stock Unit so purchasable immediately thereafter.

     Section 4.12 Other Action  Affecting  Common Stock.  In case at any time or
from time to time the Company shall take any action  affecting its Common Stock,
other than an action  described  in any of the  foregoing  Sections  4.2 through
4.10,  inclusive,  then, unless in the opinion of the Board such action will not
have a materially adverse effect upon the rights of the holders of the Warrants,
the number of shares of Common Stock or other stock  comprising a Stock Unit, or
the Current Warrant Price,  shall be adjusted in such manner and at such time as
the Board may in good faith determine to be equitable in the circumstances.

                                   Article V
                            NOTICE TO WARRANT HOLDERS

     Section 5.1 Notice of Adjustment of Stock Unit or Exercise Price.  Whenever
the number of shares of Common Stock  comprising  a Stock Unit,  or the price at
which a Stock Unit may be purchased  upon exercise of their  Warrants,  shall be
adjusted  pursuant to Article IV hereof,  the Company shall  forthwith  obtain a
certificate  signed by Chief  Financial  Officer or  independent  accountants of
recognized  national standing selected by the Company and reasonably  acceptable
to the holders  entitled to purchase the majority of the Stock Units  covered by

                                       11
<PAGE>
all Warrants,  setting  forth,  in reasonable  detail,  the event  requiring the
adjustment and the method by which such  adjustment  was  calculated  (including
without  limitation a statement of the Current  Market Value when  determined by
the Board pursuant to Section 2.4(2),  of any evidences of indebtedness,  shares
of stock,  other  securities  or property or warrants or other  subscription  or
purchase  rights  referred  to in  Sections  4.3,  4.8(b)  or 4.11  hereof)  and
specifying the number of shares of Common Stock  comprising a Stock Unit and (if
such  adjustment  was made pursuant to Sections 4.10 or 4.11 hereof)  describing
the number and kind of any other shares of stock  comprising  a Stock Unit,  and
any change in the Exercise  Price,  after giving  effect to such  adjustment  or
change.  The Company  shall  promptly,  and in any case within 45 days after the
making  of such  adjustment,  cause a  signed  copy  of such  certificate  to be
delivered  to each holder of a Warrant in  accordance  with Section 10.2 hereof.
The  Company  shall  keep at its office or agency,  maintained  for the  purpose
pursuant to Section 10.1 hereof,  copies of all such  certificates and cause the
same to be available for inspection at said office during normal  business hours
by any holder of a Warrant or any prospective  purchaser of a Warrant designated
by a holder thereof.

     Section 5.2 Notice of Certain  Corporate  Action. In case the Company shall
propose (a) to pay any dividend  payable in stock of any class to the holders of
its Common Stock or to make any other  distribution to the holders of its Common
Stock,  or (b) to offer to the holders of its Common  Stock  rights to subscribe
for or to purchase any  Additional  Shares of Common Stock or shares of stock of
any  class or any other  securities,  rights or  options,  or (c) to effect  any
reclassification  of its Common Stock (other than a  reclassification  involving
only the subdivision, or combination, of outstanding shares of Common Stock), or
(d) to effect any capital  reorganization,  or (e) to effect any  consolidation,
merger or sale, transfer or other disposition of all or substantially all of its
property,  assets or business, or (f) to effect the liquidation,  dissolution or
winding up of the Company,  then,  in each such case,  the Company shall give to
each holder of a Warrant,  in accordance  with Section 10.2 hereof,  a notice of
such  proposed  action,  which shall specify the date on which a record is to be
taken for the purposes of such stock dividend,  distribution  or rights,  or the
date on which  such  reclassification,  reorganization,  consolidation,  merger,
sale, transfer, disposition,  liquidation,  dissolution or winding up is to take
place and the date of  participation  therein by the holders of Common Stock, if
any such date is to be fixed,  and shall also set forth such facts with  respect
thereto as shall be  reasonably  necessary to indicate the effect of such action
on the Common  Stock and the number and kind of any other  shares of stock which
will  comprise a Stock Unit,  and the purchase  price or prices  thereof,  after
giving  effect to any  adjustment  which  will be  required  as a result of such
action.  Such  notice  shall be so given in the case of any  action  covered  by
clause  (a) or (b)  above  at  least  20  days  prior  to the  record  date  for
determining  holders of the Common Stock for purposes of such action, and in the
case of any other such action,  at least 20 days prior to the date of the taking
of such proposed action or the date of  participation  therein by the holders of
Common Stock, whichever shall be the earlier.

     Section  5.3 Notice of  Expiration  Date.  The  Company  shall give to each
holder of a Warrant notice of the Expiration  Date.  Such notice may be given by
the  Company  not  less  than 30 days  but not  more  than 60 days  prior to the
Expiration Date.

                                       12
<PAGE>
                                   Article VI
                                CERTAIN COVENANTS

     Section 6.1 Reservation  and  Authorization  of Common Stock;  Registration
with or Approval of any Governmental Authority.

     (a) The Company  shall at all times  reserve and keep  available  for issue
upon the exercise of these  Warrants such number of its  authorized but unissued
shares of Common Stock as shall be  sufficient to permit the exercise in full of
all outstanding Warrants. The Company shall not amend its charter in any respect
relating to the Common  Stock  other than to increase or decrease  the number of
shares of authorized  capital stock  (subject to the provisions of the preceding
sentence) or to decrease the par value of any shares of Common Stock. All shares
of Common  Stock that shall be so  issuable,  when issued  upon  exercise of any
Warrant and  payment in full of the  Exercise  Price,  shall be duly and validly
issued and fully-paid and nonassessable.

     (b) Before  taking any action  which would result in an  adjustment  in the
number of shares of Common  Stock  comprising  a Stock  Unit 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.

     (c) If any shares of Common  Stock  required to be reserved  for issue upon
exercise of Warrants require registration with any governmental  authority under
any federal or state law before such shares may be so issued,  the Company shall
in good faith and as  expeditiously  as possible and at its expense  endeavor to
cause such shares to be duly registered.

                                  Article VII
               TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

     Section 7.1 Taking of Record,  etc. In the case of all  dividends  or other
distributions  by the Company to the holders of its Common Stock with respect to
which any  provision  of Article  IV hereof  refers to the taking of a record of
such  holders,  the Company shall in each such case take such a record and shall
take such  record as of the close of  business  on a Business  Day.  The Company
shall not at any time, except upon dissolution, liquidation or winding up, close
its stock transfer books or Warrant transfer books so as to result in preventing
or delaying the exercise or transfer of any Warrant.

     Section 7.2  Replacement  of  Instruments.  Upon  receipt by the Company of
evidence reasonably  satisfactory to it of the ownership of and the loss, theft,
destruction  or  mutilation of any  certificate  or  instrument  evidencing  any
Warrants,  and (a) in the  case of  loss,  theft or  destruction,  of  indemnity
reasonably satisfactory to it, or (b) in the case of mutilation,  upon surrender
or cancellation  thereof, the Company, at its expense,  shall execute,  register
and deliver,  in lieu thereof,  a new certificate or instrument for (or covering
the purchase of) an equal number of Warrants.

                                       13
<PAGE>
                                  Article VIII
                   EXPENSES, TRANSFER TAXES AND OTHER CHARGES

Section 8.1  Expenses, etc. The Company shall pay any and all expenses,
transfer taxes and other charges, including, without limitation, all costs
associated with the preparation, issue and delivery of stock or warrant
certificates, that may be incurred in respect of the issuance or delivery of
shares of Common Stock upon exercise of this Warrant pursuant to Article II
hereof, or in connection with any transfer, division or combination of Warrants
pursuant to Article III hereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
this Warrant is registered, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has established, to the satisfaction of the Company, that such
tax has been paid.

                                   Article IX
                                NO VOTING RIGHTS

     Section 9.1 No Voting  Rights.  This  Warrant  shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.

                                   Article X
                                  MISCELLANEOUS

     Section 10.1 Office of the Company.  So long as any of the Warrants remains
outstanding,  the Company  shall  maintain an office in the  continental  United
States of America where the Warrants may be presented  for  exercise,  transfer,
division or  combination  as in this Warrant  provided.  Such office shall be at
Company's  office unless and until the Company shall designate and maintain some
other  office for such  purposes  and give notice  thereof to the Holders of all
outstanding  Warrants.  The Company shall  maintain at such office books for the
registration and transfer of the Warrants.

     Section 10.2 Notices. All notices, requests, demands, approvals,  consents,
waivers and other  communications  required or  permitted to be given under this
Warrant  (each,  a  "Notice")  shall be in  writing  and shall be (a)  delivered
personally,  (b) mailed by first-class  mail or certified  mail,  return receipt
requested,  postage prepaid,  (c) sent by next-day or overnight mail or delivery
or (d) sent by facsimile transmission, provided that a confirmation statement is
retained by sender.

                           (a) if to holder, to:

                                    L-3 Communications Corporation
                                    600 Third Avenue
                                    New York, New York  10016
                                    Facsimile:  (212) 805-5494
                                    Attention:  Christopher C. Cambria, Esq.

                           (b) if to Company, to:

                                    Innovative Micro Technology, Inc.
                                    75 Robin Hill Road
                                    Santa Barbara, California  93117
                                    Facsimile:  (805) 967-2677
                                    Attention:  John Foster, President

                                       14
<PAGE>
                           with a copy, which shall not constitute notice, to:

                                    James J. Slaby, Esq.
                                    Sheppard, Mullin, Richter & Hampton LLP
                                    333 South Hope Street
                                    Los Angeles, California  90017
                                    Facsimile:  (213) 620-1398

or, in each case,  at such other  address as may be specified in a Notice to the
other party hereto from time to time. All Notices shall be deemed  effective and
given upon receipt.

     Section 10.3  Amendments.  The terms of this Warrant and all other Warrants
may be amended,  and the observance of any term therein may be waived,  but only
with the written  consent of the holders of Warrants  evidencing  two-thirds  in
number  of the  total  number of Stock  Units at the time  purchasable  upon the
exercise of all then  outstanding  Warrants.  For the  purposes  of  determining
whether the  holders of  outstanding  Warrants  entitled to purchase a requisite
number of Stock  Units at any time  have  taken any  action  authorized  by this
Warrant, any Warrants owned by the Company or any Affiliate of the Company shall
be deemed not to be outstanding.

     Section 10.4 Restrictions on Transferability.  The Warrants and the Warrant
Shares shall be transferable only upon compliance with the conditions  specified
in Sections 5.3, 5.4 and 5.5 of the Stock Purchase Agreement, Section 8.1 of the
Warrant and applicable Securities Act restrictions referred to in Section 3.1 of
this  Warrant,  which  conditions  are  intended to ensure  compliance  with the
provisions  of the  Securities  Act in respect of the transfer of any Warrant or
any  Warrant  Shares,  and any  holder  of this  Warrant  shall  be bound by the
provisions of (and entitled to the benefits of) Section 3.1 and the remainder of
this Warrant.

     Section  10.5  Governing  Law.  This  Warrant  shall be  governed  by,  and
construed in accordance with, the law of the State of New York.

     Section 10.6 JURY TRIAL  WAIVER.  THE HOLDER AND THE COMPANY EACH WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM
AGAINST THE OTHER THAT PERTAINS  DIRECTLY OR  INDIRECTLY  TO THIS  WARRANT,  ANY
ALLEGED TORTIOUS CONDUCT BY THE HOLDER OR THE COMPANY,  OR IN ANY WAY,  DIRECTLY
OR INDIRECTLY,  ARISES OUT OF OR RELATES TO THE RELATIONSHIP  BETWEEN HOLDER AND
COMPANY.

     Section 10.7 Limitation of Liability.  No provision  hereof, in the absence
of affirmative  action by the holder hereof to purchase  shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the holder hereof,

                                       15
<PAGE>
shall give rise to any  liability of such holder for the purchase  price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

                            [Signature Page Follows]

                                       16
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by a duly authorized officer and attested by its Secretary or an
Assistant Secretary.

Dated:                           INNOVATIVE MICRO TECHNOLOGY, INC.

                                 By:____________________________
                                      John Foster
                                      Chief Executive Officer

ATTEST:

-------------------------------
Peter T. Altavilla
Secretary
<PAGE>

                                     ANNEX B

                                 Form of Warrant

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT OF 1933 OR THE  SECURITIES  LAW OF ANY STATE AND MAY NOT BE
SOLD OR  OTHERWISE  DISPOSED  OF EXCEPT  PURSUANT TO AN  EFFECTIVE  REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE  STATE  SECURITIES LAWS OR AN OPINION OF
COUNSEL THAT  REGISTRATION IS NOT REQUIRED UNDER THE ACT OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER THE ACT OR ANY OTHER LEGAL EXEMPTION UNDER THE ACT.

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE ARE SUBJECT TO A STOCK PURCHASE
AGREEMENT  BETWEEN  INNOVATIVE  MICRO  TECHNOLOGY,  INC. (THE "COMPANY") AND L-3
COMMUNICATIONS CORPORATION, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT,  EXCHANGE,  LICENSE,  MORTGAGE,  PLEDGE,
CREATION  OF A  SECURITY  INTEREST  IN OR  LIEN  UPON,  HYPOTHECATION  OR  OTHER
VOLUNTARY OR  INVOLUNTARY  DISPOSITION  (EACH,  A "TRANSFER")  OF THE SECURITIES
REPRESENTED  BY THIS  CERTIFICATE  MAY BE MADE  EXCEPT  IN  ACCORDANCE  WITH THE
PROVISIONS OF THE STOCK PURCHASE AGREEMENT.  THE HOLDER OF THIS CERTIFICATE,  BY
ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL THE PROVISIONS OF SUCH
STOCK PURCHASE AGREEMENT.

                                     WARRANT
            to purchase Common Stock, par value $0.0001 per share, of
                        INNOVATIVE MICRO TECHNOLOGY, INC.
            Commencing August ___, 2002 and expiring August ___, 2005

     THIS IS TO  CERTIFY  THAT L-3  COMMUNICATIONS  CORPORATION,  or  registered
assigns,  is entitled to purchase  from  INNOVATIVE  MICRO  TECHNOLOGY,  INC., a
Delaware corporation (the "Company"),  at any time on and after August ___, 2002
but not  later  than  5:00  P.M.,  New York  Time,  on  August  ___,  2005  (the
"Expiration  Date"),  700,000  Stock Units,  in whole or in part,  at a purchase
price of $7.29 per share of Common Stock (the "Exercise  Price"),  or $5,103,000
in the aggregate, all on the terms and conditions hereinbelow provided.
<PAGE>

                                   Article I
                               CERTAIN DEFINITIONS

     Section  1.1  Certain  Definitions.  As used in this  Warrant,  unless  the
context otherwise requires:

     "Additional  Shares of Common  Stock":  means  all  shares of Common  Stock
issued by the Company after the date hereof,  other than (i) the Warrant Shares,
(ii) shares  issued upon the exercise of any  options,  warrants or other rights
presently outstanding to subscribe for or purchase any shares of Common Stock or
Convertible securities,  or (iii) shares which may be granted or issued upon the
exercise of any options  which may  hereafter be granted or exercised  under the
Company's 2001 Stock Incentive Plan or under any other employee  benefit plan of
the Company approved by the Company's Board of Directors;  or (iv) any shares of
Common Stock sold to the public or the underwriter in a public offering, or upon
exercise of warrants  comprising or  underlying  any units sold in the Company's
initial  public  offering,  including  any  shares or  warrants  underlying  the
underwriter's warrants or securities purchase option. The shares of Common Stock
and  warrants  to be issued  pursuant to the  Company's  Third  Amended  Plan or
Reorganization  Under Chapter 11 of the Bankruptcy  Code,  dated as of September
24, 2001,  and any  securities to be issued on exercise or  conversion  thereof,
regardless of the actual date of issuance, shall not be deemed Additional Shares
of Common Stock.

     "Affiliate":  of a  specified  Person  means  a  Person  that  directly  or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with,  such specified  Person or a member of such specified
Person's  immediate family.  "Control"  (including the terms "controlled by" and
"under common control with") means the  possession,  directly or indirectly,  of
the power to  direct or cause the  direction  of the  management  policies  of a
Person,  whether  through the  ownership  of voting  securities,  by contract or
credit arrangement, as trustee or executor, or otherwise.

     "Board": means the Board of Directors of the Company.

     "Business  Day":  means any day which is not a  Saturday,  Sunday or day on
which banks are authorized by law to be closed in the State of New York.

     "Common  Stock":  means the Company's  authorized  Common Stock,  par value
$0.0001  per  share,  irrespective  of  class  unless  otherwise  specified,  as
constituted on the date of original issuance of this Warrant, and any stock into
which such Common Stock may thereafter be changed,  and also shall include stock
of the Company of any other  class which is not  preferred  as to  dividends  or
assets  over any other class of stock of the Company and which is not subject to
redemption that the Company hereafter may issue.

     "Convertible Securities": means evidences of indebtedness,  shares of stock
or other  securities  which are convertible  into or exchangeable for Additional
Shares of Common Stock,  either  immediately  or upon the arrival of a specified
date or the happening of a specified event.

     "Current Market Value": is defined in Section 4.2.

                                       2
<PAGE>
     "Exercise Price": per share of Common Stock,  means, for the purpose of any
provision  of this  Warrant,  $7.29  on the  Original  Issue  Date  and,  at any
subsequent date, $7.29 per share as adjusted pursuant to Section 4.11 hereof.

     "holder":  in respect  of any  security  at any time means the Person  then
registered on the books of the Company as the owner of such security.

     "Original Issue Date": means August __, 2002.

     "Person":  means  any  natural  person,  firm,  partnership,   association,
corporation,   company,   limited  liability  company,  trust,  business  trust,
governmental authority or other entity.

     "Securities  Act":  means the  Securities  Act of 1933, as amended,  or any
successor or similar law then in force.

     "Stock  Purchase  Agreement":  means that certain Stock Purchase  Agreement
between L-3  Communications  Corporation and the Company dated as of August ___,
2002, as amended or modified from time to time.

     "Stock  Unit":  means one share of Common  Stock,  as such Common Stock was
constituted on the date of original issue of this Warrant,  and thereafter shall
mean such number of shares (including any fractional shares) of Common Stock and
other  securities,  cash or other  property,  if any,  as shall  result from the
adjustments specified in Article IV hereof.

     "Subsidiaries":  means each  corporation  or other Person in which a Person
owns or  controls,  directly  or  indirectly,  capital  stock  or  other  equity
interests  representing  more than 50% of the outstanding  voting stock or other
equity interests.

     "Warrant":  means  the  Warrant  dated  as  of  the  Original  Issue  Date,
originally issued by the Company to L-3 Communications  Corporation  pursuant to
the Stock Purchase Agreement, evidencing rights to purchase Stock Units, and all
Warrants  issued upon transfer,  division or combination  of, or in substitution
therefor.  All  Warrants  shall  at all  times  be  identical  as to  terms  and
conditions  and date,  except as to the number of Stock Units for which they may
be exercised.

     "Warrant  Agreement":  means the Warrant  Agreement dated as of August ___,
2002 between the Company and L-3 Communications  Corporation for the purchase of
Common Shares at $7.29 per share,  as such Warrant  Agreement  shall be modified
and supplemented and in effect from time to time.

     "Warrant  Shares":  means the  shares of Common  Stock  purchasable  by the
holders of the Warrant upon the exercise thereof.

                                       3
<PAGE>

                                   Article II
                               EXERCISE OF WARRANT

     Section 2.1 Procedure for  Exercise.  Subject to the  provisions of Section
2.2, the holder of this Warrant may, at any time on and after August ___,  2002,
but not later than the  Expiration  Date,  exercise this Warrant in whole at any
time or in part  from  time to time for the  number of Stock  Units  which  such
holder  is then  entitled  to  purchase  hereunder.  In order to  exercise  this
Warrant, in whole or in part, the holder hereof shall deliver to the Company, at
its office  maintained for such purpose  pursuant to Section 11.1 hereof,  (a) a
written   notice  of  such  holder's   election  to  exercise  this  Warrant  (a
"Subscription Notice"),  which shall specify (i) the number of Stock Units to be
purchased  and  delivered to the holder,  provided  that such number shall be at
least  the  lesser of 1,000 or the  total  number  of Stock  Units for which the
Warrant may be exercised,  (ii) the aggregate Exercise Price therefor, (iii) the
denomination  or  denominations  of the  certificates  for Warrant  Shares to be
delivered  to the holder  and (iv) the name or names in which such  certificates
are to be issued,  (b) payment of the aggregate  Exercise  Price by certified or
official  bank check  payable to the order of the Company or by wire transfer of
immediately  available funds to the account  designated by the Company,  and (c)
this Warrant.  Such notice may be in the form of the Subscription Notice set out
at the end of this Warrant.

     Section 2.2  Fulfillment  by the Company.  Upon  receipt of a  Subscription
Notice,  payment  of the  aggregate  Exercise  Price and  receipt  of such other
information  reasonably  required  by the  Company or its  transfer  agent,  the
Company shall,  as promptly as practicable and in any event within five Business
Days  thereafter,  cause to be  executed  and  delivered  to the  holder:  (i) a
certificate or certificates  representing the aggregate number of fully paid and
nonassessable  Warrant Shares issuable upon such exercise,  free from all taxes,
liens and  charges  with  respect to the  issuance  thereof  (except  income tax
liability  of the  holder,  if  any),  (ii)  in the  case of  partial  exercise,
statement of total number of Stock Units still  eligible for exercise  under the
warrant  (i.e.,  700,000  less number  already  exercised),  and (iii) any other
documentation reasonably required by the Investor.

     Section 2.3 Names and  Denominations of Issuance.  The stock certificate or
certificates  for Warrant Shares so delivered shall be in such  denominations as
may be specified in the Subscription  Notice and shall be registered in the name
of such  holder  or such  other  name or names as  shall  be  designated  in the
Exercise Notice.  Such certificate or certificates  shall be deemed to have been
issued and such holder or any other  person so  designated  to be named  therein
shall be deemed to have become a holder of record of such  shares,  including to
the extent  permitted  by law the right to vote such  shares or to consent or to
receive  notice  as a  stockholder,  as of the time the  Subscription  Notice is
received by the Company as aforesaid.  If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of said  certificate or
certificates,  either (i) deliver to such holder a new Warrant dated the date it
is issued,  evidencing the rights of such holder to purchase the remaining Stock
Units called for by this Warrant,  which new Warrant shall in all other respects
be  identical  with  this  Warrant,  or (ii),  at the  request  of such  holder,
appropriate  notation may be made on this Warrant and the same  returned to such
holder.

     Section 2.4 No Fractional  Shares;  Current Market Value. The Company shall
not be required to issue  fractions of shares,  upon exercise of this Warrant or
otherwise,  or to distribute  certificates that evidence fractional shares. With
respect to any  fraction of a share  called for upon any  exercise  hereof,  the
Company  shall  pay to the  holder  an  amount  in cash  equal to such  fraction
multiplied by the "Current Market Value," determined as follows:

                                       4
<PAGE>

          (1) If the Common Stock is listed on a national securities exchange or
     listed for  trading on the  Nasdaq  National  Market  System  ("NMS"),  the
     Current  Market Value shall be the average of the last  reported sale price
     of the Common Stock on such  exchange on each of the last ten business days
     prior to the date of  determination,  or for any day  which no such sale is
     made or no closing sale price is quoted, the average of the closing bid and
     asked prices for such day on such exchange or system; or

          (2) If the Common Stock is not listed,  the Current Market Value shall
     be an amount  determined in such reasonable  manner as may be prescribed in
     good faith by the Board of Directors of the Company.

                                  Article III
                       TRANSFER, DIVISION AND COMBINATION

     Section 3.1 Warrant Transferrable.  Subject to Sections 5.3, 5.4 and 5.5 of
the Stock Purchase Agreement and the Securities Act restrictions  referred to in
Section  3.1 of  this  Warrant,  this  Warrant  and  all  rights  hereunder  are
transferable,  in whole or in part, on the books of the Company to be maintained
for such  purpose,  upon  surrender of this Warrant at the office of the Company
maintained  for such purpose  pursuant to Section 10.1 hereof,  together  with a
written  assignment  of this Warrant duly  executed by the holder  hereof or its
agent or attorney  and  payment of funds  sufficient  to pay any stock  transfer
taxes payable upon the making of such transfer.  Upon such surrender and payment
the Company shall,  execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denominations  specified in such instrument
of assignment, and this Warrant shall promptly be canceled.

     Section 3.2 Division and Combination. This Warrant may, subject to Sections
5.3,  5.4  and 5.5 of the  Stock  Purchase  Agreement  and  the  Securities  Act
restrictions  referred to in Section 3.1 of this Warrant, be divided or combined
with other Warrants upon  presentation  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  hereof or its agent or
attorney.  Subject to compliance with the next preceding  paragraph and with any
applicable  Securities  Act  restrictions,,  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.

                                   Article IV
                   ADJUSTMENT OF STOCK UNIT AND EXERCISE PRICE

     Section  4.1  Adjustment  Generally.  The number of shares of Common  Stock
comprising a Stock Unit and the Exercise  Price at which a share of Common Stock
may be  purchased  upon  exercise  of this  Warrant  shall  each be  subject  to
adjustment from time to time as set forth in this Article IV.

     Section 4.2 Stock Dividends,  Subdivisions and Combinations. In case at any
time or from time to time the Company  shall (a) take a record of the holders of

                                       5
<PAGE>
its Common Stock for the purpose of entitling them to receive a dividend payable
in, or other distribution of, Common Stock; (b) subdivide its outstanding shares
of Common Stock into a larger number of shares of Common  Stock;  or (c) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock,  then the  number  of  shares of Common  Stock  comprising  a Stock  Unit
immediately  after the  happening  of any such event  shall be adjusted so as to
consist of the  number of shares of Common  Stock  which a record  holder of the
number of shares of Common Stock  comprising a Stock Unit  immediately  prior to
the  happening  of such event  would own or be  entitled  to  receive  after the
happening of such event.

     Section 4.3 Certain Other Dividends and Distributions.  In case at any time
or from  time to time the  Company  shall  take a record of the  holders  of its
Common Stock for the purpose of entitling  them to receive any dividend or other
distribution of

     (a) cash (other than a cash dividend or  distribution  payable out of funds
legally   available  for  the  payment  of  dividends  under  the  laws  of  the
jurisdiction of  incorporation  of the Company,  to the extent,  but only to the
extent, that the aggregate of all such dividends paid or declared after the date
hereof,  does not exceed the  consolidated  net  income of the  Company  and its
consolidated  Subsidiaries,  if  any,  earned  subsequent  to  the  date  hereof
determined in accordance with generally accepted accounting principles); or

     (b) any evidence of its indebtedness  (other than Convertible  Securities),
any shares of its stock (other than  Additional  Shares of Common  Stock) or any
other securities or property of any nature whatsoever (other than cash and other
than Convertible Securities or Additional Shares of Common Stock); or

     (c) any warrants or other rights to subscribe for or purchase any evidences
of its indebtedness (other than Convertible Securities), any shares of its stock
(other  than  Additional  Shares of Common  Stock)  or any other  securities  or
property of any nature  whatsoever  (other than cash and other than  Convertible
Securities or Additional  Shares of Common Stock),  then the number of shares of
Common Stock thereafter comprising a Stock Unit shall be adjusted to that number
determined  by  multiplying  the number of shares of Common  Stock  comprising a
Stock Unit immediately  prior to such adjustment by a fraction (i) the numerator
of which shall be the Exercise Price at the date of taking such record, and (ii)
the  denominator  of which  shall be such  Exercise  Price per  share  minus the
portion   applicable  to  one  share  of  Common  Stock  of  any  such  cash  so
distributable  and  of  the  fair  value  of  any  and  all  such  evidences  of
indebtedness,  shares of stock,  other  securities  or property,  or warrants or
other  subscription or purchase rights, so distributable.  Such fair value shall
be determined in good faith by the Board, provided that if such determination is
objected to by the  holders of  Warrants  entitled to purchase a majority of the
Stock Units  covered by all  Warrants,  such  determination  shall be made by an
independent appraiser selected by the Board and not objected to by such holders.
A reclassification of the Common Stock into shares of Common Stock and shares of
any other  class of stock shall be deemed a  distribution  by the Company to the
holders of its Common  Stock of such shares of such other class of stock  within
the meaning of this Section 4.3 and, if the  outstanding  shares of Common Stock
shall be changed into a larger or smaller  number of shares of Common Stock as a
part of such reclassification,  shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.2 hereof.

                                       6
<PAGE>
     Section 4.4 Issuance of Additional  Shares of Common Stock.  In case at any
time or from time to time the Company  shall  (except as  hereinafter  provided)
issue any Additional  Shares of Common Stock for a consideration  per share less
than the  Current  Market  Value,  then the  number of  shares  of Common  Stock
thereafter  comprising a Stock Unit shall be adjusted to that number  determined
by  multiplying  the number of shares of Common  Stock  comprising  a Stock Unit
immediately  prior to such  adjustment  by a fraction (i) the numerator of which
shall be the number of shares of Common Stock  outstanding  immediately prior to
the issuance of such  Additional  Shares of Common Stock plus the number of such
Additional  Shares of Common Stock so issued,  and (ii) the denominator of which
shall be the number of shares of Common Stock  outstanding  immediately prior to
the issuance of such Additional Shares of Common Stock plus the number of shares
of Common Stock which the aggregate  consideration  for the total number of such
Additional  Shares of Common Stock so issued would  purchase at the then current
Exercise  Price.  For  purposes of this  Section  4.4,  the date as of which the
Current  Market Value shall be computed  shall be the earlier of (1) the date on
which the Company  shall  enter into a firm  contract  for the  issuance of such
Additional  Shares of Common  Stock and (2) the date of actual  issuance of such
Additional  Shares  of Common  Stock.  This  Section  4.4 shall not apply to any
issuance  of  Additional  Shares of Common  Stock  for  which an  adjustment  is
provided  under  Section 4.2 hereof.  No  adjustment  of the number of shares of
Common  Stock  comprising a Stock Unit shall be made under this Section 4.4 upon
the issuance of any Additional  Shares of Common Stock which are issued pursuant
to the  exercise of any  warrants or other  subscription  or purchase  rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities,  if any such  adjustment  shall  previously  have been made upon the
issuance  of such  warrants  or  other  rights  or  upon  the  issuance  of such
Convertible  Securities  (or upon the  issuance of any  warrant or other  rights
therefor) pursuant to Section 4.5 hereof.

     Section 4.5  Issuance of Warrants or Other  Rights.  In case at any time or
from time to time the  Company  shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a  distribution  of, or shall
otherwise  issue,  any warrants or other rights to subscribe for or purchase any
Additional  Shares  of  Common  Stock  or any  Convertible  Securities  and  the
consideration  per share for which additional  shares of Common Stock may at any
time  thereafter  be  issuable  pursuant  to such  warrants  or other  rights or
pursuant  to the  terms of such  Convertible  Securities  shall be less than the
Current  Market  Value,  then the  number of shares of Common  Stock  thereafter
comprising  a Stock Unit shall be  adjusted as provided in Section 4.4 hereof on
the basis  that (i) the  maximum  number of  Additional  Shares of Common  Stock
issuable  pursuant to all such  warrants or other  rights or necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been  issued  as of (and,  accordingly,  the date as of which the  Exercise
Price shall be computed  shall be) the  computation  date  specified in the last
sentence of this  Section  4.5, and (ii) the  aggregate  consideration  for such
maximum  number of  Additional  Shares of Common Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the issuance of
such Additional Shares of Common Stock pursuant to such warrants or other rights
or pursuant to the terms of such  Convertible  Securities.  For purposes of this
Section 4.5, the computation  date for clause (i) above shall be the earliest of
(A) the date on which the  Company  shall  take a record of the  holders  of its
Common Stock for the purpose of entitling  them to receive any such  warrants or
other rights, (B) the date on which the Company shall enter into a firm contract

                                       7
<PAGE>
for the issuance of such  warrants or other  rights,  and (C) the date of actual
issuance of such warrants or other rights.

     Section 4.6 Issuance of Convertible Securities. In case at any time or from
time to time the Company  shall take a record of the holders of its Common Stock
for the  purpose  of  entitling  them to  receive  a  distribution  of, or shall
otherwise issue, any Convertible  Securities and the consideration per share for
which  Additional  Shares of Common Stock may at any time thereafter be issuable
pursuant  to the  terms of such  Convertible  Securities  shall be less than the
Current  Market  Value,  then the  number of shares of Common  Stock  thereafter
comprising  a Stock Unit shall be  adjusted as provided in Section 4.4 hereof on
the basis  that (i) the  maximum  number of  Additional  Shares of Common  Stock
necessary  to  effect  the  conversion  or  exchange  of  all  such  Convertible
Securities  shall be  deemed  to have been  issued  as of the  computation  date
specified  in the  penultimate  sentence  of this  Section  4.6,  and  (ii)  the
aggregate  consideration  for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such Additional  Shares of Common Stock pursuant
to the terms of such Convertible  Securities.  For purposes of this Section 4.6,
the computation  date for clause (i) above shall be the earliest of (A) the date
on which the Company  shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive any such  Convertible  Securities,  (B)
the date on which the Company  shall enter into a firm contract for the issuance
of such  Convertible  Securities,  and (C) the date of actual  issuance  of such
Convertible  Securities.  No  adjustment of the number of shares of Common Stock
comprising  a Stock Unit shall be made under this  Section 4.6 upon the issuance
of any Convertible  Securities  which are issued pursuant to the exercise of any
warrants  or  other  subscription  or  purchase  rights  therefor,  if any  such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4.5 hereof.

     Section 4.7 Superseding Adjustment of Stock Unit. If, at any time after any
adjustment of the number of shares  comprising a Stock Unit shall have been made
pursuant to Sections  4.5 or 4.6 hereof on the basis of the issuance of warrants
or other rights or the issuance of other  Convertible  Securities,  or after any
new  adjustment of the number of shares  comprising a Stock Unit shall have been
made  pursuant to this Section 4.7, (a) such  warrants or rights or the right of
conversion or exchange in such other Convertible  Securities shall expire, and a
portion of such  warrants or rights,  or the right of  conversion or exchange in
respect of a portion of such other Convertible  Securities,  as the case may be,
shall not have been  exercised and (b) the  consideration  per share,  for which
shares of Common Stock are issuable  pursuant to such  warrants or rights or the
terms of such other Convertible Securities,  shall be increased solely by virtue
of provisions  therein contained for an automatic increase in such consideration
per share upon the arrival of a specified  date or the  happening of a specified
event, such previous  adjustment in the Warrants shall be rescinded and annulled
and the Additional  Shares of Common Stock which were deemed to have been issued
by virtue of the computation made in connection with the adjustment so rescinded
and  annulled  shall no longer  be deemed to have been  issued by virtue of such
computation.  Thereupon,  a  recomputation  shall be made of the  effect of such
rights or options or other  Convertible  Securities on the basis of treating the
number of Additional Shares of Common Stock, if any, theretofore actually issued
or issuable pursuant to the previous exercise of such warrants or rights or such
right of conversion  or exchange,  as having been issued on the date or dates of
such issuance as determined for purposes of such previous adjustment and for the

                                       8
<PAGE>
consideration  actually received and receivable therefor,  and treating any such
warrants or rights or any such other  Convertible  Securities  which then remain
outstanding as having been granted or issued  immediately after the time of such
increase  of the  consideration  per share for such  shares of Common  Stock are
issuable under such warrants or rights or other Convertible Securities,  and, if
and to the extent called for by the  foregoing  provisions of this Article IV on
the basis aforesaid, a new adjustment of the number of shares comprising a Stock
Unit shall be made, which new adjustment shall supersede the previous adjustment
so rescinded and annulled.

     Section 4.8 Other Provisions  Applicable to Adjustments  Under this Article
IV. The following provisions shall be applicable to the making of adjustments of
the  number of  shares of Common  Stock  comprising  a Stock  Unit  hereinbefore
provided for in this Article IV:

     (a) Treasury Stock.  The sale or other  disposition of any issued shares of
Common Stock owned or held by or for the account of the Company  shall be deemed
an  issuance  thereof  for the  consideration  paid at the time of such  sale or
disposition.

     (b) Computation of Consideration.  To the extent that any Additional Shares
of Common Stock or any Convertible Securities or any warrants or other rights to
subscribe  for  or  purchase  any  Additional  Shares  of  Common  Stock  or any
Convertible   Securities  shall  be  issued  for  a  cash   consideration,   the
consideration  received by the Company therefor shall be deemed to be the amount
of cash  received  by the Company  therefor,  or, if such  Additional  Shares of
Common  Stock  or  Convertible   Securities  are  offered  by  the  Company  for
subscription,  the subscription  price, or, if such Additional  Shares of Common
Stock or Convertible  Securities are sold to  underwriters or dealers for public
offering without a subscription  offering, the initial public offering price, in
any such case excluding any amounts paid or receivable  for accrued  interest or
accrued  dividends  and without  deduction  of any  compensation,  discounts  or
expenses  paid or incurred by the  Company  for and in the  underwriting  of, or
otherwise  in  connection  with,  the issue  thereof.  To the  extent  that such
issuance shall be for a consideration  other than cash,  then,  except as herein
otherwise expressly  provided,  the amount of such consideration shall be deemed
to be the fair  value of such  consideration  at the  time of such  issuance  as
determined in good faith by the Board,  provided that if such  determination  is
reasonably  objected  to by the  holders  of  Warrants  entitled  to  purchase a
majority of the Stock Units covered by all Warrants, such determination shall be
made by an  independent  appraiser  selected  by the  Board  and not  reasonably
objected to by such holders.  The  consideration  for any  Additional  Shares of
Common Stock issuable  pursuant to any warrants or other rights to subscribe for
or purchase the same shall be the  consideration  received or  receivable by the
Company  for  issuing  such  warrant  or  other  rights,   plus  the  additional
consideration payable to the Company upon the exercise of such warrants or other
rights.  The  consideration  for any Additional  Shares of Common Stock issuable
pursuant to the terms of any Convertible  Securities shall be the  consideration
received or  receivable  by the Company for issuing any warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase of
such Convertible Securities, plus the additional consideration,  if any, payable
to the Company upon the exercise of the right of  conversion or exchange in such
Convertible  Securities.  In case of the issuance at any time of any  Additional
Shares of Common Stock or Convertible  Securities in payment or  satisfaction of

                                       9
<PAGE>
any dividend upon any class of stock other than Common Stock,  the Company shall
be deemed  to have  received  for such  Additional  Shares  of  Common  Stock or
Convertible  Securities a consideration  equal to the amount of such dividend so
paid or satisfied.

     (c) When Adjustments to Be Made. The adjustments  required by the foregoing
provisions  of this  Article  IV  shall  be made  whenever  and as  often as any
specified event requiring an adjustment  shall occur,  except that no adjustment
of the  number of shares of Common  Stock  comprising  a Stock  Unit that  would
otherwise  be required  shall be made  (except in the case of a  subdivision  or
combination  of shares of Common  Stock,  as provided for in Section 4.2 hereof)
unless and until such adjustment, either by itself or with other adjustments not
previously  made,  adds or subtracts at least $0.05 to the  Exercise  Price,  as
determined  in good  faith  by the  Board,  provided  that,  in any  event  such
adjustment  shall be made if such  adjustment  either by  itself  or with  other
adjustments  not previously made adds or subtracts at least 1/20th of a share to
or from the number of shares of Common Stock comprising a Stock Unit immediately
prior to the making of such adjustment.  Any adjustment representing a change of
less than such minimum amount (except as aforesaid) shall be carried forward and
made as soon as such  adjustment,  together with other  adjustments  required by
this Article IV and not previously made,  would result in a minimum  adjustment.
For the purpose of any  adjustment,  any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.

     (d) Fractional  Interests.  In computing adjustments under this Article IV,
fractional  interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.

     Section 4.9 When  Adjustment  Not  Required.  If the  Company  shall take a
record of the holders of its Common Stock for the purpose of  entitling  them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to stockholders,  legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights,  then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment  previously made in respect thereof shall
be rescinded and annulled.

     Section 4.10 Merger,  Consolidation  or Disposition of Assets.  In case the
Company  shall merge or  consolidate  into another  corporation,  or shall sell,
transfer  or  otherwise  dispose of all or  substantially  all of its  property,
assets or  business  to another  corporation  and  pursuant to the terms of such
merger,  consolidation  or disposition of assets,  shares of common stock of the
successor or acquiring  corporation  are to be received by or distributed to the
holders of Common  Stock of the  Company,  then the holder of the Warrant  shall
have the right thereafter to receive, upon exercise of the Warrant,  Stock Units
each  comprising  the  number  of shares of  common  stock of the  successor  or
acquiring   corporation   receivable  upon  or  as  a  result  of  such  merger,
consolidation  or  disposition  of assets by a holder of the number of shares of
Common  Stock  comprising  a Stock Unit  immediately  prior to such  event.  If,
pursuant to the terms of such merger,  consolidation  or  disposition of assets,
any  cash,  shares  of stock or  other  securities  or  property  of any  nature
whatsoever  (including  without  limitation  warrants or other  subscription  or
purchase  rights) are to be received by or  distributed to the holders of Common
Stock of the Company in addition to common  stock of the  successor or acquiring
corporation,  there shall be a reduction  of the  purchase  price per Stock Unit
equal to the  amount  applicable  to the  number of shares of Common  Stock then
comprising  a Stock  Unit of any such cash and of the fair  value of any and all

                                       10
<PAGE>
such  shares of stock or of other  securities  or  property to be received by or
distributed to the holders of Common Stock of the Company. Such fair value shall
be determined in good faith by the Board, provided that if such determination is
reasonably  objected  to by the  holders  of  Warrants  entitled  to  purchase a
majority of the Stock Units covered by all Warrants, such determination shall be
made by an  independent  appraiser  selected  by such  Board and not  reasonably
objected  to by such  holders.  In case of any  such  merger,  consolidation  or
disposition  of assets,  the successor  acquiring  corporation  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 of the obligations and  liabilities  hereunder,  subject to such
modification  as shall be  necessary to provide for  adjustments  of Stock Units
which shall be as nearly  equivalent as practicable to the adjustments  provided
for in this Article IV. For the purposes of this Article IV "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 4.10 shall  similarly
apply to successive mergers, consolidations or dispositions of assets.

     Section 4.11 Adjustment of Exercise Price. Whenever the number of shares of
Common  Stock  comprising  a Stock Unit  purchasable  upon the  exercise of this
Warrant is adjusted as herein provided, the Exercise Price payable upon exercise
of this  Warrant  also shall be  adjusted by  multiplying  such  Exercise  Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of shares of Common Stock comprising a Stock Unit purchasable upon
the  exercise of this  Warrant  immediately  prior to such  adjustment,  and the
denominator of which shall be the number of shares of Common Stock  comprising a
Stock Unit so purchasable immediately thereafter.

     Section 4.12 Other Action  Affecting  Common Stock.  In case at any time or
from time to time the Company shall take any action  affecting its Common Stock,
other than an action  described  in any of the  foregoing  Sections  4.2 through
4.10,  inclusive,  then, unless in the opinion of the Board such action will not
have a materially adverse effect upon the rights of the holders of the Warrants,
the number of shares of Common Stock or other stock  comprising a Stock Unit, or
the Current Warrant Price,  shall be adjusted in such manner and at such time as
the Board may in good faith determine to be equitable in the circumstances.

                                   Article V
                            NOTICE TO WARRANT HOLDERS

     Section 5.1 Notice of Adjustment of Stock Unit or Exercise Price.  Whenever
the number of shares of Common Stock  comprising  a Stock Unit,  or the price at
which a Stock Unit may be purchased  upon exercise of their  Warrants,  shall be
adjusted  pursuant to Article IV hereof,  the Company shall  forthwith  obtain a
certificate  signed by Chief  Financial  Officer or  independent  accountants of
recognized  national standing selected by the Company and reasonably  acceptable
to the holders  entitled to purchase the majority of the Stock Units  covered by
all Warrants,  setting  forth,  in reasonable  detail,  the event  requiring the

                                       11
<PAGE>
adjustment and the method by which such  adjustment  was  calculated  (including
without  limitation a statement of the Current  Market Value when  determined by
the Board pursuant to Section 2.4(2),  of any evidences of indebtedness,  shares
of stock,  other  securities  or property or warrants or other  subscription  or
purchase  rights  referred  to in  Sections  4.3,  4.8(b)  or 4.11  hereof)  and
specifying the number of shares of Common Stock  comprising a Stock Unit and (if
such  adjustment  was made pursuant to Sections 4.10 or 4.11 hereof)  describing
the number and kind of any other shares of stock  comprising  a Stock Unit,  and
any change in the Exercise  Price,  after giving  effect to such  adjustment  or
change.  The Company  shall  promptly,  and in any case within 45 days after the
making  of such  adjustment,  cause a  signed  copy  of such  certificate  to be
delivered  to each holder of a Warrant in  accordance  with Section 10.2 hereof.
The  Company  shall  keep at its office or agency,  maintained  for the  purpose
pursuant to Section 10.1 hereof,  copies of all such  certificates and cause the
same to be available for inspection at said office during normal  business hours
by any holder of a Warrant or any prospective  purchaser of a Warrant designated
by a holder thereof.

     Section 5.2 Notice of Certain  Corporate  Action. In case the Company shall
propose (a) to pay any dividend  payable in stock of any class to the holders of
its Common Stock or to make any other  distribution to the holders of its Common
Stock,  or (b) to offer to the holders of its Common  Stock  rights to subscribe
for or to purchase any  Additional  Shares of Common Stock or shares of stock of
any  class or any other  securities,  rights or  options,  or (c) to effect  any
reclassification  of its Common Stock (other than a  reclassification  involving
only the subdivision, or combination, of outstanding shares of Common Stock), or
(d) to effect any capital  reorganization,  or (e) to effect any  consolidation,
merger or sale, transfer or other disposition of all or substantially all of its
property,  assets or business, or (f) to effect the liquidation,  dissolution or
winding up of the Company,  then,  in each such case,  the Company shall give to
each holder of a Warrant,  in accordance  with Section 10.2 hereof,  a notice of
such  proposed  action,  which shall specify the date on which a record is to be
taken for the purposes of such stock dividend,  distribution  or rights,  or the
date on which  such  reclassification,  reorganization,  consolidation,  merger,
sale, transfer, disposition,  liquidation,  dissolution or winding up is to take
place and the date of  participation  therein by the holders of Common Stock, if
any such date is to be fixed,  and shall also set forth such facts with  respect
thereto as shall be  reasonably  necessary to indicate the effect of such action
on the Common  Stock and the number and kind of any other  shares of stock which
will  comprise a Stock Unit,  and the purchase  price or prices  thereof,  after
giving  effect to any  adjustment  which  will be  required  as a result of such
action.  Such  notice  shall be so given in the case of any  action  covered  by
clause  (a) or (b)  above  at  least  20  days  prior  to the  record  date  for
determining  holders of the Common Stock for purposes of such action, and in the
case of any other such action,  at least 20 days prior to the date of the taking
of such proposed action or the date of  participation  therein by the holders of
Common Stock, whichever shall be the earlier.

     Section  5.3 Notice of  Expiration  Date.  The  Company  shall give to each
holder of a Warrant notice of the Expiration  Date.  Such notice may be given by
the  Company  not  less  than 30 days  but not  more  than 60 days  prior to the
Expiration Date.

                                       12
<PAGE>
                                   Article VI
                                CERTAIN COVENANTS

     Section 6.1 Reservation  and  Authorization  of Common Stock;  Registration
with or Approval of any Governmental Authority.

     (a) The Company  shall at all times  reserve and keep  available  for issue
upon the exercise of these  Warrants such number of its  authorized but unissued
shares of Common Stock as shall be  sufficient to permit the exercise in full of
all outstanding Warrants. The Company shall not amend its charter in any respect
relating to the Common  Stock  other than to increase or decrease  the number of
shares of authorized  capital stock  (subject to the provisions of the preceding
sentence) or to decrease the par value of any shares of Common Stock. All shares
of Common  Stock that shall be so  issuable,  when issued  upon  exercise of any
Warrant and  payment in full of the  Exercise  Price,  shall be duly and validly
issued and fully-paid and nonassessable.

     (b) Before  taking any action  which would result in an  adjustment  in the
number of shares of Common  Stock  comprising  a Stock  Unit 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.

     (c) If any shares of Common  Stock  required to be reserved  for issue upon
exercise of Warrants require registration with any governmental  authority under
any federal or state law before such shares may be so issued,  the Company shall
in good faith and as  expeditiously  as possible and at its expense  endeavor to
cause such shares to be duly registered.

                                  Article VII
               TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

     Section 7.1 Taking of Record,  etc. In the case of all  dividends  or other
distributions  by the Company to the holders of its Common Stock with respect to
which any  provision  of Article  IV hereof  refers to the taking of a record of
such  holders,  the Company shall in each such case take such a record and shall
take such  record as of the close of  business  on a Business  Day.  The Company
shall not at any time, except upon dissolution, liquidation or winding up, close
its stock transfer books or Warrant transfer books so as to result in preventing
or delaying the exercise or transfer of any Warrant.

     Section 7.2  Replacement  of  Instruments.  Upon  receipt by the Company of
evidence reasonably  satisfactory to it of the ownership of and the loss, theft,
destruction  or  mutilation of any  certificate  or  instrument  evidencing  any
Warrants,  and (a) in the  case of  loss,  theft or  destruction,  of  indemnity
reasonably satisfactory to it, or (b) in the case of mutilation,  upon surrender
or cancellation  thereof, the Company, at its expense,  shall execute,  register
and deliver,  in lieu thereof,  a new certificate or instrument for (or covering
the purchase of) an equal number of Warrants.

                                       13
<PAGE>
                                  Article VIII
                   EXPENSES, TRANSFER TAXES AND OTHER CHARGES

     Section 8.1  Expenses,  etc.  The Company  shall pay any and all  expenses,
transfer  taxes and other  charges,  including,  without  limitation,  all costs
associated  with the  preparation,  issue  and  delivery  of  stock  or  warrant
certificates,  that may be  incurred  in respect of the  issuance or delivery of
shares of Common  Stock upon  exercise  of this  Warrant  pursuant to Article II
hereof, or in connection with any transfer,  division or combination of Warrants
pursuant to Article III hereof.  The Company shall not, however,  be required to
pay any tax which may be  payable in respect  of any  transfer  involved  in the
issue and  delivery of shares of Common Stock in a name other than that in which
this Warrant is  registered,  and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has established,  to the satisfaction of the Company, that such
tax has been paid.

                                   Article IX
                                NO VOTING RIGHTS

     Section 9.1 No Voting  Rights.  This  Warrant  shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.

                                   Article X
                                  MISCELLANEOUS

     Section 10.1 Office of the Company.  So long as any of the Warrants remains
outstanding,  the Company  shall  maintain an office in the  continental  United
States of America where the Warrants may be presented  for  exercise,  transfer,
division or  combination  as in this Warrant  provided.  Such office shall be at
Company's  office unless and until the Company shall designate and maintain some
other  office for such  purposes  and give notice  thereof to the Holders of all
outstanding  Warrants.  The Company shall  maintain at such office books for the
registration and transfer of the Warrants.

     Section 10.2 Notices. All notices, requests, demands, approvals,  consents,
waivers and other  communications  required or  permitted to be given under this
Warrant  (each,  a  "Notice")  shall be in  writing  and shall be (a)  delivered
personally,  (b) mailed by first-class  mail or certified  mail,  return receipt
requested,  postage prepaid,  (c) sent by next-day or overnight mail or delivery
or (d) sent by facsimile transmission, provided that a confirmation statement is
retained by sender.

                           (a) if to holder, to:

                                    L-3 Communications Corporation
                                    600 Third Avenue
                                    New York, New York  10016
                                    Facsimile:  (212) 805-5494
                                    Attention:  Christopher C. Cambria, Esq.

                                       14
<PAGE>
                           (b) if to Company, to:

                                    Innovative Micro Technology, Inc.
                                    75 Robin Hill Road
                                    Santa Barbara, California  93117
                                    Facsimile:  (805) 967-2677
                                    Attention:  John Foster, President

                            with a copy, which shall not constitute notice, to:

                                    James J. Slaby, Esq.
                                    Sheppard, Mullin, Richter & Hampton LLP
                                    333 South Hope Street
                                    Los Angeles, California  90017
                                    Facsimile:  (213) 620-1398

or, in each case,  at such other  address as may be specified in a Notice to the
other party hereto from time to time. All Notices shall be deemed  effective and
given upon receipt.

     Section 10.3  Amendments.  The terms of this Warrant and all other Warrants
may be amended,  and the observance of any term therein may be waived,  but only
with the written  consent of the holders of Warrants  evidencing  two-thirds  in
number  of the  total  number of Stock  Units at the time  purchasable  upon the
exercise of all then  outstanding  Warrants.  For the  purposes  of  determining
whether the  holders of  outstanding  Warrants  entitled to purchase a requisite
number of Stock  Units at any time  have  taken any  action  authorized  by this
Warrant, any Warrants owned by the Company or any Affiliate of the Company shall
be deemed not to be outstanding.

     Section 10.4 Restrictions on Transferability.  The Warrants and the Warrant
Shares shall be transferable only upon compliance with the conditions  specified
in Sections 5.3, 5.4 and 5.5 of the Stock Purchase Agreement, Section 8.1 of the
Warrant and applicable Securities Act restrictions referred to in Section 3.1 of
this  Warrant,  which  conditions  are  intended to ensure  compliance  with the
provisions  of the  Securities  Act in respect of the transfer of any Warrant or
any  Warrant  Shares,  and any  holder  of this  Warrant  shall  be bound by the
provisions of (and entitled to the benefits of) Section 3.1 and the remainder of
this Warrant.

     Section  10.5  Governing  Law.  This  Warrant  shall be  governed  by,  and
construed in accordance with, the law of the State of New York.

     Section 10.6 JURY TRIAL  WAIVER.  THE HOLDER AND THE COMPANY EACH WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM
AGAINST THE OTHER THAT PERTAINS  DIRECTLY OR  INDIRECTLY  TO THIS  WARRANT,  ANY
ALLEGED TORTIOUS CONDUCT BY THE HOLDER OR THE COMPANY,  OR IN ANY WAY,  DIRECTLY
OR INDIRECTLY,  ARISES OUT OF OR RELATES TO THE RELATIONSHIP  BETWEEN HOLDER AND
COMPANY.

     Section 10.7 Limitation of Liability.  No provision  hereof, in the absence
of affirmative  action by the holder hereof to purchase  shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the holder hereof,

                                       15
<PAGE>
shall give rise to any  liability of such holder for the purchase  price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

                            [Signature Page Follows]

                                       16
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name by a duly authorized  officer and attested by its Secretary or an Assistant
Secretary.

Dated:
                                     INNOVATIVE MICRO TECHNOLOGY, INC.

                                     By:___________________________________
                                         John Foster
                                         Chief Executive Officer

ATTEST:

-------------------------------
Peter T. Altavilla
SecretarySTOCK PURCHASE AGREEMENT

                                      among

                         L-3 COMMUNICATIONS CORPORATION,

                                    Investor,

                                       and

                       INNOVATIVE MICRO TECHNOLOGY, INC.,

                                   the Company

                          Dated as of August ___, 2002

THE OFFER AND SALE OF THE  SECURITIES  OFFERED  HEREBY HAVE NOT BEEN  REGISTERED
UNDER  THE  SECURITIES  ACT OF 1933,  AS  AMENDED  (THE  "SECURITIES  ACT"),  OR
QUALIFIED UNDER ANY STATE OR NON-U.S.  SECURITIES LAWS. THE SECURITIES ARE BEING
OFFERED  AND  SOLD IN  RELIANCE  ON THE  EXEMPTIONS  AFFORDED  BY  REGULATION  D
PROMULGATED  UNDER THE SECURITIES  ACT. THE SECURITIES MAY NOT BE TRANSFERRED OR
RESOLD  WITHOUT  REGISTRATION  AND  QUALIFICATION  UNDER THE  SECURITIES ACT AND
APPLICABLE  STATE  AND  NON-U.S.  SECURITIES  LAWS,  UNLESS  AN  EXEMPTION  FROM
REGISTRATION  AND  QUALIFICATION  UNDER THE SECURITIES ACT AND SUCH LAWS IS THEN
AVAILABLE.

THIS AGREEMENT HAS NOT BEEN FILED WITH OR REVIEWED OR APPROVED BY THE SECURITIES
AND EXCHANGE  COMMISSION OR BY THE ATTORNEY GENERAL OR SECURITIES  AGENCY OF ANY
STATE  OR  NON-U.S.  JURISDICTION.  NONE OF THE  FOREGOING  HAS  PASSED  UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE SECURITIES.  ANY  REPRESENTATION  TO
THE CONTRARY IS ILLEGAL.
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
                                     <c>                                                                  <c>

   ARTICLE I  DEFINITIONS.....................................................................................1
   Section 1.1  Definition of Certain Terms...................................................................1
   Section 1.2  Construction..................................................................................6

   ARTICLE II  SALE AND PURCHASE OF THE SHARES................................................................6
   Section 2.1  Purchase and Sale of Common Stock and Warrants................................................6
   Section 2.2  Place and Date................................................................................7
   Section 2.3  Payment and Delivery..........................................................................7

   ARTICLE III  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................7
   Section 3.1  Corporate Status..............................................................................7
   Section 3.2  Authorization, etc............................................................................7
   Section 3.3  Capital Stock of the Company..................................................................8
   Section 3.4  No Conflicts, etc.............................................................................9
   Section 3.5  Financial Statements..........................................................................9
   Section 3.6  Absence of Undisclosed Liabilities............................................................9
   Section 3.7  Taxes.........................................................................................9
   Section 3.8  Absence of Changes...........................................................................10
   Section 3.9  Litigation...................................................................................11
   Section 3.10  Compliance with Laws; Governmental Approvals and Consents...................................12
   Section 3.11  Assets......................................................................................12
   Section 3.12  Contracts...................................................................................13
   Section 3.13  Product Warranties..........................................................................13
   Section 3.14  Intellectual Property.......................................................................13
   Section 3.15  Insurance...................................................................................14
   Section 3.16  Environmental Matters.......................................................................15
   Section 3.17  Employees, Labor Matters....................................................................15
   Section 3.18  Investor's Percentage Ownership.............................................................15
   Section 3.19  Brokers, Finders, etc.......................................................................16
   Section 3.20  Dealings with Affiliates....................................................................16
   Section 3.21  Disclosure..................................................................................16
   Section 3.22  This section intentionally omitted..........................................................16
   Section 3.23  Territorial Restrictions....................................................................16
   Section 3.24  Effect of Transaction.......................................................................16
   Section 3.25  Antitakeover Provisions.....................................................................16
   Section 3.26  No Retention Agreements.....................................................................16
   Section 3.27  Real Property Holding Company...............................................................17
   Section 3.28  Government Contracts........................................................................17
   Section 3.29  Affiliated Group Liability..................................................................17
   Section 3.30  Invention and Secrecy Agreements............................................................18
   Section 3.31  Registration Rights.........................................................................18
   Section 3.32  Officers, Directors and Shareholders........................................................18
   Section 3.33  No Intervention.............................................................................18
</TABLE>

                                       i
<PAGE>
<TABLE>
                                     <c>                                                                  <c>
   ARTICLE IV  REPRESENTATIONS AND WARRANTIES OF INVESTOR....................................................18
   Section 4.1  Corporate Status.............................................................................18
   Section 4.2  Authorization................................................................................18
   Section 4.3  No Conflicts, etc............................................................................19
   Section 4.4  Litigation...................................................................................19
   Section 4.5  Brokers, Finders, etc........................................................................19
   Section 4.6  Purchase Entirely for Own Account............................................................19
   Section 4.7  Investment Experience........................................................................19
   Section 4.8  Disclosure of Information....................................................................19
   Section 4.9  Accredited Investor..........................................................................20
   Section 4.10  Restricted Securities.......................................................................20

   ARTICLE V  COVENANTS......................................................................................20
   Section 5.1  Covenants of the Company.....................................................................20
   Section 5.2  Covenants of Investor........................................................................23
   Section 5.3  Legends......................................................................................24
   Section 5.4  Removal of Legends...........................................................................24
   Section 5.5  Further Restriction on Transfer..............................................................24

   ARTICLE VI  CONDITIONS PRECEDENT..........................................................................25
   Section 6.1  Conditions to Obligations of Each Party......................................................25
   Section 6.2  Conditions to Obligations of Investor........................................................25
   Section 6.3  Conditions to Obligations of Company.........................................................26

   ARTICLE VII  ANTI-DILUTION RIGHTS.........................................................................27
   Section 7.1  Anti-Dilution Right..........................................................................27

   ARTICLE VIII  TERMINATION.................................................................................28
   Section 8.1  Termination..................................................................................28
   Section 8.2  Effect of Termination........................................................................29

   ARTICLE IX  INDEMINIFICATION..............................................................................29
   Section 9.1  By Company...................................................................................29
   Section 9.2  By Investor..................................................................................30
   Section 9.3  Indemnification Procedures...................................................................30
   Section 9.4  Expiration of Representations and Warranties, etc............................................32
   Section 9.5  Set-Off......................................................................................32

   ARTICLE X  REGISTRATION RIGHTS............................................................................32
   Section 10.1  Definitions.................................................................................32
   Section 10.2  Demand Registration Rights..................................................................33
   Section 10.3  Expenses of Demand Registration.............................................................35
   Section 10.4  Form S-3 Registration Rights................................................................35
   Section 10.5  Company Registration........................................................................36
   Section 10.6  Expenses of Company Registration Rights.....................................................37
   Section 10.7  Indemnification.............................................................................37
   Section 10.8  Reports Under Securities Exchange Act of 1934...............................................39
</TABLE>

                                       ii
<PAGE>
<TABLE>
                                     <c>                                                                  <c>
   Section 10.9  Assignment of Registration Rights...........................................................40
   Section 10.10  Subsequent Registration Rights.............................................................40
   Section 10.11  Market Stand-Off Agreement.................................................................40
   Section 10.12  Amendment of Registration Rights...........................................................41

   ARTICLE XI  MISCELLANEOUS.................................................................................41
   Section 11.1  Expenses....................................................................................41
   Section 11.2  Severability................................................................................41
   Section 11.3  Notices.....................................................................................42
   Section 11.4  Attorneys' Fees.............................................................................42
   Section 11.5  Liability for Transfer Taxes................................................................43
   Section 11.6  Headings....................................................................................43
   Section 11.7  Entire Agreement............................................................................43
   Section 11.8  Counterparts................................................................................43
   Section 11.9  Governing Law...............................................................................43
   Section 11.10  Binding Effect.............................................................................44
   Section 11.11  No Third Party Beneficiaries...............................................................44
   Section 11.12  Amendment, Waivers, etc....................................................................44
   Section 11.13  Company Acknowledgment.....................................................................44
   Section 11.14  Company Acknowledgment.....................................................................44
   Section 11.15  Titles and Subtitles.......................................................................44

</TABLE>

                                      iii
<PAGE>

<TABLE>

                                    EXHIBITS
                                                     <c>
         Exhibit A...................................Forms of Warrant
         Exhibit B...................................Form of Officer's Certificate

                                    SCHEDULES

         Schedule 3.6................................Schedule of Liabilities
         Schedule 3.8................................Material Adverse Changes
         Schedule 3.9(a).............................Litigation
         Schedule 3.9(b).............................Unsatisfied Judgments, Consent Decrees, Injunctions
         Schedule 3.11(a)                            Real Property
         Schedule 3.11(c)                            Permitted Liens
         Schedule 3.12                               Contracts
         Schedule 3.13                               Warranties
         Schedule 3.14(e)                            Intellectual Property Supplied by the Company Without a Binding License
         Schedule 3.15                               Insurance Policies
         Schedule 3.16(a)                            Non-Compliance With Environmental Laws
         Schedule 3.16(b)                            Other Environmental Matters
         Schedule 3.17                               Exceptions to At-Will Employment
         Schedule 3.20                               Dealings With Affiliates
         Schedule 3.26                               Retention Agreements
         Schedule 3.28                               Government Contracts
         Schedule 3.31                               Registration Rights
         Schedule 3.32                               Officers, Directors and Shareholders

</TABLE>
                                      iv
<PAGE>
     This STOCK  PURCHASE  AGREEMENT is made as of August __, 2002,  between L-3
Communications  Corporation,  a Delaware corporation ("Investor") and Innovative
Micro Technology, Inc., a Delaware corporation (the "Company").

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

     A.  The  Company  is  in  the   business  of   developing   and   supplying
micro-electronic  machines (MEMs) technology and operating a fully-equipped  and
functional wafer fabricating facility on a foundry basis.

     B. Upon the terms and subject to the conditions set forth herein,  Investor
wishes to purchase  (i) 935,000  shares of common  stock,  $0.0001 par value per
share,  of the Company  (the  "Shares")  and (ii) a warrant to purchase up to an
additional 167,000 shares of Common Stock at a purchase price of $5.35 per share
and a warrant to purchase up to an additional  700,000 shares of Common Stock at
a purchase price of $7.29 per share,  such warrants in the forms attached hereto
as Exhibit A (the "Warrants").

     C. The Company wishes to sell the Shares and the Warrants to Investor.

     D. Capitalized terms have the meanings assigned to them in Article I.

     NOW,  THEREFORE,  in  consideration  of the foregoing  facts and the mutual
covenants,  representations  and  warranties  made  herein  and  other  good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  hereby  are
acknowledged, the parties hereto agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Certain Terms.

     The terms  defined in this Section 1.1,  whenever  used in this  Agreement,
shall have the  respective  meanings  indicated  below for all  purposes of this
Agreement.

     "Affiliate": of a Person means a Person that directly or indirectly through
one or more  intermediaries,  controls,  is  controlled  by, or is under  common
control with, the Person or a member of such Person's immediate family.

     "Agreement":  means this Stock Purchase  Agreement  (including the Exhibits
and the  Schedules  as  provided  herein),  as the same from time to time may be
amended, supplemented, modified or waived.

     "Applicable Law": means all applicable provisions of all (i) constitutions,
treaties,  statutes,  laws  (including  the  common  law),  rules,  regulations,
ordinances,  codes or orders of any Governmental  Authority,  (ii)  Governmental
Approvals,  and (iii)  orders,  decisions,  injunctions,  judgments,  awards and
decrees of or agreements with any Governmental Authority.

<PAGE>
     "Anti-Dilution Shares": has the meaning set forth in Section 7.1.

     "Closing": has the meaning set forth in Section 2.2.

     "Closing Date": has the meaning set forth in Section 2.2.

     "Code": means the Internal Revenue Code of 1986, as amended.

     "Common Stock":  means the common stock,  par value $0.0001 of the Company,
and also shall  include any  securities  issued or issuable  with respect to the
Common Stock,  by way of a stock dividend,  stock split,  combination of shares,
recapitalization,  restructuring,  merger, consolidation or other reorganization
of the Company.

     "Company":  has the  meaning  set  forth  in the  first  paragraph  of this
Agreement.

     "Company Indemnitees": has the meaning set forth in Section 9.2.

     "Company Threshold Amount": has the meaning set forth in Section 9.1(b).

     "Competitive Product": has the meaning set forth in Section 5.1(l).

     "Consent": means any consent, approval, authorization, stipulation, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration,  certificate,  declaration or filing with, or report or notice to,
any Person, including any Governmental Authority.

     "Contracts": has the meaning set forth in Section 3.12(a).

     "Control"  (including the terms  "controlled  by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the  management and policies of a person,  whether  through the
ownership of voting securities, by contract or otherwise.

     "Debt":  means, as to any Person, all obligations for payment of principal,
interest,  penalties  and  collection  costs  thereof,  with  respect  to  money
borrowed,  incurred  or  assumed  (including  guarantees),   and  other  similar
obligations  in the nature of a borrowing by which such Person will be obligated
to pay.

     "$" or "dollars": means lawful money of the United States of America.

     "Environmental  Laws": means all Applicable Laws relating to the protection
of the environment,  to human health and safety, or to any emission,  discharge,
generation,   processing,   storage,  holding,  abatement,  existence,  Release,
threatened  Release,  arranging  for  the  disposal  or  transportation  of  any
Hazardous Substances.

     "Environmental  Liabilities and Costs":  means all Losses:  (a) relating to
the alleged presence of Hazardous Substances, including claims for diminution of
property value,  personal injury or property  damages;  (b) imposed by, under or

                                       2
<PAGE>
pursuant to Environmental Laws,  including all fees,  disbursements and expenses
of counsel,  court costs and expert  witness fees,  based on,  arising out of or
otherwise  in respect of (i) the  ownership  or operation of the Company or Real
Property,  by Company,  and (ii) the  environmental  conditions  existing on the
Closing Date on,  under,  above,  or about any Real  Property  owned,  leased or
operated by Company.

     "ERISA":  means the Employee  Retirement  Income  Security Act of 1974,  as
amended.

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

     "Financial Statements": has the meaning set forth in Section 3.5.

     "GAAP": means United States generally accepted accounting principles.

     "Governmental Approval":  means any Consent of, with or to any Governmental
Authority.

     "Governmental  Authority":  means any  nation or  government,  any state or
other  political   subdivision   thereof,   any  entity  exercising   executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government,  including any government authority,  agency, department,  board,
commission  or  instrumentality  of the United  States,  any State of the United
States or any political  subdivision  thereof, and any tribunal or arbitrator(s)
of competent jurisdiction, and any self-regulatory organization.

     "Government  Bid": means any offer to sell made by the Company prior to the
Closing  Date which,  if  accepted,  would  result or may result in a Government
Contract.

     "Government  Contract":  means any  prime  contract,  subcontract,  teaming
agreement or  arrangement,  joint  venture,  basic ordering  agreement,  pricing
agreement,  letter  contract,  purchase  order,  delivery  order,  change order,
Government Bid or other arrangement of any kind, between the Company and (i) any
Governmental Authority, (ii) any prime contractor of a Governmental Authority in
its capacity as a prime contractor,  or (iii) any subcontractor  with respect to
any contract of a type described in clauses (i) or (ii) above.

     "Hazardous   Substances":   means  any   substance   that:   (i)   requires
investigation,  removal  or  remediation  under  any  Environmental  Law,  or is
defined,  listed or identified  as a "hazardous  waste,"  "hazardous  material,"
"toxic substance,"  "contaminant,"  "pollutant," "oil" or "hazardous  substance"
thereunder;  or (ii) is  toxic,  explosive,  corrosive,  flammable,  infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated as
such by any Governmental Authority or Environmental Law.

     "include," "includes" and "including": shall be construed as if followed by
the phrase "without being limited to."

     "Indemnified Party": has the meaning set forth in Section 9.3.

     "Indemnifying Party": has the meaning set forth in Section 9.3.

                                       3
<PAGE>
     "Intellectual Property": means: (a) any and all trademarks,  service marks,
brand names, certification marks, trade dress, assumed names, trade names, logos
and other indications of origin,  sponsorship or affiliation,  together with the
goodwill   associated   therewith  (whether  the  foregoing  are  registered  or
unregistered);  registrations  thereof in any  jurisdiction  and applications to
register  any  of  the  foregoing  in  any  jurisdiction,   and  any  extension,
modification or renewal of any such registration or application; (b) any and all
inventions,  developments,  improvements,  discoveries,  know how,  concepts and
ideas,  whether patentable or not in any jurisdiction;  (c) any and all patents,
revalidations,  industrial designs, industrial models and utility models, patent
applications      (including      reissues,      continuations,       divisions,
continuations-in-part  and extensions) and patent  disclosures;  (d) any and all
mask works and other  semiconductor chip rights and registrations  thereof;  (e)
any  and  all  non-public   information,   trade  secrets  and   proprietary  or
confidential  information  and  rights in any  jurisdiction  to limit the use or
disclosure  thereof by any Person;  (f) any and all  writings  and other  works,
whether  copyrighted,  copyrightable  or  not in any  jurisdiction,  such  works
including  computer  programs and software  (including source code, object code,
data and databases);  (g) any and all copyrights,  copyright  registrations  and
applications  for  registration  of  copyrights  in any  jurisdiction,  and  any
renewals or extensions thereof;  (h) any and all other intellectual  property or
proprietary rights; (i) any and all agreements,  licenses, immunities, covenants
not to sue and the like  relating any of to the  foregoing;  and (j) any and all
claims or causes of action  arising  out of or  related to any  infringement  or
misappropriation of any of the foregoing.

     "Inventories":  means all  inventories of raw  materials,  work in process,
finished  products,  goods,  spare parts,  replacement and component  parts, and
office and other supplies (whether on hand, in-transit or on order).

     "Investor":  has the  meaning  set  forth in the  first  paragraph  of this
Agreement.

     "Investor Indemnitees": has the meaning set forth in Section 9.1.

     "Investor's Threshold Amount": has the meaning set forth in Section 9.2.

     "IRS": means the United States Internal Revenue Service.

     "Knowledge":  as to the Company,  means the actual knowledge of John Foster
or Peter Altavilla after due inquiry.

     "Leased Real Property": means all space leased pursuant to the Leases.

     "Leases":  means  the real  property  leases,  subleases,  use  agreements,
licenses and occupancy  agreements  pursuant to which the Company is the lessee,
sublessee, user, licensee or occupant.

     "Lien": means any mortgage, pledge, hypothecation,  right of others, claim,
security interest,  encumbrance,  lease, sublease, license, occupancy agreement,
adverse  claim or interest,  easement,  covenant,  encroachment,  burden,  title
defect, title retention  agreement,  voting trust agreement,  interest,  equity,
option, lien, right of first refusal, charge or other restriction or limitation.

                                       4
<PAGE>
     "Losses": has the meaning set forth in Section 9.1.

     "Material Adverse Effect": means any event, circumstance, occurrence, fact,
condition,  change  or  effect  that  is  materially  adverse  to the  business,
operations, results of operations,  financial condition, prospects,  properties,
assets or liabilities of the Company.

     "Military Market": has the meaning set forth in Section 5.1(l).

     "New Securities": has the meaning set forth in Section 7.2.

     "Notice": has the meaning set forth in Section 13.3.

     "Order":  means  the order  filed  with the U.S.  Bankruptcy  Court for the
Central District of California on November 3, 2001 confirming the Reorganization
Plan.

     "Permitted Liens": has the meaning set forth in Section 3.11.

     "Percentage Equity": has the meaning set forth in Section 7.1.

     "Person":  means  any  natural  person,  firm,  partnership,   association,
corporation,   company,   limited  liability  company,  trust,  business  trust,
Governmental Authority or other entity.

     "Preferred Stock": has the meaning set forth in Section 3.3(a).

     "Purchase Price": has the meaning set forth in Section 2.1.

     "Registrable Securities": has the meaning set forth in Section 10.1(c).

     "Registration Expenses": has the meaning set forth in Section 10.1(g).

     "Release":  means  any  releasing,   disposing,   discharging,   injecting,
spilling,  leaking, leaching,  pumping, dumping, emitting,  escaping,  emptying,
seeping, dispersal, migration, transporting, placing and the like, including the
moving of any materials  through,  into or upon, any land, soil,  surface water,
ground water or air, or otherwise entering into the environment.

     "Reorganization Plan": means the Third Amended Plan of Reorganization under
Chapter 11 of the Bankruptcy Code, dated as of September 24, 2001.

     "SEC": means the United States Securities and Exchange Commission.

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

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

     "Shares":  has the meaning set forth in  paragraph B of the recitals at the
head of this Agreement, and also shall include any securities issued or issuable

                                       5
<PAGE>
with respect thereto,  by way of a stock dividend,  stock split,  combination of
shares,   recapitalization,   restructuring,   merger,  consolidation  or  other
reorganization of the Company.

     "Subsidiary": means each corporation or other Person in which a Person owns
or controls,  directly or  indirectly,  capital stock or other equity  interests
representing  at least  50% of the  outstanding  voting  stock  or other  equity
interests.

     "Tangible Property": has the meaning set forth in Section 3.11(b).

     "Tax Return": means any return, report, declaration, form, claim for refund
or information return or statement relating to Taxes,  including any schedule or
attachment thereto, and including any amendment thereof.

     "Taxes":  means any federal,  state,  provincial,  local or foreign income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, net worth, capital,  profits,  windfall profits,  gross receipts,
value added, sales, use, goods and services,  excise, customs duties,  transfer,
conveyance,  mortgage,  registration,  stamp, documentary,  recording,  premium,
severance,  environmental  (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles,  rent, occupancy, license,
occupational,  employment,  unemployment insurance, social security, disability,
workers' compensation,  payroll,  health care,  withholding,  estimated or other
similar tax, duty or other  governmental  charge or  assessment or  deficiencies
thereof, and including any interest,  penalties or additions to tax attributable
to the foregoing.

     "Transfer Taxes": has the meaning set forth in Section 13.5.

     "Treasury  Regulations":  means the regulations  prescribed pursuant to the
Code.

     "2001 Year End  Unaudited  Balance  Sheet":  has the  meaning  set forth in
Section 3.5.

     "Warrants":  has the  meaning  set  forth in  recital B at the head of this
Agreement.

     "Warrant Shares": has the meaning set forth in Section 10.1.

     Section 1.2 Construction.

     All references herein to a Section,  Article,  Exhibit or Schedule are to a
Section, Article, Exhibit or Schedule of or to this Agreement,  unless otherwise
indicated.

                                   ARTICLE I
                         SALE AND PURCHASE OF THE SHARES

     Section   1.0   Purchase   and  Sale  of   Common   Stock   and   Warrants.

     Subject to the terms and  conditions  of this  Agreement,  at the  Closing,
Investor agrees to purchase, and the Company agrees to sell to Investor: (1) the
Shares;  and (2) the Warrants,  for an aggregate  purchase price of Five Million
Dollars ($5,000,000) (the "Purchase Price").

                                       6
<PAGE>

     Section 2.2 Place and Date.

     The  closing  of the sale and  purchase  of the Shares  and  Warrants  (the
"Closing") shall take place at 10:00 A.M. local time on August __, 2002, or such
other  time and place  upon which the  parties  may agree.  The day on which the
Closing actually occurs is herein sometimes referred to as the "Closing Date."

     Section 2.3 Payment and Delivery.

     At the Closing,  Investor shall deliver the Purchase Price by wire transfer
in immediately available funds to the account designated by the Company, against
delivery  by  the  Company  of  certificates   evidencing  the  Shares  and  the
certificates representing the Warrants.

                                   ARTICLE I
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to Investor as follows:

     Section 3.1 Corporate Status.

     (a) The Company is a corporation  duly organized,  validly  existing and in
good standing under the laws of the State of Delaware, with full corporate power
and  authority  to carry on its  business and to own or lease and to operate its
properties  as and in the  places  where  its  business  is  conducted  and such
properties  are owned,  leased or  operated.  The Company is duly  qualified  or
licensed to do business and is in good  standing in any  jurisdiction  where the
character  of its  properties  owned or leased or the  nature of its  activities
would require it to be so qualified or  registered,  except where the failure to
do so would not have a Material Adverse Effect on the Company.

     (b) The Company has delivered to Investor true, complete and correct copies
of the Company's  certificate of  incorporation  and by-laws,  as amended and in
effect  on the date  hereof  and on the  Closing  Date.  The  Company  is not in
violation of its certificate of incorporation or by-laws. The stock books of the
Company that have been made  available to Investor for its  inspection are true,
correct and  complete.  The minute  books of the  Company,  as  previously  made
available  to  Investor,  contain  accurate  records  of  all  meetings  of  and
resolutions of, or written  consents by, the  stockholders or Board of Directors
of the Company since November 16, 2001.

     Section 3.2 Authorization, etc.

     The Company has all requisite power and authority  (corporate or otherwise)
to  execute  and  deliver  this  Agreement,  to  perform  fully its  obligations
hereunder and to consummate the transactions  contemplated hereby. The execution
and  delivery  by the Company of this  Agreement,  and the  consummation  of the
transactions  contemplated  hereby,  have been duly  authorized by all requisite
corporate  action of the Company.  The Company has duly  executed and  delivered
this Agreement.  This Agreement is a legal,  valid and binding obligation of the
Company,  enforceable  against it in accordance with its terms,  subject,  as to
enforceability,  to  bankruptcy,  insolvency,  reorganization  and other laws of

                                       7
<PAGE>
general applicability  relating to or affecting creditors' rights and to general
principles of equity.

     Section 3.3 Capital Stock of the Company.

     (a) Immediately prior to the Closing,  the authorized  capital stock of the
Company is 25,000,000 shares, consisting of:

          (i) Common Stock. 22,500,000 shares of common stock, $0.0001 par value
     per share,  of which zero  shares are issued and  outstanding.  The Company
     will  issue  4,500,000  shares  of  Common  Stock in 2002  pursuant  to the
     Reorganization Plan and the Order.

          (ii) Preferred Stock.  22,500,000 shares of preferred stock, par value
     $0.0001 per share (the "Preferred  Stock"), of which zero shares are issued
     and outstanding.

          (iii)  Other  Securities.  Options and  warrants  to acquire  from the
     Company an  aggregate of  1,247,300  shares of capital  stock at an average
     exercise  per  share  of  $5.00.  In  addition,   the  Company  has  issued
     Convertible   Notes  in  a  principal  amount  of  $4,136,918,   which  are
     convertible into Common Stock at a price of $8.20 per share.  Further,  the
     Company  has  issued  reciprocal  warrants  and  calls  with a term  ending
     November 16, 2004 at exercise  prices of $20.00 and above,  the exercise of
     which will have no net effect on the Company's  outstanding  capital stock.
     The Company has granted  500,000 options to purchase common stock under the
     2001 Stock Incentive Plan at an exercise price of $0.0001 per share.

     No Common Stock  constitutes  treasury  stock.  No other  capital  stock is
authorized.

     (b) All the  issued  and  outstanding  shares of the  Company  are  validly
issued,  fully  paid and  nonassessable  and have  been  issued  in  substantial
compliance with all material Applicable Laws.

     (c)  Except  as  provided  in  Section  3.3(a),  there  are no  outstanding
subscriptions,  options, rights, warrants,  stock-based or stock-related awards,
convertible,  exercisable or  exchangeable  securities,  or other  agreements or
commitments  obligating the Company to issue, grant, award,  purchase,  acquire,
sell or transfer  any shares of the  Company's  capital  stock of any class,  or
other  securities  of  the  Company   (including  any  agreement  or  commitment
obligating the Company to enter into any employee compensation arrangement based
on any valuation or  transaction  price of, or change of ownership in, shares of
its capital stock),  and the Company shall not issue,  grant,  award,  purchase,
acquire,  sell or transfer such capital stock or other  securities  prior to the
Closing.   There  are  no  voting  trusts,   proxies  or  other   agreements  or
understandings  to which the  Company is a party  with  respect to the voting of
capital stock.

     (d) When issued to Investor  against payment in full of the Purchase Price,
the  Shares  will be validly  issued,  fully  paid and  non-assessable,  and the
Warrants will represent the rights they purport to represent.

                                       8
<PAGE>
     (e) The Company  does not own,  directly  or  indirectly,  any  interest or
investment (whether in equity or debt) in any Person.

     Section 3.4 No Conflicts, etc.

     The  execution,  delivery  and  performance  of  this  Agreement,  and  the
consummation  of the  transaction  contemplated  hereby,  do not  and  will  not
conflict  with or result in a violation  of or a default  under (with or without
the  giving  of  notice  or the  lapse  of  time  or  both),  or  result  in the
acceleration  of or give rise in any party  the  right to  terminate,  modify or
cancel  under,  or  result in the loss of any  rights,  privileges,  options  or
alternatives  under,  or  result  in  the  creation  of any  Lien  on any of the
properties or assets of the Company under (i) the  certificate of  incorporation
or by-laws of the Company,  (ii) any Applicable Law applicable to the Company or
any of its properties or assets, or (iii) any Contract to which the Company is a
party or by which  the  Company  or any of its  property  is bound.  Except  for
securities notice filings that will have been made prior to Closing or that will
be made by the Company promptly after Closing, no Governmental Approval or other
Consent is required to be obtained or made by the Company in connection with the
execution and delivery of this Agreement or the  consummation of the transaction
contemplated hereby.

     Section 3.5 Financial Statements.

     The Company has delivered to Investor (a) the audited balance sheet and the
statements of income, cash flows and stockholders' equity of the Company for the
year ended  December 31,  2001,  and the  unaudited  interim  balance  sheet and
statements of income, cash flows and stockholders' equity of the Company for the
quarter ended March 31, 2002  (collectively,  the "Financial  Statements").  The
Financial  Statements  have been prepared in accordance  with GAAP  consistently
applied and fairly present the financial  condition and results of operations of
the Company as at and for the periods specified therein.

     Section 3.6 Absence of Undisclosed Liabilities.

     The Company has no debts, claims, liabilities or obligations of any nature,
whether known or unknown, absolute, accrued, contingent or otherwise and whether
due or to become due,  asserted or unasserted,  constituting a Material  Adverse
Effect, except (a) as set forth on Schedule 3.6. Schedule of Liabilities, (b) to
the extent disclosed or reserved against in the 2001 Year End Unaudited  Balance
Sheet, and (c) for  non-material  liabilities and obligations that were incurred
after December 31, 2001 in the ordinary course of business consistent (in amount
and kind) with past practice.

     Section 3.7 Taxes.

     (a) The Company has duly and timely  filed all Tax Returns  with respect to
Taxes  required to be filed on or before the Closing Date.  All such tax returns
are true, complete and correct.  All other taxes owed by the Company (whether or
not shown on any Tax Return) have been duly and timely paid. The Company has not
extended  or  otherwise  waived  the  benefit  of  any  applicable   statute  of
limitations  or agreed to any extension of time with respect to a Tax assessment
or deficiency.

                                       9
<PAGE>
     (b) The Company has withheld all required  amounts in respect of Taxes from
its employees, agents, contractors and nonresidents and, to the extent required,
has remitted such amounts to the proper agencies.

     (c)  There is no  dispute  or claim  concerning  any Tax  Liability  of the
Company either (i) claimed or raised by any  Governmental  Authority in writing,
or (ii) as to which  any  Company  or any of the  directors  and  officers  (and
employees  responsible  for Tax matters) of the Company has knowledge based upon
personal  contact  with any agent of such  Governmental  Authority.  Company has
delivered to Investor correct and complete copies of all federal,  state,  local
and  foreign  income  Tax  Returns,   examination  reports,  and  statements  of
deficiencies  assessed against or agreed to by the Company since the date of the
formation of the Company.

     (d) The  Company is not a "foreign  person"  within the  meaning of Section
1445(b)(2) of the Code.

     Section 3.8 Absence of Changes.

     Except as set forth in Schedule 3.8,  since  December 31, 2001, the Company
has not:

     (a) suffered any Material Adverse Effect or obtained knowledge of any event
that might  reasonably  be  expected  to cause the  Company to suffer a Material
Adverse Effect in the future;

     (b) incurred,  assumed,  guaranteed or discharged any additional,  material
obligation or liability, absolute, accrued, contingent or otherwise, whether due
or to become due, or any  additional  indebtedness  (including  any Debt) beyond
that already listed and outstanding  prior to December 31, 2001,  except current
liabilities  for trade or business  obligations  incurred in connection with the
purchase of goods or services in the ordinary course of business  consistent (in
amount and kind) with prior practice;

     (c)  mortgaged,  pledged or  subjected  to any other  Lien,  any  property,
business or assets, tangible or intangible;

     (d)  sold,  transferred,  leased to others  or  otherwise  disposed  of any
material  assets,  except for  production  of the Company  sold in the  ordinary
course of business  (consistent with past practice),  or canceled or compromised
any debt or claim, or waived or released any right of substantial value;

     (e) received any notice of termination of any Contract;

     (f) suffered  any damage,  destruction  or loss  (whether or not covered by
insurance), in any case or in the aggregate, in excess of $50,000;

     (g) transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any Intellectual  Property, or modified
any existing rights with respect thereto;

                                       10
<PAGE>

     (h) made any material change in the rate of compensation, commission, bonus
or other direct or indirect  remuneration  payable,  or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, incentive,  retention or
other compensation, retirement, welfare, fringe or severance benefit or vacation
pay, to or in respect of any employee, distributor or agent of the Company;

     (i) made any change in the  accounting  or auditing  methods,  practices or
principles of the Company;

     (j)  encountered  any labor union  organizing  activity,  had any actual or
threatened employee strikes,  work stoppages,  slowdowns or lockouts, or had any
material  change in its  relations  with its  employees,  distributors,  agents,
customers or suppliers;

     (k) entered into any  material  transaction  or Contract  other than in the
ordinary  course of  business,  or paid or agreed to pay any legal,  accounting,
brokerage, finder's fee, Taxes or other expenses in connection with, or incurred
any severance pay  obligations by reason of, this Agreement or the  transactions
contemplated hereby;

     (l) made any  material  grant of credit to any customer or  distributor  on
terms or in amounts  materially  more favorable  than in the ordinary  course of
business;

     (m) amended  its charter or by-laws or merged with or into or  consolidated
with any other  Person,  subdivided,  combined  or in any way  reclassified  any
shares of its  capital  stock or  changed  or agreed to change in any manner the
rights of its outstanding capital stock or the character of its business;

     (n) made any  declaration  of, or set aside or paid,  any dividend or other
distribution  (whether in cash,  stock or other  property)  with  respect to the
capital stock of the Company,  or issued,  pledged or sold any shares of capital
stock of the Company,  or any other  securities or rights,  convertible  into or
exchangeable  for or conferring the right to purchase shares of capital stock of
the Company (or entered into any agreement,  arrangement or other  understanding
to do the same) or  directly  or  indirectly  purchased,  redeemed,  retired  or
otherwise  acquired  any  shares  of  capital  stock  of the  Company  or  other
securities  convertible  into,  exchangeable  for or  conferring  the  right  to
purchase  shares of capital stock of the Company (or entered into any agreement,
arrangement or other understanding to do the same); or

     (o) taken any action or omitted to take any action that would result in the
occurrence of any of the foregoing.

     Section 3.9 Litigation.

     (a) Other than as disclosed on Schedule 3.9(a), there is no action,  claim,
demand, suit, proceeding,  arbitration,  grievance, citation, summons, subpoena,
inquiry or investigation, civil, criminal, regulatory or otherwise, in law or in
equity,  pending  and served or, to the  Knowledge  of the  Company,  threatened
against or relating  to the  Company  seeking  unspecified  damages,  damages in

                                       11
<PAGE>
excess of $50,000 or any  injunctive  or other  equitable  relief except for any
unresolved  claims  that are not  material  in  connection  with  the  Company's
bankruptcy.

     (b) Except as set forth on Schedule  3.9,  there are no material  judgments
unsatisfied  against the Company or consent  decrees or injunctions to which the
Company is subject.

     (c)  There is no  action,  claim,  suit or  proceeding  pending,  or to the
Company's  knowledge,  threatened,  by or against or  affecting  the  Company in
connection with or relating to the  transactions  contemplated by this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated hereby.

     (d) Since November 16, 2001 and to the Knowledge of the Company, during the
past five years, there have been no product liability claims,  suits, actions or
proceedings   involving   the  Company  or  relating  to  products  or  services
manufactured, sold or provided by the Company.

     Section 3.10 Compliance with Laws; Governmental Approvals and Consents.

     (a) The Company has complied in all material  respects with all  Applicable
Laws applicable to the Company.

     (b) No  Governmental  Approvals and other  Consents are  necessary  for, or
otherwise material to, the conduct of the business of the Company, except as has
been obtained.

     Section 3.11 Assets.

     (a) Schedule  3.11(a) sets forth a complete list of the real property owned
by the Company.

     (b)  Leases.  (a) The Leases  are in full  force and effect and  constitute
legal and binding  obligations  of the Company  and the other  parties  thereto,
enforceable  according to their terms,  (b) the Company is not in default  under
any of the Leases, (c) to the Knowledge of the Company, no other party to any of
the Leases is in default  thereunder,  and (d) there exist no conditions  which,
with notice or lapse of time, or both,  would  constitute a default under any of
the Leases.

     (b) Title to  Assets.  Except for the liens set forth on  Schedule  3.11(c)
(the  "Permitted  Liens"),  the  Company  has good and valid title to all of its
assets and interests in assets,  whether real, personal,  mixed,  tangible,  and
intangible,  and to the knowledge of the Company all the assets and interests in
the assets of the Company are free of any Liens.

     (c)  Business.  The assets  owned by the  Company  are  sufficient  for the
continued  conduct of the  business  by the  Company  after the  Closing as such
business has been conducted in the past.

                                       12
<PAGE>
     Section 3.12 Contracts.

     (a)  Schedule  3.12  sets  forth  a  list  of  all  agreements,  contracts,
commitments,   orders,  licenses,   leases  (including  the  Leases)  and  other
instruments  and  arrangements  (whether  written  or  oral)  (the  "Contracts")
material to the business or  properties of the Company to which the Company is a
party, or under which any of its property is bound and all Contracts are in full
force and effect.

     (b) The Company has delivered or made available to Investor true,  complete
and correct copies of all Contracts, together with all amendments thereto.

     (c) To the  knowledge  of the  Company,  there  does not  exist  under  any
Contract any event of default or event or condition that,  after notice or lapse
of time or both,  would  constitute  a  violation,  breach  or event of  default
thereunder  by any  party to any of the  Contracts.  Each  Contract  is a legal,
valid,  binding and enforceable  obligation of the Company and, to the knowledge
of the Company,  the other parties thereto,  subject,  as to enforceability,  to
bankruptcy,  insolvency,  reorganization and other laws of general applicability
relating to or affecting creditors' rights and general principles of equity.

     Section 3.13 Product Warranties.  Except as set forth on Schedule 3.13, (i)
there are no warranties express or implied, written or oral, with respect to the
products  or  services  of the  Company,  and  there are no  pending  or, to the
knowledge of the Company, threatened,  claims with respect to any such warranty;
(ii) during the past five years,  the Company has not had a claim against it for
a product it has warranted and does not reserve for such  warranty  claims;  and
(iii) the Company has no  Knowledge  of any facts that might lead to an increase
in warranty claims in the future.

     Section 3.14 Intellectual Property.

     All  Intellectual  Property  used by the  Company  either  is  owned by the
Company or used pursuant to a valid license which is not  terminable  due to any
breach or noncompliance by the Company and which shall not be adversely affected
by the transactions contemplated herein. None of the Intellectual Property owned
by the  Company is subject to any other Lien in favor of any third party and the
Company owns all right, title and interest therein and thereto.

     (a) No claims with respect to any Intellectual  Property have been asserted
or threatened  by any Person (i) against the Company,  or (ii) against any other
Person based on its permitted use of any of the Company's  Intellectual Property
which,  if determined  adversely,  could have a material  adverse  effect on the
Company. No permitted use of any of the Company's  Intellectual  Property by any
Person  violates  the  Intellectual  Property  of any other  Person and no valid
grounds  exist for any bona fide  claims  against the Company or any such Person
with respect to any  Intellectual  Property.  Without limiting the generality of
the foregoing,  no Person ever employed or otherwise  engaged by the Company has
asserted  or  threatened   any  claim  against  the  Company   relating  to  any
Intellectual Property. All granted and issued patents,  copyright registrations,
and  registered  trademarks  and service  marks and all  copyrights  held by the
Company are valid, enforceable and subsisting.  To the knowledge of the Company,

                                       13
<PAGE>
there has not been, nor is there presently,  any unauthorized use,  infringement
or  misappropriation  of any of its  Intellectual  Property by any  Person.  The
Company has the full right to possess, use, copy, distribute,  display, transfer
and license all  Intellectual  Property  material to its  business or  otherwise
necessary to its business as presently conducted.

         (b)  No Intellectual Property of the Company is subject to any
outstanding order, award, decision, injunction, judgment, decree, stipulation or
agreement in any manner restricting the transfer, use, enforcement or licensing
thereof by the Company. The Company has not entered into any agreement to
indemnify any other Person against any charge of infringement of any
Intellectual Property. The Company has not entered into any agreement granting
any third party the right to bring infringement actions with respect to, or
otherwise to enforce rights with respect to, any Intellectual Property. The
Company has the exclusive right to file, prosecute and maintain all applications
and registrations with respect to the Intellectual Property.

         (c)  The Company has taken all reasonable and necessary steps to
protect its Intellectual Property and its rights thereunder, and no such rights
to Intellectual Property have been lost or to the knowledge of the Company are
in jeopardy of being lost. The Company has paid all fees, annuities and all
other payments which have heretofore become due to any governmental or regional
authority with respect to its Intellectual Property and has taken all steps
reasonable and necessary to prosecute and maintain the same.

         (d) The Company has not transferred its title in or to any copy
of any computer program or software. No computer program or software has been
supplied by the Company to any Person except pursuant to a binding license
prohibiting further distribution and disclosure. All source code for all
computer programs and software is in the sole possession of the Company and has
been maintained strictly confidential. The Company has no obligation to afford
any Person access to any source code for any computer program.

         (e)  Except through binding licenses or sublicensing agreement,
the Company has not transferred its title in or to any Intellectual Property.
Except as disclosed on Schedule 3.13(e), no Intellectual Property has been
supplied by the Company to any Person except pursuant to a binding license
prohibiting further distribution and disclosure.

     (f) No current or former employee, independent contractor or consultant has
any interest in any Intellectual Property of the Company.

     Section 3.15 Insurance.

     Schedule 3.15  contains a true,  complete and correct list of all insurance
policies  maintained by the Company and no notice of cancellation,  termination,
or  reduction of  coverage,  and no notice of intention to cancel,  terminate or
reduce  coverage,  has been received.  The Company has given Investor  access to
true,  complete and correct copies of all such policies together with all riders
and amendments thereto.

     Such  policies  are in full force and effect,  and all premiums due thereon
have been paid.

                                       14
<PAGE>
     Section 3.16 Environmental Matters.

     (a)  Compliance  with  Environmental  Law.  Except as described on Schedule
3.15(a) or where failure to comply would not have a Material Adverse Effect, the
Company is and has been in compliance  with all  applicable  Environmental  Laws
and, to the  knowledge  of the  Company,  no  violation  by the Company is being
alleged of any applicable Environmental Law.

(b) Other  Environmental  Matters.  Except as described on Schedule  3.15(b) and
where such action or condition would not cause a Material  Adverse  Effect,  the
Company has not caused or taken any action that  resulted in, and the Company is
not subject to, any  liability or obligation  relating to (i) the  environmental
conditions on, under,  or about the Leased Real Property or other  properties or
assets owned, leased,  operated or used by the Company,  including the air, soil
and  groundwater  conditions at such  properties,  or (ii) the use,  management,
handling, transport, treatment,  generation, storage, disposal or Release of any
Hazardous Substances by the Company.

     (c) No Hazardous Substances.  The Company has purchased,  stored or used no
Hazardous Substances other than those associated with normal operations.

     (d)  No  Proceedings.   The  Company  has  not  received  notice  or  other
communication concerning any alleged liability for Environmental Liabilities and
Costs in  connection  with any  Leased  Real  Property,  and,  to the  Company's
knowledge, there exists no writ, injunction,  decree, order, judgment,  lawsuit,
claim,  proceeding,  citation,  directive,  or summons,  pending or  threatened,
relating to any environmental matters with respect to any Leased Real Property.

     Section 3.17 Employees, Labor Matters, etc.

     The  Company  is not a  party  to or  bound  by any  collective  bargaining
agreement  and there are no labor  unions or other  organizations  representing,
purporting to represent or attempting to represent any employees of the Company.
To the knowledge of the Company,  there has not occurred or been  threatened any
material strike, slowdown,  picketing, work stoppage,  concerted refusal to work
overtime or other  similar  labor  activity with respect to any employees of the
Company. The Company has no knowledge of any labor disputes currently subject to
any  grievance  procedure,  arbitration  or  litigation  or  any  representation
petition pending or threatened with respect to any employee of the Company.  The
Company has no knowledge that any officer or key employee,  or that any group of
key employees,  intends to terminate their employment with the Company, nor does
the Company have a present  intention to terminate the  employment of any of the
foregoing.

     Except as described in Schedule  3.17,  the  employment of all employees of
the  Company is  terminable  at will,  with or without  cause,  and  without the
Company thereby incurring liability for severance or otherwise.

     Section 3.18 Investor's  Percentage  Ownership.  Immediately  following the
Closing,  Investor's fully diluted  ownership  interest in the Company's capital

                                       15
<PAGE>
stock on a fully diluted basis,  treating all outstanding options,  warrants and
convertible securities as exercised,  shall be eleven and fifteen one-hundredths
percent (11.15 %)

     Section 3.19 Brokers, Finders, etc.

     All   negotiations   relating  to  this  Agreement  and  the   transactions
contemplated hereby have been carried on without the participation of any Person
acting  on  behalf of the  Company  in such  manner as to give rise to any valid
claim against Investor for any brokerage or finder's commission,  fee or similar
compensation.

     Section 3.20 Dealings with Affiliates.

     Schedule  3.20 sets forth a complete  list  (including  the parties) of all
contracts,  arrangements  or other  agreements  (written or oral)  involving  an
annual  receipt or  expenditure  of $10,000 or more  between the Company and any
shareholder of the Company,  any partnership,  corporation or other entity owned
and/or  operated by any  shareholder  of the Company or any  relative(s)  of any
shareholder of the Company or any  Affiliates  known to the Company to be now in
effect.  The Company heretofore has delivered or made available to Investor true
and complete copies (or a detailed  summary in the case of an oral agreement) of
each such contract, arrangement or other agreement.

     Section 3.21 Disclosure.  No  representation or warranty of Company in this
Agreement or in any certificate or instrument delivered by Company in accordance
with the terms hereof contains any untrue  statement of a material fact or omits
any  statement  of a material  fact  necessary  in order to make the  statements
contained  herein or therein,  in light of the  circumstances in which they were
made, not misleading.

     Section 3.22 This section was intentionally omitted.

     Section 3.23 Territorial Restrictions. The Company is not restricted by any
agreement or  understanding  with any other Person from carrying on its business
anywhere in the world.

     Section 3.24 Effect of Transaction.

     No creditor,  employee,  consultant  or customer or other  Person  having a
business relationship with the Company has informed the Company that such Person
intends  to change the  relationship  because  of the  purchase  and sale of the
Shares, nor does the Company have knowledge of any such intent.

     Section 3.25 Antitakeover Provisions.

     No "fair price", "moratorium", "control share acquisition" or other form of
antitakeover statute, regulation, charter provision or contract is applicable to
the  purchase  of the  Shares  by  Investor  or any  of the  other  transactions
contemplated by this Agreement.

     Section 3.26 No Retention Agreements. Except as set forth on Schedule 3.26,
there are no  retention  agreements,  severance  agreements,  change of  control

                                       16
<PAGE>
agreements and similar  arrangements to which the Company,  on the one hand, and
any employee, consultant or other Person, on the other hand, are a party.

     Section 3.27 Real Property Holding Company.

     The Company is not a real property  holding  company  within the meaning of
Section 897 of the Code.

     Section 3.28 Government Contracts. Except as set forth on Schedule 3.28:

     (a) the Company is not a party to any Government Contracts.

     (b)  (i) to the  Company's  Knowledge,  none  of the  Company's  employees,
consultants  or  agents is (or  during  the last  five  years  has  been)  under
administrative,  civil or criminal  investigation,  indictment or information by
any Governmental Authority; (ii) there is not pending any audit or investigation
of the Company,  its officers,  employees or representatives nor within the last
five years has there been any audit or investigation  of the Company,  officers,
employees  or  representatives  resulting  in a material  adverse  finding  with
respect to any alleged  irregularity,  misstatement or omission arising under or
relating to any Government Contract or Government Bid; and (iii) during the last
five  years,  the  Company  has not made any  voluntary  disclosure  to the U.S.
Government or any non-U.S.  government with respect to any alleged irregularity,
misstatement or omission  arising under or relating to a Government  Contract or
Government  Bid. The Company has not had any  irregularities,  misstatements  or
omissions arising under or relating to any Government Contract or Government Bid
that has led or is expected to lead, either before or after the Closing Date, to
any of the  consequences  set  forth in  clause  (i) or (ii) of the  immediately
preceding sentence or any other material damage, penalty assessment,  recoupment
of payment or disallowance of cost.

     (c) there are (i) no outstanding claims against the Company,  either by the
U.S.  Government  or  any  non-U.S.  Government  or  by  any  prime  contractor,
subcontractor,  vendor or other  third  party  arising  under or relating to any
Government  Contract or Government Bid, and (ii) no disputes between the Company
and the U.S.  Government or any non-U.S.  Government under the Contract Disputes
Act  or any  other  Federal  statute  or  between  the  Company  and  any  prime
contractor,  subcontractor  or  vendor  arising  under or  relating  to any such
Government  Contract or Government Bid. There are no facts that could reasonably
be  expected  to result in a claim or  dispute  under  clause (i) or (ii) of the
immediately preceding sentence.

     (d)  neither  the  Company  nor,  to the  Company's  Knowledge,  any of its
employees,  consultants  or agents is (or  during  the last five years has been)
suspended  or  debarred  from doing  business  with the U.S.  Government  or any
non-U.S.  government  or is (or during such period was) the subject of a finding
of   non-responsibility   or  ineligibility  for  U.S.  Government  or  non-U.S.
government  contracting.  The Company has conducted its operations in compliance
with  all  requirements  of all  material  laws  pertaining  to  all  Government
Contracts and Government Bids.

                                       17
<PAGE>
     Section 3.29 Affiliated Group Liability.

     The  Company  (a) has not been a member  of an  affiliated  group  filing a
consolidated  income tax return;  and (b) has no liability  for the Taxes of any
person under  Treasury  Regulations  section  1.1502-6(a)  (or any  analogous or
similar  provision  of any state,  local or  foreign  law or  regulation),  as a
transferee or successor, by contract, or otherwise.

     Section 3.30 Invention and Secrecy Agreements.

     Each  employee  and  consultant  of the  Company  has  executed  a form  of
employee's or consultant's invention and proprietary  information agreement,  as
the  case  may be,  substantially  the  same  as one of the  forms  provided  to
Investor.  The company is not aware that any  employees  or  consultants  are in
violation thereof, and the Company will use its commercially  reasonable efforts
to prevent any such violation.

     Section 3.31 Registration Rights.

     Except as set forth in Schedule 3.31, the Company has not granted or agreed
to grant any registration rights,  including piggy-back rights, to any person or
entity.

     Section 3.32 Officers, Directors and Shareholders.

     The Company has delivered a list of officers, directors,  shareholders (and
their respective shareholdings), of the Company at March 31, 2002, which list is
complete,  and which has not changed  since then except as set forth in Schedule
3.32.

     Section 3.33 No Intervention.

     The  Company  has not  received  notice  that any third party has taken any
action which prevents or may prevent the Company from  continuing its operations
or from further developing the technology contemplated by this Agreement.

                                   ARTICLE I
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

     The Investor represents and warrants to the Company as follows:

     Section 4.1 Corporate Status.

     The Investor is a corporation duly organized,  validly existing and in good
standing under the laws of the State of Delaware.

     Section 4.2 Authorization, etc.

     The Investor has the  corporate  power and authority to execute and deliver
this Agreement,  to perform fully its obligations  hereunder,  and to consummate
the transactions  contemplated hereby. The execution and delivery by Investor of
this Agreement,  and the consummation of the transactions  contemplated  hereby,
have been duly  authorized by all requisite  corporate  action of Investor.  The
Investor has duly executed and delivered  this  Agreement.  This  Agreement is a

                                       18
<PAGE>

legal,  valid and binding  obligation  of  Investor,  enforceable  against it in
accordance  with  its  terms,  subject,  as to  enforceability,  to  bankruptcy,
insolvency,  reorganization and other laws of general applicability  relating to
or affecting creditors' rights and to general principles of equity.

     Section 4.3 No Conflicts, etc.

     The execution,  delivery and performance by Investor of this Agreement, and
the consummation of the transactions  contemplated  hereby,  do not and will not
conflict  with or result in a violation  of or under (with or without the giving
of notice or the lapse of time or both) (i) the certificate of  incorporation or
by-laws  of  Investor,  or (ii) any  contract,  agreement  or  other  instrument
applicable to Investor or any of its properties or assets, except for violations
and defaults that,  individually  and in the  aggregate,  have not and shall not
materially  impair the ability of Investor to perform its obligations under this
Agreement.

     Section 4.4 Litigation.

     There is no action,  claim,  suit or proceeding  pending,  or to Investor's
knowledge  threatened by or against or affecting  Investor in connection with or
relating to the  transactions  contemplated  by this  Agreement or of any action
taken  or to be  taken  in  connection  herewith  or  the  consummation  of  the
transactions contemplated hereby.

     Section 4.5 Brokers, Finders, etc.

     All   negotiations   relating  to  this  Agreement  and  the   transactions
contemplated hereby have been carried on without the participation of any Person
acting on behalf of  Investor  in such manner as to give rise to any valid claim
against  Company  for any  brokerage  or  finder's  commission,  fee or  similar
compensation.

     Section 4.6 Purchase Entirely for Own Account.

     The Securities  will be acquired for investment for Investor's own account,
not as nominee or agent,  and not with a view to the resale or  distribution  of
any part thereof, and Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same.

     Section 4.7 Investment Experience.

     The Investor is an investor in companies in the development stage, can bear
the  economic  risk of total  loss its  investment  and has such  knowledge  and
experience  in financial  or business  matters that it is capable of fending for
itself and evaluating the merits and risks of the investment in the Securities.

     Section 4.8 Disclosure of Information.

     The  Investor  believes it has received  all the  information  it considers
necessary or appropriate for deciding  whether to purchase the  Securities.  The
Investor further  represents that it has had an opportunity to ask questions and

                                       19
<PAGE>
receive  answers  from the Company  regarding  the terms and  conditions  of the
offering of the Securities and the business, properties, prospects and financial
condition of the Company.

     Section 4.9 Accredited Investor.

     The  Investor  is a  corporation  not  formed for the  specific  purpose of
acquiring  the  Securities,  with  total  assets in excess  of  $5,000,000,  and
accordingly  is an  "accredited  investor"  within  the  meaning  of Rule 501 of
Regulation D under the Securities Act, as presently in effect.

     Section 4.10 Restricted Securities.

     The  Investor   understands  that  the  Securities  are   characterized  as
"restricted  securities" under the federal securities laws, inasmuch as they are
being  acquired  from  the  Company  in a  transaction  not  involving  a public
offering,  and that under such laws and applicable  regulations  such securities
may be resold  without  registration  under the  Securities  Act only in certain
limited  circumstances.  In  this  connection  Investor  represents  that  it is
familiar with Rule 144  promulgated  under the  Securities  Act, as presently in
effect,  and  understands  the resale  limitations  imposed  thereby  and by the
Securities Act, and that it is able, without materially  impairing its financial
condition, to hold the Securities for an indefinite period of time.

                                   ARTICLE I
                                    COVENANTS

     Section 5.1 Covenants of the Company.

     (a) Public  Announcements.  Except as required by Applicable  Law (in which
case the nature of the announcement  shall be described to Investor and Investor
shall be  allowed  reasonable  time to  comment  prior to  dissemination  to the
public),  the Company shall not make any public  announcement in respect of this
Agreement or the  transactions  contemplated  hereby  without the prior  written
consent of Investor, which consent shall not be unreasonably withheld.

     (b)  Access  and   Information.   The  Company   shall  permit   authorized
representatives  of Investor to visit and inspect any of the  properties  of the
Company,  including  its books of account  (and to make copies  thereof and take
extracts therefrom),  and to discuss its affairs, finances and accounts with its
officers,  administrative  employees and  independent  accountants,  all at such
reasonable times and as often as may be reasonably requested; provided, however,
that Investor  agrees to treat as  confidential  all the information so provided
and designated by the Company as  confidential,  and not to use such information
in any way reasonably  foreseeable  to be  detrimental to the Company.  Investor
further  agrees  that it shall  disclose  such  information  only to  directors,
officers,  employees  and  representatives  of  Investor  who need to know  such
information  for  the  purpose  of  evaluating  the  performance  and  financial
condition  of the  Company and  assisting  Investor  in the  performance  of its
fiduciary duties. Investor agrees that such directors,  officers,  employees and
representatives shall be informed by Investor of the confidential nature of such
information,  that they shall be directed by Investor to treat such  information

                                       20
<PAGE>
confidentially,   and  Investor   shall  be   responsible   for  any  breach  of
confidentiality by such directors, officers, employees or representatives, up to
a maximum  aggregate  liability that shall not exceed  Investor's profit derived
from such disclosure.

     Notwithstanding  the  foregoing,  if Investor or its  directors,  officers,
employees  or  representatives  is legally  compelled  to  disclose  information
disclosed  under this  Section  5.1(b),  Investor  will provide the Company with
prompt  notice  so that  the  Company  may  seek a  protective  order  or  other
appropriate  remedy  or waive  compliance  with  this  Section  5.1(b).  If such
protective  order or other  remedy is not  obtained,  or if the  Company  waives
compliance with the provisions of this Section 5.1(b) in writing, Investor shall
be  permitted  to disclose  such  information  pursuant  thereto,  but only such
information  as  it  is  advised  is  legally   required.   The  requirement  of
confidential  treatment  in this Section  5.1(b) shall not apply to  information
which: (1) becomes generally available to the public other than as a result of a
disclosure by Investor,  (2) was available on a non-confidential  basis prior to
its disclosure to Investor;  (3) was received from a third party without similar
restriction or without breach of this Agreement; (4) was independently developed
by  Investor;  or (5) was  furnished  to a third party by the Company  without a
restriction on the third party's rights.

     (c) Further Actions. As promptly as practicable, the Company shall:

          (i) use commercially  reasonable efforts to take all actions and to do
     all things necessary to consummate the transactions  contemplated hereby by
     the Closing Date;

          (ii)  file  or  supply,  or  cause  to  be  filed  or  supplied,   all
     applications,  notifications  and  information  required  to  be  filed  or
     supplied by it pursuant to Applicable Law in connection with the Agreement,
     the sale and transfer of the  Securities  pursuant to the Agreement and the
     consummation of the other transactions contemplated hereby;

          (iii) use commercially  reasonable  efforts to obtain,  or cause to be
     obtained,  all  Consents  (including  all  Governmental  Approvals  and any
     Consents  required  under any  Contract)  necessary to be obtained by it in
     order to  consummate  the sale and issuance of the  Securities  pursuant to
     this Agreement.

     (c) Further Assurances. Following the Closing, the Company shall, from time
to time, execute and deliver such additional instruments, documents, conveyances
or assurances  and take such other  actions as shall be necessary,  or otherwise
reasonably  requested  by  Investor,  to  confirm  and  assure  the  rights  and
obligations provided for in this Agreement and render effective the consummation
of the transactions contemplated hereby.

     (d) Delivery of Financial  Statements.  If the Company does not comply with
the periodic reporting  requirements of Section 15(d) of the Securities Exchange
Act, the Company shall deliver to Investor the following:

          (1) as soon as  practicable  in  fiscal  year  2002,  and in any event
     within 90 days after the end of each fiscal year  beginning  in fiscal year
     2003 of the Company,  an income  statement  for such fiscal year, a balance
     sheet of the Company as of the end of such year, and a cash flow statement,
     such year-end  financial  reports to be in reasonable  detail,  prepared in
     accordance with generally  accepted  accounting  principles  ("GAAP"),  and

                                       21
<PAGE>

     audited and  certified by  independent  public  accountants  of  nationally
     recognized standing selected by the Company;

          (2)  within  forty-five  (45) days after the end of each  quarter,  an
     unaudited statement of operations, cash flow analysis and balance sheet for
     and as of the end of such quarter,  in reasonable  detail;  such  quarterly
     statements shall also compare actual performance to budget and to the prior
     year's comparable period;

          (3)  on a  monthly  basis,  a  copy  of  any  materials  prepared  and
     distributed  to the Board of  Directors of the Company in  connection  with
     Board meetings;

          (4)  within  60  days  after  the  close  of  each  fiscal   year,   a
     comprehensive  operating  budget for the next fiscal year  forecasting  the
     Company's  revenues,  expenses and cash  position,  prepared on a quarterly
     basis,  including balance sheets and cash flow statements for such quarters
     and, as soon as prepared,  any other budgets or revised budgets prepared by
     the Company; and

          (5) with reasonable  promptness,  such other information and data with
     respect  to the  Company  as  Investor  may  from  time to time  reasonably
     request;  provided,  however,  that  the  Company  shall  not be  obligated
     pursuant to this clause (f) to provide any information  which it reasonably
     considers to be a trade secret, or similar confidential information.

     (e) Intentionally left blank.

     (f) No Obligation to Provide  Further  Funds.  After payment in full of the
Purchase Price,  the Company  acknowledges  that neither Investor nor any of its
affiliates shall have any further  obligation to invest in or provide additional
funds to the Company.  Any investments  made in or funds provided to the Company
by Investor or any of its affiliates following the payment of the Purchase Price
shall be made or provided, if it all, at Investor's sole discretion and on terms
acceptable to Investor in its sole discretion, provided that investments made at
Investor's discretion on exercise of the Warrants shall be made on the terms set
forth in the relevant Warrant.

     (g) Board Participation.  Immediately following the Closing and for as long
as Investor owns at least 250,000 shares of Common Stock or a 3% equity interest
in the  Company,  (i) the  Company  shall  use its best  efforts  to cause to be
elected  and/or  appointed  to the  Company's  Board  of  Directors  one  member
designated by Investor and (ii) the Company's  Board of Directors  shall consist
of a maximum of seven (7) members.

     (h) Future Acquisition  Discussions.  The Company agrees to keep Investor's
representative(s)  on the Company's Board of Directors fully informed of any and
all substantive discussions with potential acquirers of all or part of the share
capital  of the  Company  or  all or  substantially  all  of  its  assets.  Such
representative(s)  will be informed of such  substantive  discussions as soon as
they commence or as soon as reasonably practicable thereafter.

                                       22
<PAGE>

     (i) Preferred Customer.  The Investor and Investor's  affiliates shall be a
preferred  customer of the Company and shall be provided  priority access to and
use of the  Company's  products and services  hereafter.  Moreover,  the Company
agrees that the price  (including  all  discounts)  charged to Investor for such
products  and  services  and access  shall be no higher  than the  lowest  price
charged to any other customer of the Company for similar products and services.

     (j) Military  Market  Exclusivity.  The Company grants  Investor a right of
first refusal to  exclusively  exploit and sell the Company's  technology to the
Military Market for any product or application that Investor  believes,  and can
demonstrate,   would  compete  with  any  Investor  product  or  application  (a
"Competitive Product"). Should the Company be approached by a third party with a
proposal to collaborate on a Competitive  Product,  Investor shall automatically
forfeit its right of  exclusivity  if: (i) it decides  not to  initiate  product
development work with the Company on such Competitive Product within one year of
receiving written notice from the Company of such third party proposal;  or (ii)
if Investor  provides the Company with a written waiver of its exclusivity right
for such  Competition  Product any time after receiving  written notice from the
Company of such third party proposal.  With respect to any other Military Market
application  that is not a  Competitive  Product,  the Company and Investor will
discuss  collaboration on a good faith basis prior to the Company  concluding an
agreement  to go  forward  with  any  other  partner.  For the  purpose  of this
agreement  the term  "Military  Market" will mean all domestic and foreign armed
services and  intelligence  agencies,  including,  but not limited to, the Army,
Navy, Air Force,  Marines,  Coast Guard, U.S. Reserve Forces, CIA, DIA, NSA, and
all the State  National  Guard  Forces,  and foreign  equivalents  of any of the
foregoing.  The term "Military Market" will not include Research and Development
contracts given by government agencies such as DARPA, DTRA, NIH, NSF and others.
The term "Military Market" shall include,  inter alia, sales or licensing of the
Company's  technology,  or products that  incorporate  such,  to any  suppliers,
resellers  or  contractors  using  said  Company   technology  in  products  for
distribution to any domestic or foreign armed service or intelligence agency.

     Section 5.2 Covenants of Investor.

     (a) Public  Announcements.  Except as required by Applicable  Law (in which
case the  nature of the  announcement  shall be  described  to  Company  and the
Company shall be allowed  reasonable time to comment prior to  dissemination  to
the public),  Investor  shall not, and shall not permit its  Affiliates to, make
any  public  announcement  in  respect  of this  Agreement  or the  transactions
contemplated hereby without the prior written consent of the Company.

     (b) Pre-Closing  Actions.  As promptly as  practicable,  Investor shall use
commercially  reasonable  efforts  to  take  all  actions  and to do all  things
necessary,  proper or  advisable to  consummate  the  transactions  contemplated
hereby by each Closing Date.

     (c) Further Assurances. Following the Closing, Investor shall, from time to
time, execute and deliver such additional instruments, documents, conveyances or
assurances  and take such other  actions  as shall be  necessary,  or  otherwise

                                       23
<PAGE>
reasonably  requested  by the  Company,  to  confirm  and  assure the rights and
obligations provided for in this Agreement and render effective the consummation
of the transactions contemplated hereby.

     Section 5.3 Legends.

     To the extent applicable, each certificate or other document evidencing any
of the  Shares or any of the  Warrant  Shares  shall be  endorsed  with  legends
substantially  as set forth below,  and Investor  covenants that,  except to the
extent such restrictions are waived by the Company or the legends may be removed
under Section 5.4, Investor shall not transfer Securities without complying with
the restrictions on transfer described in the legends endorsed thereon:

     (a) The following legend under the Securities Act:

          "THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
          UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
          TRANSFERRED,  ASSIGNED,  PLEDGED,  OR HYPOTHECATED ABSENT AN EFFECTIVE
          REGISTRATION  THEREOF  UNDER  THE  ACT OR  COMPLIANCE  WITH  RULE  144
          PROMULGATED  UNDER THE ACT,  OR UNLESS THE  COMPANY  HAS  RECEIVED  AN
          OPINION OF COUNSEL,  SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
          SUCH REGISTRATION IS NOT REQUIRED."

     (b) If  required by the  authorities  of any state in  connection  with the
issuance or sale of the Shares,  or the Warrant  Shares,  the legend required by
such state authority.

     Section 5.4 Removal of Legends.

     (a) Any legend endorsed on a certificate  pursuant to Section 5.3(a) hereof
shall be removed (i) if the Shares,  Warrant  Shares or Warrants  represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public  transaction,  (ii) if such shares may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) if the holder of such shares  shall have  provided  the Company with an
opinion of counsel,  in form and  substance  acceptable  to the Company and from
attorneys  reasonably  acceptable  to the  Company,  stating that a public sale,
transfer or assignment of such Shares may be made without registration.

     (b) Any legend endorsed on a certificate  pursuant to Section 5.3(b) hereof
shall be removed  if the  Company  receives  an order of the  appropriate  state
authority authorizing such removal or if the holder of the Common Stock issuable
upon conversion thereof provides the Company with an opinion of counsel, in form
and substance acceptable to the Company and from attorneys reasonably acceptable
to the Company, stating that such legend may be removed.

     Section 5.5 Further  Restriction on Transfer.  Unless and until the legends
described in Section 5.4 may be removed,  Investor further covenants not to make
any  disposition  of the Securities  until the transferee  agrees to be bound by
Sections 5.3, 5.4 and 5.5.

                                       24
<PAGE>

                                   ARTICLE I
                              CONDITIONS PRECEDENT

     Section 6.1 Conditions to Obligations of Each Party.

     The obligations of the parties to consummate the transactions  contemplated
hereby at the  Closing  shall be subject to the  fulfillment  on or prior to the
Closing Date of the following conditions:

     (a) No  Injunction,  etc.  Consummation  of the  transactions  contemplated
hereby shall not have been restrained,  enjoined or otherwise  prohibited by any
Applicable Law, including any order, injunction, decree or judgment of any court
or other Governmental  Authority. No court or other Governmental Authority shall
have  determined  that any Applicable Law makes illegal the  consummation of the
transactions  contemplated  hereby,  and  no  proceeding  with  respect  to  the
application of any such Applicable Law to such effect shall be pending.

     (b)  Government  Approvals.   All  requisite   governmental  approvals  and
authorizations necessary for the consummations of the transactions  contemplated
hereby shall have been duly issued or granted and all applicable waiting periods
shall have expired or otherwise been terminated.

     Section 6.2 Conditions to Obligations of Investor.

     The  obligations  of Investor to consummate the  transactions  contemplated
hereby  at each  Closing  shall be  subject  to the  fulfillment  (or  waiver by
Investor)  on  or  prior  to  the  Closing  Date  of  the  following  additional
conditions:

     (a)   Representations;   Performance.   Each  of  the  representations  and
warranties of Company  contained in this Agreement  shall be true and correct in
all  material  respects,  in each case on the date  hereof  and at and as of the
Closing Date,  as though made on and as of the Closing  Date.  The Company shall
have duly performed and complied in all material  respects with all  agreements,
obligations  and  conditions  required  by this  Agreement  to be  performed  or
complied with by it prior to or on the Closing Date.

     (b) Consents.  The Company shall have obtained and shall have  delivered to
Investor  copies of all  Governmental  Approvals  and  Consents  required  to be
obtained by the Company in  connection  with the  execution  and delivery of the
Agreement and the consummation of the transactions contemplated hereby.

     (c)  Corporate  Proceedings.  All corporate  and other  proceedings  of the
Company in  connection  with this  Agreement and the  transactions  contemplated
hereby, and all documents and instruments incident thereto,  shall be reasonably
satisfactory in form and substance to Investor and its counsel, and Investor and
its counsel shall have received all such  documents and  instruments,  or copies
thereof,  certified if  requested,  as may be  reasonably  requested at least 48
hours prior to the Closing.

                                       25
<PAGE>
     (d)  Certificate of Status.  The Investor shall have received copies of (i)
the  Certificate of  incorporation,  as amended through the Closing Date, of the
Company, certified as of a recent date by the Secretary of State of the State of
Delaware, (ii) a certificate of good standing for the Company from the Secretary
of State of the State of Delaware,  as of a recent date, and (iii) a copy of the
by-laws of the  Company,  as in effect on the  Closing  Date,  certified  by the
Secretary of the Company.

     (e) Certificates  for Shares.  The Company shall have delivered to Investor
certificates  representing the Shares,  registered in the name of Investor, duly
executed by the Company.

     (f) No Material Adverse Change.  Except as set forth in Schedule 3.8, since
December 31, 2001, there shall not have occurred any Material Adverse Effect, or
any event or  condition  that might  reasonably  be expected to cause a Material
Adverse Effect to occur in the future.

     (g) Officer's  Certificate.  The Company shall have delivered to Investor a
certificate,  dated the Closing Date and signed by its chief executive  officer,
in the form of  Exhibit B hereto to the effect of  Section  6.2(a)  and  Section
6.2(b) and certifying the fulfillment of the other conditions precedent.

     (h) Legal  Investment.  At the time of such  Closing,  the  purchase of the
Common Stock and Warrants by Investor shall be legally permitted by all laws and
regulations to which Investor and the Company are subject.

     (i) No Government Intervention.  The Company shall not have received notice
that any Governmental  Authority has taken, or intends to take, any action which
prevents,  or would prevent,  the Company from continuing its operations or from
further developing the MEMS technology contemplated by this Agreement.

     (j) Board of  Directors.  For so long as  Investor  holds at least  250,000
shares of Common Stock or a greater than 3% equity interest in the Company,  the
Company's  Board of  Directors  shall  consist  of a  maximum  of seven (7) duly
elected or  appointed  members.  One of these  members  shall be  designated  by
Investor as set forth in Section 5.1(i).

     Section 6.3 Conditions to Obligations of Company.

         The obligation of Company to deliver the Shares and the Warrants and to
consummate the transactions contemplated hereby at the Closing shall be subject
to the fulfillment (or waiver by the Company), on or prior to the Closing Date,
of the following additional conditions:

     (a) Payment of Consideration. The delivery in full of the Purchase Price.

     (b)   Representations;   Performance.   Each  of  the  representations  and
warranties of Investor  contained in this Agreement shall be true and correct in
each case on the date hereof and at and as of the Closing Date as though made on

                                       26
<PAGE>
and as of the Closing Date.  The Investor shall have duly performed and complied
in all material  respects with all agreements  and  conditions  required by this
Agreement  to be  performed  or  complied  with by it prior to or on the Closing
Date.  The Investor  shall have  delivered to Company a  certificate,  dated the
Closing Date and signed by its duly authorized officer, to the foregoing effect.

     (c)  Corporate  Proceedings.  All  corporate  proceedings  of  Investor  in
connection with this Agreement and the transactions contemplated hereby, and all
documents and instruments incident thereto, shall be reasonably  satisfactory in
form and  substance  to the Company,  and its  counsel,  and the Company and its
counsel  shall have  received  all such  documents  and  instruments,  or copies
thereof, certified if requested, as may be reasonably requested.

                                   ARTICLE I
                              ANTI-DILUTION RIGHTS

     Section 7.1 Anti-Dilution Right.

     The Company  hereby  grants to  Investor  the right to  purchase,  upon the
issuance by the Company of New  Securities (as defined in this Section 7) all or
any portion of the  "Anti-Dilution  Shares" (as defined in this  Section 7). The
Anti-dilution  Shares  are,  with  respect  to  Investor,  that  number  of  New
Securities  being issued,  the purchase of which will result in Investor  having
the same  Percentage  Equity  (as  defined  in this  Section  7) in the  Company
immediately after such issuance of New Securities as it had immediately prior to
such  issuance of New  Securities.  For  purposes of this  anti-dilution  right,
Investor's  "Percentage Equity" in the Company, to be calculated before or after
each  issuance of New  Securities,  shall be the  proportion  that the number of
shares of common stock  (assuming the conversion of all  convertible  securities
and the exercise of all rights,  options and warrants)  held by Investor at such
time bears to the total number of outstanding  shares of common stock  (assuming
the  conversion of all  convertible  securities  and the exercise of all rights,
options and  warrants)  of the Company at such time.  This  anti-dilution  right
shall be subject to the following provisions:

     (a) "New  Securities"  shall mean any common  stock or  preferred  stock or
other equity security of the Company, whether now authorized or not, and rights,
options,  or warrants to purchase said common stock or preferred  stock or other
equity security,  and securities of any type whatsoever that are, or may become,
convertible  into said common stock or preferred stock or other equity security;
provided, however, that "New Securities" does not include:

          (i)  securities  issued upon  conversion of any  Preferred  Stock into
     common stock;

          (ii) a stock  dividend or securities  issued upon any  subdivision  of
     shares of common stock,  or any other right received on a pro rata basis by
     the holder of the Shares along with other holders of Common Stock;

          (iii) securities  issued solely in  consideration  for the acquisition
     (whether by merger or otherwise) by the Company or any of its  subsidiaries
     of all or  substantially  all of the stock or assets of any other business;
     or

                                       27
<PAGE>

          (iv)  securities  issued  upon an  exercise  of any  option,  warrant,
     convertible securities,  or other right currently outstanding and set forth
     in Section 3.1 or issued  hereafter  pursuant  to the 2001 Stock  Incentive
     Plan or other  plan  approved  by  Investor  and the  Board  of  Directors,
     provided that upon conversion of any amount of the Company's notes that are
     convertible into an aggregate of 504,502 shares of Common Stock, the Common
     Stock  issued on such  conversion  shall be deemed New  Securities  and the
     amount of debt  released  on such  conversion  shall be deemed the price of
     such New Securities;

     (b) If the Company plans,  proposes or determines to issue New  Securities,
the Company shall give Investor thirty (30) calendar days advance written notice
of such  issuance  describing  the type of New  Securities,  the price,  and the
general terms upon which the Company plans,  proposes or determines to issue the
same. The Investor shall have twenty (20) calendar days from the date of receipt
of any such  notice to agree to purchase  all or a portion of its  Anti-Dilution
Shares  for the price and upon the  general  terms  specified  in the  notice by
giving  written  notice to the  Company  and  stating  therein  the  quantity of
Anti-Dilution  Shares to be purchased.  If Investor  exercises its anti-dilution
rights under this Section 7 to purchase  Anti-Dilution Shares, the Company shall
issue such  Anti-Dilution  Shares to Investor at the time of the issuance of the
New  Securities.  In no event shall the  Company  issue New  Securities  without
giving  Investor  thirty (30) calendar  days'  advance  written  notice,  unless
Investor  waives such notice  requirement  in a writing signed by one or more of
the Company's Directors elected by Investor.

     (c) In the event that Investor  fails to exercise its  anti-dilution  right
within  said  twenty  (20) day  period,  such right shall be deemed to have been
waived by Investor with respect to that issuance of New Securities.

     (d) The anti-dilution right granted under this Agreement shall expire upon,
and be inapplicable  to, (i) the first closing of the first firmly  underwritten
public  offering of common  stock of the  Company  after the date hereof that is
made pursuant to a registration statement filed with, and declared effective by,
the SEC under the Securities Act, covering the offer and sale of common stock to
the  public,  or (ii) a merger  or  consolidation  of the  Company  with or into
another   corporation  or  other  entity  or  person,  or  any  other  corporate
reorganization  in which the Company  shall not be the  continuing  or surviving
entity of such merger, consolidation or reorganization.

                                   ARTICLE II
                                   TERMINATION

     Section 8.1 Termination.

     This Agreement may be terminated at any time prior to the Closing Date:

     (a) by the written agreement of Investor and the Company;

     (b) by Company or  Investor  by  written  notice to the other  party if the
Closing shall not have been  consummated  pursuant  hereto by 5:00 p.m. New York
City time on August 8, 2002,  provided that the terminating  party may not be in

                                       28
<PAGE>
breach of this Agreement,  and provided further that the failure by either party
to close on such date shall not of itself be a breach of this Agreement.

     (c) by Investor by written notice to the Company if (i) the representations
and  warranties  of the  Company  shall not have been true and correct as of the
date when made, or (ii) if any of the conditions set forth in Section 6.1 or 6.2
shall not have been, or if it becomes  apparent that any of such conditions will
not be, fulfilled by 5:00 p.m. New York City time on August 8, 2002, unless such
failure shall be due to the failure of Investor to perform or comply with any of
the covenants,  agreements or conditions hereof to be performed or complied with
by it prior to the Closing; or

     (d) by the Company by written notice to Investor if (i) the representations
and  warranties of Investor shall not have been true and correct in all material
respects as of the date when made, or (ii) if any of the conditions set forth in
Section 6.1 or 6.3 shall not have been,  or if it becomes  apparent  that any of
such conditions will not be, fulfilled by 5:00 p.m. New York City time on August
8, 2002,  unless  such  failure  shall be due to the  failure of the  Company to
perform or comply with any of the covenants,  agreements or conditions hereof to
be performed or complied with by it prior to the Closing.

     Section 8.2 Effect of Termination.

     If this Agreement is terminated  pursuant to the provisions of Section 8.1,
then this Agreement shall become void and have no effect,  without any liability
to any Person in respect hereof or of the  transactions  contemplated  hereby on
the part of any party  hereto,  or any of its  directors,  officers,  employees,
agents,  consultants,  representatives,  advisers,  stockholders  or Affiliates,
except as specified in Section 13.1 and except for any liability  resulting from
such party's breach or default of this Agreement.

                                  ARTICLE III
                                 INDEMNIFICATION

     Section 9.1 By Company.

     Subject  to the  terms and  conditions  of this  Article  IX,  the  Company
covenants  and agrees to  defend,  indemnify  and hold  harmless  Investor,  its
officers, directors,  employees, agents, advisers, lenders,  representatives and
Affiliates  (including,  after the  Closing,  the  Company)  (collectively,  the
"Investor  Indemnitees"),  from  and  against,  and  pay or  reimburse  Investor
Indemnitees for, any and all claims,  liabilities,  obligations,  losses, fines,
costs,  judgments,  penalties,  proceedings,  deficiencies  or damages  (whether
absolute,  accrued,  conditional  or otherwise and whether or not resulting from
third party claims),  including out-of-pocket expenses,  court costs, consulting
fees,  expert  witness  fees and  reasonable  attorneys'  fees  incurred  in the
investigation  or  defense  of any of the  same  or in  asserting  any of  their
respective rights hereunder (collectively,  "Losses"), resulting from or arising
out of:

     (a) any  misrepresentation  or breach of any  warranty  of  Company  or the
Company contained in this Agreement;  provided,  however,  that, for purposes of
this Article IX, in  determining  whether any such  misrepresentation  or breach
occurred,  any dollar amount  thresholds,  materiality  qualifiers  and Material

                                       29
<PAGE>
Adverse Effect  qualifiers  contained in any  representation  or warranty herein
shall  be   disregarded;   provided   further,   however,   that  no  claim  for
indemnification under this clause (a) may be made after the third anniversary of
the Closing Date, excepting only that any claim for  misrepresentation or breach
of warranty under (i) Sections 3.7,  3.11(a),  3.11(c),  and 3.16 may be made no
later  than a date 30 days from and after the  expiration  of the  period of the
applicable statute of limitations, or (ii) Section 3.3 may be made at any time;

     (b) any failure of the Company to perform any covenant or agreement made or
contained in this Agreement or fulfill any obligation in respect thereof.

     Company  shall not be  required  to  indemnify  Investor  Indemnitees  with
respect  to any claim  for  indemnification  resulting  from or  arising  out of
matters  described  in clause (a) above  pursuant to this Section 9.1 unless and
until the  aggregate  amount  of all  claims  against  Company  exceeds  $50,000
("Company's  Threshold  Amount"),  in which case  Company  shall be  required to
indemnify  Investor  Indemnitees  for the full amount of such claims,  including
Company's Threshold Amount, but only up to an aggregate amount of $2,500,000 for
all claims.

     Section 9.2 By Investor.

     Subject to the terms and condition of this Article IX,  Investor  covenants
and agrees to defend, indemnify and hold harmless Company and each of its heirs,
executors, administrators,  distributees or legal representatives (collectively,
the "Company  Indemnitees"),  from and against any and all Losses resulting from
or arising out of:

     (a) any  misrepresentation  or breach of warranty of Investor  contained in
this Agreement;  provided, however, that no claim for indemnification under this
clause (a) may be made after the third anniversary of the Closing Date; or

     (b) any failure of Investor to perform any  covenant or  agreement  made or
contained in this Agreement or fulfill any other obligation in respect thereof.

     The Investor shall not be required to indemnify  Company  Indemnitees  with
respect  to any claim  for  indemnification  resulting  from or  arising  out of
matters  described  in clause (a) above  pursuant to this Section 9.2 unless and
until the  aggregate  amount of all  claims  against  Investor  exceeds  $50,000
("Investor's  Threshold  Amount"),  in which case Investor  shall be required to
indemnify  Company  Indemnitees  for the full amount of such  claims,  including
Investor's  Threshold Amount, but only up to an aggregate amount of $500,000 for
all claims.

     Section 9.3 Indemnification Procedures.

     (a) Third Party Claims.  In the case of any claim asserted by a third party
against  a  party  entitled  to   indemnification   under  this  Agreement  (the
"Indemnified  Party"),  notice  shall be given by the  Indemnified  Party to the
party required to provide  indemnification (the "Indemnifying Party") as soon as
practicable  after such Indemnified  Party has actual and not imputed or implied
knowledge of any claim as to which indemnity may be sought,  and the Indemnified
Party shall permit the Indemnifying  Party (at the expense of such  Indemnifying
Party) to assume the defense of any third party claim or any  litigation  with a
third party resulting therefrom; provided, however, that (i) the counsel for the

                                       30
<PAGE>
Indemnifying  Party who shall  conduct the  defense of such claim or  litigation
shall be subject to the approval of the Indemnified  Party (which approval shall
not be  unreasonably  withheld  or  delayed),  (ii) the  Indemnified  Party  may
participate in such defense at such Indemnified  Party's expense,  and (iii) the
omission by any  Indemnified  Party to give notice as provided  herein shall not
relieve the  Indemnifying  Party of its  indemnification  obligation  under this
Agreement except and only to the extent that such Indemnifying Party is actually
and materially  damaged as a result of such failure to give notice.  Except with
the prior  consent of the  Indemnified  Party,  no  Indemnifying  Party,  in the
defense of any such claim or litigation,  shall consent to entry of any judgment
or enter into any settlement  that provides for injunctive or other  nonmonetary
relief  affecting  the  Indemnified  Party  or  that  does  not  include  as  an
unconditional  term  thereof the giving by each  claimant or  plaintiff  to such
Indemnified  Party of a general  release from all liability with respect to such
claim or litigation. If the Indemnified Party shall in good faith determine that
the conduct of the defense of any claim subject to indemnification  hereunder or
any proposed  settlement  of any such claim by the  Indemnifying  Party might be
expected  to affect  adversely  the  Indemnified  Party's Tax  liability  or the
ability of Investor to conduct its business,  or that the Indemnified  Party may
have available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be  available  to the  Indemnifying  Party in
respect of such claim or any litigation relating thereto,  the Indemnified Party
shall  have the  right at all  times to take over and  assume  control  over the
defense,  settlement,  negotiations or litigation  relating to any such claim at
the  sole  cost  of the  Indemnifying  Party;  provided,  however,  that  if the
Indemnified  Party does so take over and assume control,  the Indemnified  Party
shall  not  settle  such  claim  or  litigation   without  the  consent  of  the
Indemnifying Party, such consent not to be unreasonably  withheld or delayed. If
the  Indemnifying  Party  does not  accept  the  defense  of any matter as above
provided,  the Indemnified Party shall have the full right to defend against any
such  claim or demand at the sole  cost of the  Indemnifying  Party and shall be
entitled  to settle or agree to pay in full such claim or demand.  In any event,
the Indemnifying  Party and the Indemnified Party shall reasonably  cooperate in
the  defense  of any claim or  litigation  subject  to this  Article  IX and the
records of each shall be reasonably  available to the other with respect to such
defense.

     (b) Non-Third Party Claims.  With respect to any claim for  indemnification
hereunder which does not involve a third party claim, the Indemnified Party will
give the Indemnifying Party written notice of such claim. The Indemnifying Party
may  acknowledge  and agree by notice to the  Indemnified  Party in  writing  to
satisfy  such  claim  within 20 days of receipt of notice of such claim from the
Indemnified  Party.  If the  Indemnifying  Party shall  dispute such claim,  the
Indemnifying  Party  shall  provide  written  notice  of  such  dispute  to  the
Indemnified Party within such 20-day period,  setting forth in reasonable detail
the basis of such  dispute.  Upon  receipt  of notice of any such  dispute,  the
Indemnified Party and the Indemnifying  Party shall use commercially  reasonable
efforts  to  resolve  such  dispute  within 30 days of the date  such  notice of
dispute is received.  If the  Indemnifying  Party shall fail to provide  written
notice to the  Indemnified  Party  within 20 days of receipt of notice  from the
Indemnified Party that the Indemnifying Party either  acknowledges and agrees to
pay such claim or disputes such claim, the Indemnifying Party shall be deemed to
have  acknowledged  and agreed to pay such claim in full and to have  waived any
right to dispute such claim.  Once (a) the  Indemnifying  Party has acknowledged
and agreed to pay any claim  pursuant to this Section 9.3, (b) any dispute under
this  Section  9.3 has  been  resolved  in favor of  indemnification  by  mutual
agreement  of the  Indemnifying  Party  and the  Indemnified  Party,  or (c) any
dispute  under  this  Section  9.3  has  been  finally   resolved  in  favor  of

                                       31
<PAGE>
indemnification by order of a court of competent  jurisdiction or other tribunal
having  jurisdiction  over such dispute,  then the Indemnifying  Party within 20
days  of  the  date  of  acknowledgement  by the  Indemnifying  Party  or  final
resolution in favor of indemnification,  as the case may be, to such account and
in such manner as is designated in writing by the Indemnified Party.

     Section  9.4  Expiration  of  Representations  and  Warranties,   etc.  All
representations  and warranties  contained in this  Agreement  shall survive the
Closing for a period of three years; provided, however, that the representations
and warranties stated in Sections 3.7, 3.11(a),  3.11(c), and 3.16 shall survive
the  Closing  for the  applicable  statute  of  limitations;  provided  further,
however,  that the representations and warranties contained in Section 3.3 shall
survive indefinitely.

     Section 9.5 Set-Off. If Company shall be obligated to indemnify Investor or
any  other  Investor  Indemnitee  pursuant  to  Article  IX,  Investor  shall be
entitled,  in  addition  to any other  right or remedy it may have,  to exercise
rights of set-off  against any amounts due and payable to Company  hereunder  or
that may  thereafter  become due and  payable to  Company  hereunder  (including
amounts under Article II).

                                   ARTICLE IV
                               REGISTRATION RIGHTS

     The Company covenants and agrees as follows:

     Section 10.1 Definitions.

     For purposes of this Section 10:

     (a) The  term  "register,"  "registered,"  and  "registration"  refer  to a
registration  effected  by  preparing  and filing a  registration  statement  or
similar  document in compliance  with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;

     (b) The term  "Warrant  Shares"  shall  mean the  Common  Stock  issued  or
issuable upon exercise of the Warrants.

     (c) The term "  Registrable  Securities"  means  (i) the  Shares;  (ii) the
Warrant Shares;  and (iii) any Common Stock of the Company issued or issuable in
respect on the Conversion Shares or other securities issued or issuable pursuant
to the  conversion  of the  Warrants  upon  any  stock  split,  stock  dividend,
recapitalization,  or similar  event,  or any Common Stock  otherwise  issued or
issuable with respect to the Warrants;  provided, however, that shares of Common
Stock or other securities shall only be treated as Registrable Securities if and
so long as they  have not been (1) sold to or  through  a broker  or  dealer  or
underwriter in a public distribution or a public securities transaction, whether
in a registered offering,  Rule 144 transaction or otherwise, or (2) sold or are
available  for sale in the  opinion of counsel to the  Company in a  transaction
exempt  from  the  registration  and  prospectus  delivery  requirements  of the
Securities Act so that all transfer  restrictions  and restrictive  legends with

                                       32
<PAGE>
respect thereto are removed upon the consummation of such sale, excluding in all
cases; provided however,  that any Registrable  Securities sold by a person in a
transaction in which his registration  rights are not assigned shall cease to be
Registerable Securities;

     (d) The number of shares of "Registrable Securities then outstanding" shall
be  determined  by the number of shares of Common  Stock  outstanding  which are
Registrable  Securities,  and the  number of shares  of  Common  Stock  issuable
pursuant to then  exercisable  Warrants  that are  exercisable  for  Registrable
Securities;

     (e) The term  "Holder"  means any  person  owning  or  having  the right to
acquire  Registrable  Securities or any assignee of a Holder in accordance  with
Section 10.9 hereof;

     (f) The term "Form S-3"  means  such form  under the  Securities  Act as in
effect on the date  hereof or any  registration  form under the  Securities  Act
subsequently  adopted by the SEC in lieu of Form S-3 which permits  inclusion or
incorporation  of substantial  information by reference to other documents filed
by the Company with the SEC;

     (g)  "Registration  Expenses"  shall  mean  all  expenses,  except  Selling
Expenses, incurred by the Company in complying with Sections 10.2, 10.4 and 10.5
hereof,  including,  without  limitation,  all  registration,  qualification and
filing fees,  printing expenses,  escrow fees, fees and disbursements of counsel
for the Company,  blue sky fees and expenses,  the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular  employees  of the  Company  which  shall be paid in any event by the
Company)  and the  reasonable  fees and  disbursements  of one  counsel  for all
Holders in the event of one exercise of a requested registration provided for in
Section  10.2  hereof,  in the event of two  Company  registrations  pursuant to
Section 10.5 hereof, and for four Company  registrations on Form S-3 pursuant to
Section 10.4 hereof; and

     (h)  "Selling  Expenses"  shall mean all  underwriting  discounts,  selling
commission and stock transfer taxes  applicable to the securities  registered by
the  Holders  and,  except as set forth  above,  all fees and  disbursements  of
counsel for any Holder.

     Section 10.2 Demand Registrations Rights.

     (a) If at any time  after the  Company's  initial  registered  underwritten
public offering, the Company shall receive a written request (specifying that it
is being made pursuant to this Section 10.2) from Investor that the Company file
a registration  statement or similar  document under the Securities Act covering
the  registration  of the lesser of (i) at least ten percent (10%) of Investor's
then outstanding Registrable Securities (or securities that are convertible into
Registrable Securities) or (ii) Registrable Securities the expected price to the
public of which exceeds  $2,000,000,  then the Company shall promptly notify all
other  Holders  of such  request  and  shall use its best  efforts  to cause all
Registrable  Securities  that such  Holders  have  requested  be  registered  in
accordance  with this Section 10.2 to be registered  under the  Securities  Act.
Notwithstanding the foregoing,  (a) the Company shall not be obligated to effect
a registration pursuant to this Section 10.2 during the period starting with the
date  sixty (60) days prior to the  Company's  estimated  date of filing of, and
ending on a date sixty (60) days following the effective date of, a registration
statement  pertaining  to an  underwritten  public  offering  of  the  Company's

                                       33
<PAGE>
securities,  provided  that the Company is actively  employing in good faith all
reasonable efforts to cause such registration  statement to become effective and
that the Company's estimate of the date of filing such registration statement is
made in good  faith,  and (b) if the  Company  shall  furnish to such  Holders a
certificate  signed by the  President  of the Company  stating  that in the good
faith  judgment of the Board of  Directors  of the Company it would be seriously
detrimental to the Company or its shareholders  for a registration  statement to
be filed in the near  future,  then  the  Company's  obligation  to use its best
efforts to file a registration  statement  shall be deferred for a period not to
exceed six (6) months; provided, however, that the Company shall not obtain such
a deferral more than once in any 12-month period. The Company shall be obligated
to effect only two registrations  pursuant to this Section 10.2. Any request for
registration  under this Section 10.2 must be for a firmly  underwritten  public
offering to be managed by an underwriter or underwriters of recognized  national
standing selected by Investor and reasonably acceptable to the Company.

     (b) If the  registration  requested  is for a  registered  public  offering
involving  an  underwriting,  the Company  shall so indicate in the notice given
pursuant  to  Section  10.2(a).  In  such  event  the  right  of any  Holder  to
registration  pursuant  to this  Section  10.2  shall be  conditioned  upon such
Holder's  agreeing to participate in such  underwriting  and in the inclusion of
such Holder's Registrable  Securities in the underwriting to the extent provided
herein.  All Holders  proposing  to  distribute  their  securities  through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in  customary  form  with the  underwriter  or  underwriters  selected  for such
underwriting  by the Company or by Investor  exercising any demand  registration
rights.  Notwithstanding  any other  provisions  of this  Section  10.2,  if the
underwriter determines that marketing factors require a limitation of the number
of  shares  to  be  underwritten,  the  underwriter  may  exclude  some  or  all
Registrable   Securities  or  other   securities  from  such   registration  and
underwriting  (hereinafter  an  "Underwriter  Cutback").  In  the  event  of  an
Underwriter  Cutback,  the  Company  shall so advise all  Holders  and the other
holders distributing their securities through such underwriting,  and the number
of  Registrable  Securities  and other  securities  that may be  included in the
registration  and  underwriting  shall be  allocated  among all holders  thereof
(including those holders who are exercising their demand registration rights) on
the basis that the  holders  who are not  Holders  shall be cut back  before any
cutback of Holders. If the limitation  determined by the underwriter  requires a
cutback of the  Holders,  then the number of shares  that may be included in the
registration  and   underwriting   shall  be  allocated  among  all  Holders  in
proportion,  as nearly as practicable,  to the respective  amounts of securities
entitled to inclusion in such  registration  held by such Holders at the time of
filing  the  registration  statement.  In the event of an  Underwriter  Cutback,
holders of  securities  with  respect  to which  registration  rights  have been
granted  pursuant  to Section  10.10  hereof  shall be  treated  as Holders  for
purposes of any  cutbacks.  If any Holder  disapproves  of the terms of any such
underwriting,  such Holder may elect to withdraw  therefrom by written notice to
the  Company  and  the  underwriter.   If  shares  are  so  withdrawn  from  the
registration,  the Company shall then offer to all persons who have retained the
right to include  securities in the registration the right to include additional
securities  in the  registration  in an aggregate  amount equal to the number of
shares  so  withdrawn,  with  such  shares to be  allocated  among  the  persons
requesting  additional  inclusion  pro rata  according  to the  total  amount of
securities  entitled to be included in such registration owned by each person or

                                       34
<PAGE>
in  such  other  proportions  as  shall  be  mutually  agreed  by  such  selling
shareholders.

     (c)  Notwithstanding  anything  to  the  contrary  set  forth  herein,  any
registration  requested  by Investor  pursuant to this Section 10.2 shall not be
deemed to have been effected (and, therefore, not requested for purposes of this
Section 10.2), (i) unless it has become effective,  provided that a registration
which does not  become  effective  after the  Company  has filed a  registration
statement  with  respect  thereto  solely by reason of the refusal to proceed by
Investor  (other  than a refusal  to  proceed  based  upon the advice of counsel
relating to a matter with respect to the  Company)  shall be deemed to have been
effected  by the  Company at  request of  Investor  unless  Investor  shall have
elected to pay all registration  expenses in connection with such  registration;
(ii) if after it has become  effective such  registration  is interfered with by
any stop order,  injunction  or other order or  requirement  of the SEC or other
governmental agency or court for any reason other than a misrepresentation or an
omission by Investor and, as a result  thereof,  the securities  requested to be
registered  cannot be  completely  distributed  in  accordance  with the plan of
distribution  set forth in the related  registration  statement  or (iii) if the
closing  pursuant to the purchase  agreement or underwriting  agreement  entered
into in  connection  with such  registration  does not occur.  Any  registration
effected  pursuant to Section 10.5 shall not be deemed to have been requested by
a requesting holder for purposes of this Section 10.2

     Section 10.3 Expenses of Demand Registration.

     All  Registration  Expenses  incurred in connection with any  registration,
qualification,  or  compliance  pursuant to Section 10.2  (exclusive  of Selling
Expenses,  which  shall be borne by the  selling  holders  pro rata based on the
number of their shares registered) shall be borne by the Company.

     Section 10.4 Form S-3 Registration Rights.

     After the Company's initial registered  underwritten  public offering,  the
Company shall use its best efforts to qualify for  registration  on Form S-3 (as
used hereafter  "Form S-3" shall include any successor form to Form S-3), and to
that end the Company  shall use its best  efforts to comply  with the  reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange  Act"),  within twelve (12) months  following the effective date of the
first  registration  of any  securities  of  the  Company  for  an  underwritten
registered public offering.  After the Company has qualified for the use of Form
S-3, and subject to the provisions of this Section 10.4, and the market standoff
in Section 10.10,  each Holder shall have the right to request  registrations on
Form S-3 (such requests shall be in writing and shall state the number of shares
of  Registrable  Securities  to be  disposed  of  and  the  intended  method  of
disposition  of such shares by each such Holder),  subject only to the following
limitations:

     (a) The Company shall not be obligated to cause a registration  on Form S-3
to  become  effective  prior to one  hundred  fifty  (150)  days  following  the
effective date of a Company  initiated  registration  (other than a registration
effected  solely to qualify  an  employee  benefit  plan or to effect a business
combination pursuant to SEC Rule 145);

                                       35
<PAGE>
     (b) The Company shall not be required to effect a registration  pursuant to
this Section 10.4 unless the Holder or Holders  requesting  such a  registration
propose to  dispose  of shares of  Registrable  Securities  having an  aggregate
disposition  price (before  deduction of underwriting  discounts and expenses of
sale) of at least $500,000;

     (c) The  Company  shall  not be  required  to  maintain  and  keep any such
registration on Form S-3 effective for a period exceeding one hundred and eighty
(180) days from the effective date thereof;

     (d) The Company shall not be obligated to cause a registration  on Form S-3
if in the prior  twelve-month  period the Company has caused a  registration  on
Form S-3 to become effective; and

     (e) The Company shall not be required to effect a registration  pursuant to
this  Section  10.4  more  than  three  years  after  the  Company's  registered
underwritten public offering or more than four times at Company's expense.

     The  Company  shall give  notice to all Holders of the receipt of a request
for  registration  pursuant to this Section 10.4 and shall  provide a reasonable
opportunity for other Holders to participate in the registration. Subject to the
foregoing,  the  Company  will use its  best  efforts  to  effect  promptly  any
registration  requested  pursuant  to this  Section  10.4.  Notwithstanding  the
foregoing,  the Company shall not be obligated to effect any such  registration,
qualification  or compliance  pursuant to this Section 10.4 if the Company shall
furnish to the  Holders a  certificate  signed by the  President  of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be seriously  detrimental to the Company and its  shareholders for such
Form S-3  Registration  to be effected at such time,  in which event the Company
shall have the right to defer the filing of the Form S-3 Registration  Statement
for a period of not more  than 120 days  after  receipt  of the  request  of the
Holder or Holders under this Section 9.4;  provided,  however,  that the Company
shall not utilize this right more than once in any 12-month period.

     Section 10.5 Company Registration.

     (a) If, at any time or from time to time,  the Company  shall  determine to
register any of its  securities,  either for its own account or the account of a
security  holder or holders  exercising  their  respective  demand  registration
rights,  other than a registration (i) relating solely to employee benefit plans
on Form S-8 or  similar  forms  which may be  promulgated  in the future or (ii)
relating  solely to a SEC Rule 145 or  similar  transaction,  the  Company  will
promptly give to each Holder  written notice thereof (which shall include a list
of the  jurisdictions  in which the Company  intends to attempt to qualify  such
securities  under the applicable  blue sky or other state  securities  laws, and
include in such registration (and any related  qualification under blue sky laws
or other compliance),  and in any underwriting involved therein, all Registrable
Securities  of such Holders as specified in a written  request or requests  made
within 15 days after receipt of such written notice from the Company.

     (b)  If the  registration  of  which  the  Company  gives  notice  is for a
registered  public  offering  involving an  underwriting,  the Company  shall so

                                       36
<PAGE>
indicate  in the notice  given  pursuant to Section  10.5(a).  In such event the
right of any  Holder to  registration  pursuant  to this  Section  10.5 shall be
conditioned upon such Holder's  agreeing to participate in such underwriting and
in the inclusion of such Holder's Registrable  Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing  their  securities   through  such  underwriting)   enter  into  an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected for such  underwriting  by the Company or by other  holders  exercising
demand registration rights. Notwithstanding any other provisions of this Section
10.5, if the underwriter  determines that marketing factors require a limitation
of the number of shares to be underwritten,  the underwriter may exclude some or
all  Registrable  Securities  or other  securities  from such  registration  and
underwriting  (hereinafter  an  "Underwriter  Cutback").  In  the  event  of  an
Underwriter  Cutback,  the  Company  shall so advise all  Holders  and the other
holders distributing their securities through such underwriting,  and the number
of  Registrable  Securities  and other  securities  that may be  included in the
registration  and  underwriting  shall be  allocated  among all Holders  thereof
(including those holders who are exercising their demand registration rights) on
the basis that the  holders  who are not  Holders  shall be cut back  before any
cutback of Holders. If the limitation  determined by the underwriter  requires a
cutback of the  Holders,  then the number of shares  that may be included in the
Registration  and   underwriting   shall  be  allocated  among  all  Holders  in
proportion,  as nearly as practicable,  to the respective  amounts of securities
entitled to inclusion in such  registration  held by such Holders at the time of
filing  the  registration  statement.  In the event of an  Underwriter  Cutback,
holders of  securities  with  respect  to which  registration  rights  have been
granted  pursuant  to Section  10.10  hereof  shall be  treated  as Holders  for
purposes of any  cutbacks.  If any Holder  disapproves  of the terms of any such
underwriting,  such Holder may elect to withdraw  therefrom by written notice to
the Company and the underwriter.  Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.

     Section 10.6 Expenses of Company Registration Rights.

     All  Registration  Expenses  incurred in connection with any  registration,
qualification  or  compliance  pursuant to Section  10.5  (exclusive  of Selling
Expenses  including  fees and  expenses  of any  special  counsel to the selling
holders,  which  shall be borne by the  selling  Holders  pro rata  based on the
number of their shares registered) shall be borne by the Company.

     Section 10.7 Indemnification.

     In the event any  Registrable  Securities  are  included in a  registration
statement under this Section 10:

     (a) To the extent  permitted by law, the Company  will  indemnify  and hold
harmless  each Holder,  the officers,  directors,  partners and legal counsel of
each Holder,  any underwriter (as defined in the Securities Act) for such Holder
and each  person,  if any, who controls  such Holder or  underwriter  within the
meaning Exchange Act, against any losses,  claims, damages or liabilities (joint
or several)  to which they may become  subject  under the  Securities  Act,  the

                                       37
<PAGE>
Exchange Act or other federal or state law,  rule or regulation  insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the  following  statements,  omissions or violations
(collectively,  a  "Violation"):  (i) any untrue  statement  or  alleged  untrue
statement of a material fact contained in such registration statement, including
any  preliminary  prospectus  or  final  prospectus  contained  therein  or  any
amendments  or  supplements  thereto,  (ii) the omission or alleged  omission to
state  therein a material fact  required to be stated  therein,  or necessary to
make the statements  therein not  misleading,  or (iii) any violation or alleged
violation by the Company of the  Securities  Act,  the  Exchange  Act, any state
securities  law or any law;  and the Company  will  reimburse  each such Holder,
officer, director, partner, legal counsel, underwriter or controlling person for
any legal or other  expenses  reasonably  incurred  by them in  connection  with
investigating or defending any such loss,  claim,  damage,  liability or action;
provided,  however,  that the  indemnity  agreement  contained  in this  Section
10.7(a) shall not apply to amounts paid in  settlement of any such loss,  claim,
damage,  liability or action if such settlement is effected  without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim,  damage,  liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in  conformity  with written  information  furnished
expressly  for use in  connection  with such  registration  by any such  Holder,
officer, partner,  director,  underwriter,  legal counsel or controlling person;
provided  that such  reimbursement  shall be made on a monthly  basis within ten
(10) days after  receipt of any  invoice  with  respect to  expenses  reasonably
incurred during the preceding calendar month.

     (b) To the extent  permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors,  officers,  its legal counsel,
each  person,  if any,  who  controls  the  Company  within  the  meaning of the
Securities Act, any underwriter and any other Holder selling  securities in such
registration  statement or any of such other Holder's directors,  legal counsel,
or officers or any person who controls  such other  Holder,  against any losses,
claims,  damages or  liabilities  (joint or several) to which the Company or any
such director,  officer,  legal counsel,  controlling  person, or underwriter or
controlling person, or such other Holder or director,  officer, legal counsel or
controlling person of such other Holder may become subject, under the Securities
Act,  the Exchange  Act or other  federal or state law,  insofar as such losses,
claims,  damages or liabilities (or actions in respect  thereto) arise out of or
are  based  upon any  Violation,  in each  case to the  extent  (and only to the
extent)  that such  Violation  occurs in reliance  upon and in  conformity  with
written  information  furnished by such Holder for use in  connection  with such
registration;  and each such Holder will  reimburse any legal or other  expenses
reasonably incurred by the Company or any such director, officer, legal counsel,
or  controlling  person,  underwriter  or  controlling  person of such Holder in
connection  with  investigating  or  defending  any such  loss,  claim,  damage,
liability, or action; provided,  however, that the indemnity agreement contained
in this Section  10.7(b)  shall not apply to amounts paid in  settlement  of any
such loss,  claim,  damage,  liability or action if such  settlement is effected
without the  consent of the  indemnifying  Holder,  which  consent  shall not be
unreasonably  withheld;  provided,  that, in no event shall any indemnity  under
this Section  10.7(b)  exceed the gross  proceeds from the offering  received by
such  holder and  provided  that such  reimbursement  shall be made on a monthly
basis within ten (10) days after the end of each calendar  month with respect to
expenses reasonably incurred during the preceding calendar month.

                                       38
<PAGE>
     (c) Promptly after receipt by an indemnified  party under this Section 10.7
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any  indemnifying  party under this Section  10.7,  deliver to the  indemnifying
party a written notice of the commencement  thereof and the  indemnifying  party
shall have the right to  participate  in,  and,  to the extent the  indemnifying
party so desires,  jointly with any other  indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided,  however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party, if
such indemnified  party is advised in writing by counsel (which writing shall be
furnished to the  indemnifying  party) that  representation  of such indemnified
party by the counsel retained by the  indemnifying  party would be inappropriate
due to actual or potential  differing  interests between such indemnifying party
and any other party represented by such counsel in such proceeding.  The failure
to deliver written notice to the indemnifying  party within a reasonable time of
the  commencement  of any such action,  if  prejudicial to its ability to defend
such action,  shall  relieve  such  indemnifying  party of any  liability to the
indemnified  party  under this  Section  10.7,  but the  omission  so to deliver
written  notice to the  indemnifying  party will not relieve it of any liability
that it may have to any  indemnifying  party  otherwise  than under this Section
10.7.

     (d) If the  indemnification  provided for in this Section 10.7 is held by a
court of competent  jurisdiction to be unavailable to an indemnified party, then
each  indemnifying  party,  in  lieu  of  indemnifying  such  indemnified  party
thereunder,  hereby  agrees to  contribute to the amount paid or payable to such
indemnified  party in such  proportion as is appropriate to reflect the relative
fault of the indemnifying  party on the one hand and of the indemnified party on
the other.  Notwithstanding the foregoing,  the amount any Holder of Registrable
Securities  shall be obligated to  contribute  pursuant to this Section  10.7(d)
shall be limited to an amount equal to the offering  price of the shares sold by
such Holder.

     (e) The  obligations  of the Company and Holders  under this  Section  10.7
shall  survive the  completion  of any offering of  Registrable  Securities in a
registration statement under this Section 10, and otherwise.

     Section 10.8 Reports Under Securities Exchange Act of 1934.

     With a view to making  available  to the Holders  the  benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time  permit a Holder to sell  securities  of the Company to the
public  without  registration  or pursuant to a  registration  on Form S-3,  the
Company agrees to:

     (a)  make  and keep  public  information  available,  as  those  terms  are
understood and defined in Rule 144 promulgated  under the Securities Act, at all
times after 90 days after the Closing;

     (b) take such action as is  reasonably  necessary  to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities, such action to be
taken as soon as  practicable  after the end of the first  fiscal year after the
Closing;

                                       39
<PAGE>
     (c) file with the SEC in a timely  manner all reports  and other  documents
required of the Company under the Securities Act and the Exchange Act; and

     (d)  furnish  to any  holder,  so long as the holder  owns any  Registrable
Securities,  forthwith upon request (i) a written  statement by the Company that
it has complied with the reporting  requirements of SEC Rule 144, the Securities
Act and the Exchange Act (at any time after it has complied with such  reporting
requirements),  or that it  qualifies as a registrant  whose  securities  may be
resold pursuant to Form S-3 (at any time after it so qualifies),  (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company,  and (iii) such other  information as may
be reasonably  requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such  securities  without  registration  or
pursuant to such form.

     Section 10.9 Assignment of Registration Rights.

     The rights to cause the Company to register Registrable Securities pursuant
to this Section 10 may be assigned by a Holder to a  transferee  or assignee who
acquires  at  least  Five  Hundred  Thousand  (500,000)  shares  of  Registrable
Securities;  provided that the Company is,  within a reasonable  time after such
transfer,  furnished  with  written  notice  of the  name  and  address  of such
transferee  or  assignee  and  the   securities   with  respect  to  which  such
registration  rights  are  being  assigned;  and  provided,  further,  that such
assignment  shall be effective only if  immediately  following such transfer the
further  disposition  of  such  securities  by the  transferee  or  assignee  is
restricted  under  the  Securities  Act.  If the  Holder  is a  partnership  and
transfers or assigns its rights hereunder to any of its partners,  such partners
may aggregate the number of Registrable  Securities held by them for purposes of
meeting the Five Hundred  Thousand  (500,000)  share threshold set forth in this
Section 10.9.

     Section 10.10 Subsequent Registration Rights.

     From and after the date of this Agreement, the Company shall not enter into
any agreement granting any holder or prospective holder of any securities of the
Company  registration  rights with respect to such  securities (a  "Registration
Rights  Agreement")  unless such new  registration  rights,  including  standoff
obligations,  are  on a  pari  passu  basis  with  or  are  subordinate  to  the
registration  rights  granted  to the  Holders  hereunder.  Each  Holder  hereby
consents  and agrees to the  modification  of such  Holder's  rights  under this
Section 10 consistent  with the  foregoing and agrees to execute a  registration
rights agreement  submitted by the Company setting forth such  modifications and
not otherwise unfavorably modifying the rights of such Holder.

     Section 10.11 "Market Stand-Off" Agreement.

     Each holder hereby agrees that it shall not, to the extent requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
sell or  otherwise  transfer  or dispose  (other  than to donees who agree to be
similarly  bound)  of any  securities  of the  Company  (other  than  securities
registered  in the  offering)  whether or not acquired by such Holder under this

                                       40
<PAGE>
Agreement  during a reasonably  and  customary  period of time not to exceed 180
days, as agreed to by the Company and the underwriters,  following the effective
date of a registration  statement of the Company filed under the Securities Act;
provided, however, that:

     (a) such agreement shall be applicable only to the first such  registration
statement of the Company which covers shares (or  securities)  to be sold on its
behalf to the public in an underwritten offering; and

     (b) all officers  and  directors  of the  Company,  all other  persons with
registration  rights (whether or not pursuant to this Agreement) and all holders
of at least 5% of the Company's  outstanding stock and of an aggregate of 50% of
the Company's outstanding stock enter into similar agreements; and

     (c) in the event the  underwriter or the Company  releases any  shareholder
from the terms of such shareholder's  "market stand-off"  agreement prior to the
expiration  of the  relevant  period (not to exceed 180 days) all of the Holders
are  released  from  the  terms  of this  Section  10.11  or any  other  "market
stand-off" agreement to which such holder is a party.

In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable  Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such reasonable and customary period.

     Section 10.12 Amendment of Registration Rights.

     Any provision of this Section 10 may be amended and the observance  thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively  or  prospectively),  only with the written consent of the Company
and the  holders  of at least a  majority  of the  Registrable  Securities.  Any
amendment or waiver  effected in accordance with this paragraph shall be binding
upon each holder of any securities  purchased  under this  Agreement  (including
securities  into which such  securities  are  convertible),  each  transferee or
future holder of all such securities, and the Company.

                                   ARTICLE V
                                  MISCELLANEOUS

     Section 11.1 Expenses.

     Except to the extent expressly  provided  otherwise in this Agreement,  the
Company,  on the one hand,  and  Investor,  on the other hand,  shall bear their
respective expenses, costs and fees (including attorneys' and auditors' fees) in
connection with the transactions contemplated hereby, including the preparation,
execution and delivery of this Agreement and compliance herewith, whether or not
the transactions contemplated hereby shall be consummated.

     Section 11.2 Severability.

     If any provision of this Agreement, including any phrase, sentence, clause,
Section or subsection  is  inoperative  or  unenforceable  for any reason,  such
circumstances  shall not have the effect of rendering  the provision in question

                                       41
<PAGE>
inoperative or unenforceable in any other case or circumstance,  or of rendering
any other provision or provisions  herein  contained  invalid,  inoperative,  or
unenforceable to any extent whatsoever.

     Section 11.3 Notices.

     All notices,  requests,  demands,  approvals,  consents,  waivers and other
communications  required or permitted to be given under this Agreement  (each, a
"Notice") shall be in writing and shall be (a) delivered personally,  (b) mailed
by  first-class  mail or  certified  mail,  return  receipt  requested,  postage
prepaid,  (c) sent by next-day or  overnight  mail or  delivery,  or (d) sent by
facsimile  transmission,  provided that a confirmation  statement is retained by
sender.

(i)      if to Investor, to:

                           L-3 Communications Corporation
                           600 Third Avenue
                           New York, NY  10016
                           Facsimile:  (212) 805-5494
                           Attention:  Christopher C. Cambria, Esq.

(ii)     if to Company, to:

                           Innovative Micro Technology, Inc.
                           75 Robin Hill Rd.
                           Santa Barbara, CA  93117
                           Facsimile:  805-967-2677
                           Attention:  John Foster, President

                           With a copy (which shall not comprise notice) to
                           James J. Slaby, Esq.

                           Sheppard, Mullin, Richter & Hampton LLP
                           333 S. Hope Street, 48th Floor
                           Los Angeles, CA  90017
                           Facsimile:  (213) 620-1398

or, in each case,  at such other  address as may be specified in a Notice to the
other  party  hereto.  All  Notices  shall be deemed  effective  and given  upon
receipt.

     Section 11.4 Attorneys' Fees.

     If any  party  hereto  initiates  any  legal  action  arising  out of or in
connection  with this  Agreement,  the  prevailing  party  shall be  entitled to
recover from the other party all reasonable attorneys' fees, expert witness fees
and expenses incurred by the prevailing party in connection therewith.

                                       42
<PAGE>
     Section 11.5 Liability for Transfer Taxes.

     Company shall be responsible for and pay in a timely manner all sales, use,
value  added,  documentary,  stamp,  gross  receipts,  registration,   transfer,
conveyance,  excise,  recording,  license  and  other  similar  Taxes  and  fees
("Transfer Taxes"),  arising out of or in connection with or attributable to the
transactions  effected  pursuant  to this  Agreement.  Each party  hereto  shall
prepare  and  timely  file all Tax  Returns  required  to be filed in respect of
Transfer  Taxes  that  are  the  primary  responsibility  of  such  party  under
applicable law; provided, however, that such party's preparation of any such Tax
Returns shall be subject to the other party's approval, which approval shall not
be withheld or delayed unreasonably.

     Section 11.6 Headings.

     The headings  contained in this  Agreement are for purposes of  convenience
only and shall not affect the meaning or interpretation of this Agreement.

     Section 11.7 Entire Agreement.

     This Agreement  (including the Schedules and Exhibits  hereto)  constitutes
the entire  agreement and  supersedes all prior  agreements and  understandings,
both written and oral,  between the parties  with respect to the subject  matter
hereof.

     Section 11.8 Counterparts.

     This Agreement may be executed  (including by facsimile  transmission) with
counterpart signature pages or in several  counterparts,  each of which shall be
deemed an original and all of which shall  together  constitute one and the same
instrument.

     Section 11.9 Governing Law, etc.

     This Agreement shall be governed in all respects, including as to validity,
interpretation and effect, by the internal laws of the State of New York without
giving  effect to the  conflict  of laws rules  thereof.  The  Investor  and the
Company hereby irrevocably submit to the jurisdiction of the courts of the State
of New York, and the Federal  courts of the United States of America  located in
the Southern  District of New York solely in respect of the  interpretation  and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement,  and hereby waive,  and agree not to assert,  as a defense in
any action,  suit or proceeding for the  interpretation or enforcement hereof or
of any such document,  that it is not subject thereto or that such action,  suit
or proceeding may not be brought or is not  maintainable  in said courts or that
the venue thereof may not be  appropriate  or that this Agreement or any of such
document  may not be  enforced  in or by said  courts,  and the  parties  hereto
irrevocably  agree that all claims  with  respect to such  action or  proceeding
shall be heard and  determined in such a Delaware  State or Federal  court.  The
Investor  and  the  Company   hereby  consent  to  and  grants  any  such  court
jurisdiction  over the person of such parties and over the subject matter of any
such dispute and agrees that  mailing of process or other  papers in  connection
with any such action or proceeding in the manner provided in Section 11.3, or in
such other  manner as may be  permitted  by law,  shall be valid and  sufficient
service thereof.

                                       43
<PAGE>
     Section 11.10 Binding Effect.

     This  Agreement  shall be  binding  upon and  inure to the  benefit  of the
parties hereto and their respective heirs, successors and permitted assigns.

     Section 11.11 No Third Party Beneficiaries.

     Except as  provided  in  Article  IX with  respect  to  indemnification  of
Indemnified Parties hereunder, nothing in this Agreement shall confer any rights
upon any Person other than the parties hereto and their respective heirs,  legal
representatives, successors and permitted assigns.

     Section 11.12 Amendment; Waivers, etc.

     No discharge of this Agreement, and no waiver hereunder,  shall be valid or
binding  unless set forth in writing and duly executed by the party against whom
enforcement  of the  discharge  or  waiver  is  sought.  Any such  waiver  shall
constitute a waiver only with respect to the specific  matter  described in such
writing and shall in no way impair the rights of the party  granting such waiver
in any other  respect  or at any other  time.  Neither  the waiver by any of the
parties  hereto of a breach of or a default under any of the  provisions of this
Agreement,  nor the failure by any of the parties, on one or more occasions,  to
enforce any of the  provisions  of this  Agreement  or to exercise  any right or
privilege  hereunder,  shall be  construed  as a waiver of any  other  breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.

     Section  11.13  Company  Acknowledgement.  Company  acknowledges  that  the
representations  and warranties  contained in this Agreement and in any document
or instrument  delivered to Investor  pursuant hereto or in connection  herewith
shall not be  deemed  waived  or  otherwise  affected  by any  investigation  by
Investor, its officers, directors,  employees,  counsel, accountants,  advisors,
representatives and agents.

     Section 11.14  Investor  Acknowledgement.  Investor  acknowledges  that the
representations  and warranties  contained in this Agreement and in any document
or instrument delivered to the Company pursuant hereto or in connection herewith
shall not be deemed  waived or otherwise  affected by any  investigation  by the
Company, its officers, directors,  employees,  counsel,  accountants,  advisors,
representatives and agents.

     Section 11.15 Titles and  Subtitles.  The titles and subtitles used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

                      The next page is the signature page.

                                       44
<PAGE>

     IN WITNESS  WHEREOF,  the parties have duly  executed  this Stock  Purchase
Agreement as of the date first above written.

                                 Investor:

                                 L-3 COMMUNICATIONS CORPORATION

                                 By:____________________________________
                                     Name:
                                     Title:

                                 Company:

                                 INNOVATIVE MICRO TECHNOLOGY, INC.

                                 By:____________________________________
                                      Name:
                                      Title:

<PAGE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}]]