Document:

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                        WARRANT TO PURCHASE COMMON STOCK
                              (CONVERSION WARRANTS)

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT FOR DISTRIBUTION,  AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD,  PLEDGED, OR
OTHERWISE  TRANSFERRED WITHOUT AN EFFECTIVE  REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY  SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH  REGISTRATION  IS NOT  REQUIRED.  THIS WARRANT
MUST  BE  SURRENDERED  TO THE  COMPANY  OR ITS  TRANSFER  AGENT  AS A  CONDITION
PRECEDENT TO THE SALE,  PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN THIS WARRANT
OR THE SHARES ISSUABLE HEREUNDER.

Issuer:  Integrated Performance Systems Inc.
Class of Stock: Common Stock
Issue Date: October ___, 2003
Expiration Date: October ___, 2006

         THIS WARRANT TO PURCHASE  COMMON STOCK is being issued pursuant to that
certain Securities Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") between Integrated  Performance Systems Inc., a New York corporation
(the "Company") and La Jolla Cove Investors, Inc. ("Holder").

         1.1 Warrants. The Company hereby grants to Holder the right to purchase
1,666,666  shares of the  Company's  Common  Stock  (the  "Shares"  or  "Warrant
Shares").  For  avoidance of doubt,  this Warrant may be exercised  concurrently
with or subsequent to the issuance of a Conversion  Notice under the  Debenture.
The date that the Holder  issues a  Conversion  Notice  under the  Debenture  is
hereafter referred to as the "Conversion Date." Defined terms not defined herein
shall  have the  meanings  ascribed  to them in the  Debenture  or the  Purchase
Agreement.  Holder agrees that, beginning in the first full calendar month after
the Registration Statement is declared effective,

Holder will exercise at least 5%, but no more than 10% (such 10% maximum  amount
to be  cumulative  from the  Deadline),  of the  Warrants  per  calendar  month,
provided that the Common Shares are available,  registered and freely  tradable.
The 10% monthly  maximum  amount shall not be applicable  if the Current  Market
Price of the Common Stock at anytime during the applicable  month is higher than
the Current  Market Price of the Common Stock on the Closing  Date. In the event
Holder breaches this provision, Holder shall not be entitled to collect interest
on the Debenture for that month.

This Warrant shall expire and Holder shall no longer be able to purchase the
Warrant Shares on October ___, 2006.

                                       1
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                                    ARTICLE 2

                                    EXERCISE

         2.1 Method of Exercise.  Holder may exercise this Warrant by delivering
a duly executed Warrant Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company, along with a check payable to
the Company for the aggregate Exercise Price for the Shares being purchased.

         2.2 Delivery of Certificate and New Warrant. As promptly as practicable
after the receipt of the Warrant  Notice of Exercise,  but in any event not more
than three (3) Business Days after the Company's  receipt of the Warrant  Notice
of  Exercise,  the  Company  shall  issue the  Shares and cause to be mailed for
delivery by  overnight  courier,  or if a  Registration  Statement  covering the
Shares  has  been  declared  effective  by the SEC  cause  to be  electronically
transferred,  to Holder a certificate  representing  the Shares acquired and, if
this Warrant has not been fully  exercised  and has not  expired,  a new Warrant
substantially in the form of this Warrant  representing the right to acquire the
portion of the Shares not so acquired.

         2.3  Replacement  of  Warrants.   On  receipt  of  evidence  reasonably
satisfactory  to the Company of the loss,  theft,  destruction  or mutilation of
this Warrant and, in the case of loss,  theft or destruction,  on delivery of an
indemnity  agreement  reasonably  satisfactory in form and amount to the Company
or, in the case of mutilation,  or surrender and  cancellation  of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new  warrant of like tenor.  2.4  Exercise  Price.  The  Exercise  Price of this
Warrant shall be $1.50.

                                   ARTICLE 3

                            ADJUSTMENT TO THE SHARES

         The number of Shares  purchasable upon the exercise of this Warrant and
the  Exercise  Price shall be subject to  adjustment  form time to time upon the
occurrence of certain events, as follows:

         3.1  Reclassification.  In case of any  reclassification of outstanding
securities of the class  issuable upon exercise of this Warrant then, and in any
such  case,  the  Holder,  upon  the  exercise  hereof  at any  time  after  the
consummation of such reclassification or change, shall be entitled to receive in
lieu of each Share theretofore  issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities,  money and/or property received
upon such reclassification or change by a holder of one Share. The provisions of
this Section 2.1 shall similarly apply to successive reclassifications.

         3.2  Subdivision or  Combination of Shares.  If the Company at any time
while this Warrant remains  outstanding and unexpired shall subdivide or combine
its Shares, the Exercise Price shall be proportionately decreased in the case of
a subdivision or increased in the case of a combination.

                                       2
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         3.3 Stock Dividends.  If the Company, at any time while this Warrant is
outstanding  shall pay a dividend with respect to its Shares  payable in Shares,
or make any other  distribution  of Shares  with  respect to Shares  (except any
distribution  specifically  provided  for in Section 2.1 and Section 2.2 above),
then the Exercise Price shall be adjusted,  effective from and after the date of
determination   of   shareholders   entitled  to  received   such   dividend  or
distribution,  to that price  determined by  multiplying  the Exercise  Price in
effect  immediately  prior to such date of determination by a fraction,  (a) the
numerator of which shall be the total number of Shares  outstanding  immediately
prior to such dividend or  distribution,  and (b) the denominator of which shall
be the total number of Shares  outstanding  immediately  after such  dividend or
distribution.

         3.4 Non-Cash  Dividends.  If the Company at any time while this Warrant
is outstanding shall pay a dividend with respect to Shares payable in securities
other than Shares or other non-cash property,  or make any other distribution of
such  securities  or property  with respect to Shares  (except any  distribution
specifically  provided  for in Section 2.1 and  Section  2.2  above),  then this
Warrant shall  represent the right to acquire upon exercise of this Warrant such
securities  or  property  which a holder of Shares  would have been  entitled to
receive upon such dividend or distribution, without the payment by the Holder of
any additional consideration for such securities or property.

         3.5 Effect of Reorganization and Asset Sales. If any (i) reorganization
or  reclassification  of the Common  Stock (ii)  consolidation  or merger of the
Company with or into another corporation,  or (iii) sale or all or substantially
all of the  Company's  operating  assets to another  corporation  followed  by a
liquidation  of the  Company  (any  such  transaction  shall  be  followed  by a
liquidation of the Company (any such transaction  shall be referred to herein as
an "Event",  is effected in such a way that holders of Common Stock are entitled
to receive securities and/or assets as a result of their Common Stock ownership,
the Holder,  upon  exercise of this  Warrant,  shall be entitled to receive such
shares of stock securities or assets which the Holder would have received had it
fully  exercised  this  Warrant on or prior the record date for such Event.  The
Company shall not merge into or consolidate with another corporation or sell all
of its assets to another corporation for a consideration consisting primarily of
securities or such corporation,  unless the successor or acquiring  corporation,
as the case may be, shall expressly  assume the due and punctual  observance and
performance  of each and every  covenant  and  condition  of this  Warrant to be
performed or observed by the Company and all of the  obligations and liabilities
hereunder,  subject to such  modification  as shall be  necessary to provide for
adjustments   which  shall  be  as  nearly  equivalent  as  practicable  to  the
adjustments  provided  for in this  Section 2. The  foregoing  provisions  shall
similarly apply to successive  mergers,  consolidations or sales of assets.

         3.6  Adjustment  of  Number of  Shares.  Upon  each  adjustment  in the
Exercise  Price,  the number of Shares shall be adjusted,  to the nearest  whole
share, to the product obtained by multiplying the number of Shares,  purchasable
immediately  prior to such  adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.

                                       3
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         3.7 No Impairment.  The Company shall not, by amendment of its articles
of incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the  observance or  performance of any of the terms to be
observed or performed under this Warrant by the Company,  but shall at all times
in good faith assist in carrying out all of the  provisions  of this Warrant and
in taking all such  action as may be  reasonably  necessary  or  appropriate  to
protect Holder's rights hereunder against  impairment.  If the Company takes any
action  affecting its Common Stock other than as described  above that adversely
affects Holder's rights under this Warrant, the Exercise Price shall be adjusted
downward and the number of Shares  issuable  upon exercise of this Warrant shall
be adjusted  upward in such a manner that the aggregate  Exercise  Price of this
Warrant is unchanged.

         3.8 Fractional  Shares. No fractional Shares shall be issuable upon the
exercise of this Warrant, and the number of Shares to be issued shall be rounded
down to the nearest whole Share.

         3.9 Certificate as to Adjustments.  Upon any adjustment of the Exercise
Price,  the Company,  at its expense,  shall compute such adjustment and furnish
Holder with a  certificate  of its Chief  Financial  Officer  setting forth such
adjustment and the facts upon which such adjustment is based. The Company shall,
upon written  request,  furnish Holder a certificate  setting forth the Exercise
Price in effect upon the date thereof and the series of  adjustments  leading to
such  Exercise  Price.

         3.10 No Rights of Shareholders. This Warrant does not entitle Holder to
any voting rights or any other rights as a  shareholder  of the Company prior to
the exercise of Holder's right to purchase Shares as provided herein.

                                   ARTICLE 4

                  REPRESENTATIONS AND COVENANTS OF THE COMPANY

         4.1 Representations  and Warranties.  The Company hereby represents and
warrants to Holder that all Shares  which may be issued upon the exercise of the
purchase  right  represented  by this Warrant,  shall,  upon  issuance,  be duly
authorized,  validly issued, fully paid and nonasessable,  and free of any liens
and encumbrances.

         4.2 Notice of Certain Events.  If the company  proposes at any time (a)
to declare any dividend or distribution upon its Common Stock,  whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for  subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other fights;
(c) to effect any  reclassification  or recapitalization of Common Stock; (d) to
merge  or  consolidate  with or into any  other  corporation,  or  sell,  lease,
license,  or convey all or  substantially  all of its assets,  or to  liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten  public  offering of the Company's  securities
for cash,  then,  in  connection  with each such event,  the Company  shall give
Holder (1) at least 20 days prior  written  notice of the date on which a record
will be taken for such  dividend,  distribution,  or  subscription  rights  (and
specifying  the date on which the  holders  of  Common  Stock  will be  entitled
thereto) or for  determining  rights to vote,  if any, in respect of the matters
referred to in (c) and (d) above;  (2) in the case of the matters referred to in
(c) and (d)  above at least 20 days  prior  written  notice of the date when the
same will take place  (and  specifying  the date on which the  holders of Common
Stock will be entitled to exchange  their Common Stock for  securities  or other
property  deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above,  the same notice as is given to the holders
of such  registration  rights.

                                       4
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         4.3 Information Rights. So long as Holder holds this Warrant and/or any
of the Shares,  the company shall deliver to Holder (a) promptly  after mailing,
copies of all notices or other written communications to the shareholders of the
Company,  (b) within ninety (90) days of their availability,  the annual audited
financial  statements of the Company certified by independent public accountants
of recognized  standing,  and (c) within  forty-five  (45) days after the end of
each fiscal  quarter or each fiscal year,  the  Company's  quarterly,  unaudited
financial statements.

         4.4  Reservation of Warrant  Shares.  The Company has reserved and will
keep available,  out of the authorized and unissued shares of Common Stock,  the
full number of shares  sufficient  to provide for the  exercise of the rights of
purchase represented by this Warrant.

         4.5 Registration Rights. If Holder exercises this Warrant and purchases
some or all of the Shares,  Holder shall have the Registration  Rights set forth
in that certain Registration Rights Agreement executed concurrently therewith.

                                   ARTICLE 5

                   REPRESENTATIONS AND COVENANTS OF THE HOLDER

         5.1 Private Issue. Holder understands (i) that the Shares issuable upon
exercise of Holder's  rights  contained in the Warrant are not registered  under
the Act or qualified under  applicable  state securities laws on the ground that
the issuance  contemplated  by the Warrant will be exempt from the  registration
and qualifications requirements thereof, and (ii) that the Company's reliance on
such  exemption  is  predicated  on Holder's  representations  set forth in this
Article 4.

         5.2  Financial  Risk.  Holder  has such  knowledge  and  experience  in
financial  and business  matters as to be capable of  evaluating  the merits and
risks of its  investment  and has the ability to bear the economic  risks of its
investment.

         5.3 Risk of No  Registration.  Holder  understands  that if the Company
does not  register  with the  Securities  and  Exchange  Commission  pursuant to
Section  12 of the Act,  or file  reports  pursuant  to  Section  15(d),  of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the  securities  under the Act is not in effect when it desires to sell
(i) the right to purchase  Shares  pursuant to the  Warrant,  or (ii) the Shares
issuable upon exercise of the right to purchase, it may be required to hold such
securities for an indefinite period.

                                       5
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         5.4 Accredited  Investor.  Holder is an "accredited  investor," as such
term is defined in Regulation D promulgated pursuant to the Act.

                                   ARTICLE 6

                                  MISCELLANEOUS

         6.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from  time to time on or after  the  Conversion  Date and on or  before  the
Expiration  Date  set  forth  above.

         6.2 Compliance with  Securities Laws on Transfer.  This Warrant may not
be  transferred  or  assigned  in  whole  or in  part  without  compliance  with
applicable  federal  and  state  securities  laws  by  the  transferor  and  the
transferee   (including,   without   limitation,   the  delivery  of  investment
representation  letters  and  legal  opinions  reasonably  satisfactory  to  the
Company, as reasonably requested by the Company).  The Company shall not require
Holder to provide an opinion of counsel if the  transfer is to an  affiliate  of
Holder.

         6.3 Transfer Procedure. Holder shall have the right without the consent
of the Company to  transfer  or assign in whole or in part this  Warrant and the
Shares  issuable upon exercise of this Warrant.  Holder agrees that unless there
is in effect a  registration  statement  under  the Act  covering  the  proposed
transfer of all or part of this Warrant, prior to any such proposed transfer the
Holder shall give written notice  thereof to the Company (a "Transfer  Notice").
Each Transfer Notice shall describe the manner and circumstances of the proposed
transfer  in  reasonable  detail  and,  if the  company  so  requests,  shall be
accompanied by an opinion of legal counsel, in a form reasonably satisfactory to
the Company,  to the effect that the proposed  transfer may be effected  without
registration  under the Act; provided that the Company will not require opinions
of counsel for  transactions  involving  transfers to  affiliates or pursuant to
Rule 144  promulgated by the Securities and Exchange  Commission  under the act,
except in unusual circumstances.

         6.4  Notices,  etc.  All notices and other  communications  required or
permitted  hereunder shall be in writing and shall be delivered  personally,  or
sent by  telecopier  machine or by a  nationally  recognized  overnight  courier
service,  and  shall  be  deemed  given  when  so  delivered  personally,  or by
telecopier machine or overnight courier service as follows:

         if  to the Company, to:

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

         if to the Holder, to:

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

                                       6
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or at such other address as the Company shall have furnished to the Holder. Each
such notice or other  communication  shall for all purposes of this agreement be
treated  as  effective  or  having  been  given  when   delivered  if  delivered
personally,  or, if sent by mail,  at the  earlier  of its  receipt or five days
after the same has been deposited in a regularly  maintained  receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.

         6.5  Counterparts.  This  agreement  may be  executed  in any number of
counterparts,  each of which shall be enforceable  against the parties  actually
executing such  counterparts,  and all of which  together  shall  constitute one
instrument. Facsimile execution shall be deemed originals.

         6.6 Waiver.  This  Warrant and any term hereof may be changed,  waived,
discharged  or terminated  only by an instrument in writing  signed by the party
against which  enforcement of such change,  waiver,  discharge or termination is
sought.

         6.7  Attorneys  Fees.  In the event of any dispute  between the parties
concerning  the terms and  provisions of this Warrant,  the party  prevailing in
such  dispute  shall be  entitled  to  collect  from the  other  party all costs
incurred in such dispute, including reasonable attorneys fees.

         6.8 Governing Law; Jurisdiction.  This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles  regarding conflicts of law. Each of the parties hereto
consents to the jurisdiction of the federal courts whose districts encompass any
part of the City of San  Diego or the state  courts  of the State of  California
sitting in the City of San Diego in  connection  with any dispute  arising under
this  Warrant and hereby  waives,  to the maximum  extent  permitted by law, any
objection including any objection based on forum non conveniens, to the bringing
of any such proceeding in such jurisdictions.

         IN WITNESS WHEREOF, the parties hereto have duly caused this Warrant to
Purchase  Common  Stock to be  executed  and  delivered  on the date first above
written.

Integrated Performance Systems Inc.         La Jolla Cove Investors, Inc.

By: ___________________________             By: __________________________

Title: __________________________           Title: _________________________

                                       7
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                                                             APPENDIX 1

                                                     WARRANT NOTICE OF EXERCISE

         1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of  Integrated  Performance  Systems  Inc.  pursuant  to the  terms of the
Warrant to Purchase Common Stock issued by Integrated  Performance  Systems Inc.
on October ___, 2003 and tenders  herewith payment of the purchase price of such
shares in full.

         2. Please issue a certificate or certificates  representing said shares
in the name of the undersigned or in such other name as is specified below:

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

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

                              ---------------------
                               (Name and Address)

         3. The undersigned makes the representations and covenants set forth in
Article 4 of the Warrant to Purchase Common Stock.

--------------------------------
(Signature)

---------------------------
(Date)

                                       8<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

         Registration  Rights  Agreement  dated as of  October  ___,  2003 (this
"AGREEMENT")  by and between  Integrated  Performance  Systems  Inc., a New York
corporation,  with  principal  executive  offices  located at 17300 North Dallas
Parkway, Dallas, Texas 75248 (the "COMPANY"),  and La Jolla Cove Investors, Inc.
(the "INITIAL INVESTOR").

         WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase  Agreement  dated as of October ___,  2003,  by and between the Initial
Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"),  the Company has
agreed to issue and sell to the Initial  Investor an 8 %  Convertible  Debenture
(the  "DEBENTURE") of the Company in the aggregate  principal amount of $250,000
which,  upon the terms of and subject to the conditions  contained  therein,  is
convertible into shares of the Company's Common Stock (the "COMMON STOCK") ; and

         WHEREAS,  to induce the  Initial  Investor  to execute  and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued upon  conversion of the Debenture and the Warrant Shares
certain registration rights under the Securities Act;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained herein, the parties hereto,  intending to be legally bound,
hereby agree as follows:

         1. Definitions

         (A) As used in this  Agreement,  the  following  terms  shall  have the
meanings:

              (1) "AFFILIATE" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control of, is
controlled  by, or is under common  control with,  such  specified  Person.  For
purposes of this  definition,  control of a Person means the power,  directly or
indirectly,  to direct or cause the direction of the  management and policies of
such Person  whether by contract,  securities,  ownership or otherwise;  and the
terms "CONTROLLING" and "CONTROLLED" have the respective meanings correlative to
the foregoing.

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

              (3) "COMMISSION" means the Securities and Exchange Commission.

              (4) "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as
amended,  and the rules and  regulations  of the Commission  thereunder,  or any
similar successor statute.

              (5)  "INVESTOR"  means  each  of  the  Initial  Investor  and  any
transferee or assignee of Registrable Securities which agrees to become bound by
all of the terms and provisions of this  Agreement in accordance  with Section 8
hereof.

                                       1
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              (6)  "PERSON"  means  any  individual,  partnership,  corporation,
limited   liability   company,   joint  stock   company,   association,   trust,
unincorporated organization,  or a government or agency or political subdivision
thereof.

              (7)  "PROSPECTUS"   means  the  prospectus   (including,   without
limitation,  any preliminary  prospectus and any final prospectus filed pursuant
to Rule 424(b) under the Securities Act, including any prospectus that discloses
information  previously  omitted from a prospectus filed as part of an effective
registration  statement  in  reliance  on Rule 430A  under the  Securities  Act)
included  in the  Registration  Statement,  as  amended or  supplemented  by any
prospectus  supplement  with respect to the terms of the offering of any portion
of the Registrable  Securities covered by the Registration  Statement and by all
other  amendments  and  supplements to such  prospectus,  including all material
incorporated  by reference in such  prospectus and all documents filed after the
date of such  prospectus by the Company under the Exchange Act and  incorporated
by reference therein.

              (8)  "PUBLIC   OFFERING"  means  an  offer   registered  with  the
Commission and the appropriate  state  securities  commissions by the Company of
its Common Stock and made pursuant to the Securities Act.

              (9)  "REGISTRABLE  SECURITIES"  means the Common  Stock  issued or
issuable (i) upon  conversion or redemption of the  Debenture,  (ii) exercise of
the  Conversion  Warrants  (iii)  pursuant  to the terms and  provisions  of the
Debenture or the  Securities  Purchase  Agreement,  (iv) in connection  with any
distribution, recapitalization,  stock-split, stock adjustment or reorganization
of the Company;  provided,  however, a share of Common Stock shall cease to be a
Registrable  Security  for  purposes  of this  Agreement  when it no longer is a
Restricted Security.

              (10)  "REGISTRATION  STATEMENT" means a registration  statement of
the Company filed on an appropriate  form under the Securities Act providing for
the  registration  of,  and the sale on a  continuous  or  delayed  basis by the
holders  of, all of the  Registrable  Securities  pursuant to Rule 415 under the
Securities Act,  including the Prospectus  contained  therein and forming a part
thereof,  any amendments to such registration  statement and supplements to such
Prospectus,  and all exhibits to and other material incorporated by reference in
such registration statement and Prospectus.

              (11) "RESTRICTED  SECURITY" means any share of Common Stock issued
upon  conversion or redemption of the Debenture or Warrant except any such share
that (i) has been  registered  pursuant to an effective  registration  statement
under the  Securities  Act and sold in a manner  contemplated  by the prospectus
included in such registration statement, (ii) has been transferred in compliance
with  the  resale  provisions  of Rule  144  under  the  Securities  Act (or any
successor  provision  thereto) or is  transferable  pursuant to paragraph (k) of
Rule 144 under the Securities Act (or any successor  provision thereto) or (iii)
otherwise  has been  transferred  and a new share of Common Stock not subject to
transfer  restrictions  under the  Securities  Act has been  delivered  by or on
behalf of the Company.

              (12)  "SECURITIES  ACT"  means  the  Securities  Act of  1933,  as
amended,  and the rules and  regulations  of the Commission  thereunder,  or any
similar successor statute.

                                       2
<PAGE>

         (B)  All  capitalized  terms  used  and not  defined  herein  have  the
respective meaning assigned to them in the Securities  Purchase Agreement or the
Debenture.

         2. Registration

         (A) FILING AND  EFFECTIVENESS  OF REGISTRATION  STATEMENT.  The Company
shall prepare and file with the Commission as soon as practicable a Registration
Statement relating to the offer and sale of the Registrable Securities and shall
use its best  efforts  to cause the  Commission  to  declare  such  Registration
Statement  effective  under the Securities Act as promptly as practicable but in
no event  later than the  Deadline  (as defined in the  Debenture).  The Company
shall  promptly  (and,  in any event,  no more than 24 hours  after it  receives
comments  from the  Commission),  notify the Buyer when and if it  receives  any
comments from the Commission on the Registration  Statement and promptly forward
a copy of such  comments,  if they are in  writing,  to the Buyer.  At such time
after the filing of the Registration  Statement pursuant to this Section 2(A) as
the Commission  indicates,  either orally or in writing,  that it has no further
comments  with respect to such  Registration  Statement or that it is willing to
entertain  appropriate  requests  for  acceleration  of  effectiveness  of  such
Registration  Statement,  the Company shall promptly, and in no event later than
two (2) business  days after  receipt of such  indication  from the  Commission,
request that the  effectiveness  of such  Registration  Statement be accelerated
within forty-eight (48) hours of the Commission's  receipt of such request.  The
Company  shall  notify  the  Initial   Investor  by  written  notice  that  such
Registration  Statement has been declared  effective by the Commission within 24
hours of such declaration by the Commission.

         (B) ELIGIBILITY FOR USE OF FORM S-3 OR AN SB-2. The Company agrees that
at such  time as it meets all the  requirements  for the use of  Securities  Act
Registration  Statement  on Form S-3 or SB-2 and it shall file all  reports  and
information  required to be filed by it with the  Commission  in a timely manner
and take all such other action so as to maintain such eligibility for the use of
such form.

         (C) ADDITIONAL  REGISTRATION STATEMENT. In the event the Current Market
Price  declines  to a price per share  the  result of which is that the  Company
cannot satisfy its conversion  obligations to Initial  Investor  hereunder,  the
Company  shall,  to the extent  required  by the  Securities  Act  (because  the
additional shares were not covered by the Registration  Statement filed pursuant
to Section  2(a)),  as reasonably  determined by the Initial  Investor,  file an
additional Registration Statement with the Commission for such additional number
of Registrable  Securities as would be issuable upon conversion of the Debenture
(the  "ADDITIONAL  REGISTRABLE  SECURITIES")  in  addition  to those  previously
registered.  The Company shall, to the extent required by the Securities Act, as
reasonably  determined  by the  Initial  Investor,  prepare  and  file  with the
Commission  not later than the 30th day  thereafter,  a  Registration  Statement
relating to the offer and sale of such  Additional  Registrable  Securities  and
shall use its best efforts to cause the Commission to declare such  Registration
Statement  effective under the Securities Act as promptly as practicable but not
later than the Deadline.  The Company shall not include any other  securities in
the  Registration  Statement  relating to the offer and sale of such  Additional
Registrable Securities.

                                       3
<PAGE>

         (D) (i) If the Company proposes to register any of its warrants, Common
Stock or any other  shares of common stock of the Company  under the  Securities
Act  (other  than a  registration  (A) on Form  S-8 or S-4 or any  successor  or
similar forms,  (B) relating to Common Stock or any other shares of common stock
of the Company issuable upon exercise of employee share options or in connection
with any employee  benefit or similar  plan of the Company or (C) in  connection
with a direct or indirect  acquisition  by the Company of another  Person or any
transaction  with respect to which Rule 145 (or any successor  provision)  under
the  Securities  Act applies),  whether or not for sale for its own account,  it
will each such time,  give prompt  written  notice at least 20 days prior to the
anticipated  filing  date  of  the  registration   statement  relating  to  such
registration  to each  Investor,  which notice  shall set forth such  Investor's
rights under this Section 2(D) and shall offer such Investor the  opportunity to
include in such registration  statement such number of Registrable Securities as
such Investor may request.  Upon the written request of any Investor made within
10 days after the  receipt  of notice  from the  Company  (which  request  shall
specify the number of Registrable  Securities intended to be disposed of by such
Investor),  the  Company  will use its best  efforts to effect the  registration
under the Securities Act of all Registrable Securities that the Company has been
so requested to register by each Investor, to the extent requisite to permit the
disposition  of  the  Registrable  Securities  so  to be  registered;  provided,
however, that (A) if such registration involves a Public Offering, each Investor
must sell its Registrable Securities to any underwriters selected by the Company
with the consent of such  Investor on the same terms and  conditions as apply to
the Company and (B) if, at any time after giving written notice of its intention
to register any Registrable  Securities  pursuant to this Section 2 and prior to
the effective date of the  registration  statement filed in connection with such
registration,  the Company  shall  determine for any reason not to register such
Registrable  Securities,  the Company shall give written notice to each Investor
and, thereupon,  shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(D) shall terminate on the date that the registration statement to
be  filed  in  accordance  with  Section  2(A)  is  declared  effective  by  the
Commission.

         (ii) If a registration  pursuant to this Section 2(D) involves a Public
Offering and the managing  underwriter  thereof advises the Company that, in its
view,  the number of shares of Common  Stock that the Company and the  Investors
intend to include in such  registration  exceeds the largest number of shares of
Common  Stock that can be sold without  having an adverse  effect on such Public
Offering  (the  "MAXIMUM  OFFERING  SIZE"),  the  Company  will  include in such
registration  only such number of shares of Common  Stock as does not exceed the
Maximum  Offering  Size,  and the number of shares in the Maximum  Offering Size
shall be allocated  among the Company,  the  Investors  and any other sellers of
Common Stock in such Public Offering  ("THIRD-PARTY  SELLERS"),  first, pro rata
among the Investors until all the shares of Common Stock originally  proposed to
be offered for sale by the Investors have been allocated,  and second,  pro rata
among the Company and any Third-Party  Sellers, in each case on the basis of the
relative number of shares of Common Stock originally  proposed to be offered for
sale under such  registration  by each of the  Investors,  the  Company  and the
Third-Party  Sellers,  as the  case  may be.  If as a  result  of the  proration
provisions of this Section 2(D)(ii), any Investor is not entitled to include all
such  Registrable  Securities in such  registration,  such Investor may elect to
withdraw its request to include any Registrable Securities in such registration.
With  respect to  registrations  pursuant to this  Section  2(D),  the number of
securities required to satisfy any underwriters'  over-allotment option shall be
allocated  among the Company,  the Investors and any Third Party Seller pro rata
on the basis of the relative  number of  securities  offered for sale under such
registration  by each of the  Investors,  the  Company  and any such Third Party
Sellers before the exercise of such over-allotment option.

                                       4
<PAGE>

         3. Obligations of the Company

         In connection with the registration of the Registrable Securities,  the
Company shall:

         (A) Promptly (i) prepare and file with the Commission  such  amendments
(including   post-effective   amendments)  to  the  Registration  Statement  and
supplements  to the  Prospectus  as may be  necessary  to keep the  Registration
Statement  continuously  effective and in compliance  with the provisions of the
Securities  Act applicable  thereto so as to permit the Prospectus  forming part
thereof to be current and useable by  Investors  for resales of the  Registrable
Securities  for a  period  of  five  (5)  years  from  the  date  on  which  the
Registration  Statement  is first  declared  effective  by the  Commission  (the
"EFFECTIVE  TIME")  or such  shorter  period  that will  terminate  when all the
Registrable  Securities  covered by the  Registration  Statement  have been sold
pursuant  thereto in accordance  with the plan of  distribution  provided in the
Prospectus,  transferred  pursuant  to Rule  144  under  the  Securities  Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "REGISTRATION
PERIOD") and (ii) take all lawful action such that each of (A) the  Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the  Prospectus  forming  part of the  Registration  Statement,  and any
amendment or supplement  thereto,  does not at any time during the  Registration
Period  include  an  untrue  statement  of a  material  fact or omit to  state a
material fact required to be stated  therein or necessary to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading;

         (B) During the Registration  Period,  comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the  Registration  Statement  until  such  time  as all of  such  Registrable
Securities  have been  disposed of in  accordance  with the intended  methods of
disposition by the Investors as set forth in the Prospectus  forming part of the
Registration Statement;

         (C) (i) Prior to the filing  with the  Commission  of any  Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus  (including any  supplements  thereto),  provide (A) draft copies
thereof to the Investors and reflect in such  documents all such comments as the
Investors (and their counsel)  reasonably may propose and (B) to the Investors a
copy of the  accountant's  consent  letter to be included in the filing and (ii)
furnish to each  Investor  whose  Registrable  Securities  are  included  in the
Registration  Statement  and its legal counsel  identified  to the Company,  (A)
promptly  after the same is prepared  and publicly  distributed,  filed with the
Commission,  or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto and (B) such number of
copies of the Prospectus and all  amendments  and  supplements  thereto and such
other documents,  as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;

                                       5
<PAGE>

         (D) (i) Register or qualify the Registrable  Securities  covered by the
Registration  Statement  under  such  securities  or  "blue  sky"  laws  of such
jurisdictions  as  the  Investors  who  hold  a   majority-in-interest   of  the
Registrable  Securities being offered reasonably request,  (ii) prepare and file
in such jurisdictions such amendments (including post-effective  amendments) and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof at all times during the Registration Period,
(iii) take all such other lawful  actions as may be  necessary to maintain  such
registrations and  qualifications in effect at all times during the Registration
Period and (iv) take all such  other  lawful  actions  reasonably  necessary  or
advisable to qualify the Registrable  Securities for sale in such jurisdictions;
provided,  however,  that  the  Company  shall  not be  required  in  connection
therewith  or as a  condition  thereto  to (A)  qualify  to do  business  in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
Section 3(D), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;

         (E) As  promptly as  practicable  after  becoming  aware of such event,
notify each Investor of the  occurrence  of any event,  as a result of which the
Prospectus included in the Registration  Statement,  as then in effect, includes
an  untrue  statement  of a  material  fact or omits to  state a  material  fact
required to be stated  therein or necessary to make the statements  therein,  in
light of the  circumstances  under  which they were made,  not  misleading,  and
promptly  prepare an amendment to the  Registration  Statement and supplement to
the  Prospectus  to correct such untrue  statement  or  omission,  and deliver a
number of copies of such  supplement  and  amendment  to each  Investor  as such
Investor may reasonably request;

         (F) As  promptly as  practicable  after  becoming  aware of such event,
notify each  Investor who holds  Registrable  Securities  being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration  Statement at the earliest possible time and take all lawful action
to effect  the  withdrawal,  recession  or  removal  of such stop order or other
suspension;

         (G) Cause all the Registrable  Securities  covered by the  Registration
Statement  to be listed  on the  principal  national  securities  exchange,  and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;

         (H)  Maintain a  transfer  agent and  registrar,  which may be a single
entity, for the Registrable  Securities not later than the effective date of the
Registration Statement;

         (I) Cooperate with the Investors who hold Registrable  Securities being
offered to facilitate the timely  preparation and delivery of  certificates  for
the Registrable  Securities to be offered pursuant to the registration statement
and  enable  such  certificates  for the  Registrable  Securities  to be in such
denominations  or amounts,  as the case may be, as the Investors  reasonably may
request and  registered in such names as the Investor may request;  and,  within
three  (3)  business  days  after  a  registration   statement   which  includes
Registrable  Securities  is declared  effective by the  Commission,  deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the  Registrable  Securities  (with copies to the  Investors  whose  Registrable
Securities  are  included  in  such   registration   statement)  an  appropriate
instruction and, to the extent necessary, an opinion of such counsel;

         (J) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable  Securities
in accordance  with the intended  methods  therefor  provided in the  Prospectus
which are customary under the circumstances;

                                       6
<PAGE>

         (K)  Make  generally  available  to its  security  holders  as  soon as
practicable,  but in any event not later  than  three (3)  months  after (i) the
effective  date (as  defined in Rule  158(c)  under the  Securities  Act) of the
Registration  Statement  and  (ii)  the  effective  date of each  post-effective
amendment  to the  Registration  Statement,  as the  case  may be,  an  earnings
statement of the Company and its  subsidiaries  complying with Section 11 (a) of
the  Securities Act and the rules and  regulations of the Commission  thereunder
(including, at the option of the Company, Rule 158);

         (L) In the  event of an  underwritten  offering,  promptly  include  or
incorporate  in a  Prospectus  supplement  or  post-effective  amendment  to the
Registration  Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus  supplement or post-effective  amendment
as soon as  practicable  after it is  notified  of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;

         (M) (i) Make  reasonably  available for  inspection  by Investors,  any
underwriter  participating  in any  disposition  pursuant  to  the  Registration
Statement,  and  any  attorney,  accountant  or  other  agent  retained  by such
Investors or any such  underwriter  all relevant  financial  and other  records,
pertinent   corporate   documents   and   properties  of  the  Company  and  its
subsidiaries,  and (ii) cause the Company's officers, directors and employees to
supply  all  information  reasonably  requested  by such  Investors  or any such
underwriter,  attorney,  accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided,  however,  that  all  records,  information  and  documents  that  are
designated  in  writing  by  the  Company,   in  good  faith,  as  confidential,
proprietary  or  containing  any material  nonpublic  information  shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate  confidentiality  agreement in the case of any
such  holder or agent),  unless  such  disclosure  is made  pursuant to judicial
process in a court  proceeding  (after first  giving the Company an  opportunity
promptly  to seek a  protective  order  or  otherwise  limit  the  scope  of the
information  sought to be  disclosed)  or is required  by law, or such  records,
information or documents  become  available to the public generally or through a
third party not in violation of an accompanying  obligation of  confidentiality;
and  provided,  further,  that,  if the  foregoing  inspection  and  information
gathering would otherwise  disrupt the Company's  conduct of its business,  such
inspection and information  gathering shall, to the maximum extent possible,  be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel  designed  by and on behalf of the  majority  in interest of
Investors and other parties;

         (N)  In  connection   with  any   underwritten   offering,   make  such
representations   and  warranties  to  the  Investors   participating   in  such
underwritten  offering and to the managers,  in form, substance and scope as are
customarily  made by the  Company  to  underwriters  in  secondary  underwritten
offerings;

         (O) In connection with any underwritten offering, obtain "cold comfort"
letters and updates  thereof  from the  independent  public  accountants  of the
Company (and, if  necessary,  from the  independent  public  accountants  of any
subsidiary  of the Company or of any business  acquired by the Company,  in each
case for which  financial  statements and financial data are, or are required to
be,  included in the  Registration  Statement),  addressed  to each  underwriter
participating  in such  underwritten  offering (if such underwriter has provided
such letter,  representations  or documentation,  if any, required for such cold
comfort  letter to be so addressed),  in customary form and covering  matters of
the type  customarily  covered  in "cold  comfort"  letters in  connection  with
secondary underwritten offerings;

                                       7
<PAGE>

         (P)  In  connection  with  any  underwritten  offering,   deliver  such
documents and  certificates  as may be reasonably  required by the managers,  if
any, and

         (Q) In the event that any  broker-dealer  registered under the Exchange
Act shall be an  "AFFILIATE"  (as  defined in Rule  2729(b)(1)  of the rules and
regulations of the National  Association of Securities Dealers,  Inc. (the "NASD
RULES") (or any successor  provision thereto)) of the Company or has a "CONFLICT
OF INTEREST" (as defined in Rule  2720(b)(7) of the NASD Rules (or any successor
provision  thereto)) and such broker-dealer  shall underwrite,  participate as a
member  of  an  underwriting  syndicate  or  selling  group  or  assist  in  the
distribution  of  any  Registrable   Securities   covered  by  the  Registration
Statement,  whether  as a  holder  of  such  Registrable  Securities  or  as  an
underwriter,  a  placement  or sales  agent or a broker  or  dealer  in  respect
thereof, or otherwise,  the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including,  without limitation,  by (A)
engaging a "QUALIFIED  INDEPENDENT  UNDERWRITER" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor  provision  thereto)) to  participate in the
preparation  of  the  Registration   Statement   relating  to  such  Registrable
Securities,  to exercise usual standards of due diligence in respect thereof and
to recommend  the public  offering  price of such  Registrable  Securities,  (B)
indemnifying  such  qualified  independent  underwriter  to  the  extent  of the
indemnification  of underwriters  provided in Section 6 hereof and (C) providing
such  information  to such  broker-dealer  as may be  required in order for such
broker-dealer to comply with the requirements of the NASD Rules.

         4. Obligations of the Investors

         In connection with the registration of the Registrable Securities,  the
Investors shall have the following obligations:

         (A) It shall be a condition precedent to the obligations of the Company
to complete  the  registration  pursuant to this  Agreement  with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information  regarding  itself,  the Registrable  Securities
held by it and the intended method of disposition of the Registrable  Securities
held by it as shall be reasonably  required to effect the  registration  of such
Registrable  Securities and shall execute such documents in connection with such
registration as the Company may reasonably request;

         (B) Each  Investor  by its  acceptance  of the  Registrable  Securities
agrees to cooperate  with the Company in  connection  with the  preparation  and
filing  of the  Registration  Statement  hereunder,  unless  such  Investor  has
notified  the  Company  in  writing  of  its  election  to  exclude  all  of its
Registrable Securities from the Registration Statement; and

         (C) Each  Investor  agrees  that,  upon  receipt of any notice from the
Company of the  occurrence of any event of the kind described in Section 3(E) or
3(F), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until  such  Investor's  receipt of the  copies of the  supplemented  or amended
Prospectus contemplated by Section 3(E) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a  certificate  of  destruction)  all copies in such
Investor's  possession,  of the Prospectus covering such Registrable  Securities
current at the time of receipt of such notice.

                                       8
<PAGE>

         5. Expenses of Registration

         All  expenses,  other  than  underwriting  discounts  and  commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including,  without limitation,  all registration,  listing,  and
qualifications fees, printing and engraving fees,  accounting fees, and the fees
and disbursements of counsel for the Company shall be borne by the Company.

         6. Indemnification and Contribution

         (A)  INDEMNIFICATION  BY THE COMPANY.  The Company shall  indemnify and
hold harmless each Investor and each underwriter,  if any, which facilitates the
disposition of Registrable Securities, and each of their respective officers and
directors and each person who controls such Investor or  underwriter  within the
meaning of Section 15 of the  Securities  Act or Section 20 of the  Exchange Act
(each such person being  sometimes  hereinafter  referred to as an  "INDEMNIFIED
PERSON") from and against any losses, claims,  damages or liabilities,  joint or
several,  to  which  such  Indemnified  Person  may  become  subject  under  the
Securities  Act or  otherwise,  insofar  as  such  losses,  claims,  damages  or
liabilities  (or actions in respect  thereof)  arise out of or are based upon an
untrue statement of a material fact contained in any  Registration  Statement or
an 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
arise out of or are based upon an untrue  statement of a material fact contained
in any Prospectus or an omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements  therein,
in the light of the  circumstances  under which they were made, not  misleading;
and the Company  hereby  agrees to  reimburse  such  Indemnified  Person for all
reasonable  legal  and  other  expenses  incurred  by  them in  connection  with
investigating  or defending  any such action or claim as and when such  expenses
are  incurred;  provided,  however,  that the Company shall not be liable to any
such  Indemnified  Person in any such  case to the  extent  that any such  loss,
claim,  damage  or  liability  arises  out of or is  based  upon  (i) an  untrue
statement  or  alleged  untrue  statement  made in, or an  omission  or  alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person  expressly  for use therein or (ii) in the case of the  occurrence  of an
event of the type specified in Section 3(E), the use by the  Indemnified  Person
of an outdated or  defective  Prospectus  after the Company has provided to such
Indemnified  Person an updated  Prospectus  correcting  the untrue  statement or
alleged  untrue  statement or omission or alleged  omission  giving rise to such
loss, claim, damage or liability.

                                       9
<PAGE>

         (B) NOTICE OF CLAIMS,  ETC.  Promptly  after receipt by a party seeking
indemnification  pursuant to this Section 6 (an "INDEMNIFIED  PARTY") of written
notice of any  investigation,  claim,  proceeding  or other action in respect of
which  indemnification is being sought (each, a "CLAIM"),  the Indemnified Party
promptly  shall notify the party against whom  indemnification  pursuant to this
Section  6 is  being  sought  (the  "INDEMNIFYING  PARTY")  of the  commencement
thereof;  but the omission to so notify the Indemnifying Party shall not relieve
it from any  liability  that it  otherwise  may have to the  Indemnified  Party,
except to the extent that the  Indemnifying  Party is materially  prejudiced and
forfeits  substantive  rights  and  defenses  by  reason  of  such  failure.  In
connection  with any  Claim as to which  both  the  Indemnifying  Party  and the
Indemnified  Party are  parties,  the  Indemnifying  Party  shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying  Party, the Indemnified  Party shall have the right to
employ  separate  legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees,  out-of-pocket  costs
and expenses of such  separate  legal counsel to the  Indemnified  Party if (and
only if): (x) the  Indemnifying  Party shall have agreed to pay such fees, costs
and  expenses,  (y) the  Indemnified  Party  and the  Indemnifying  Party  shall
reasonably have concluded that  representation  of the Indemnified  Party by the
Indemnifying  Party by the same legal  counsel would not be  appropriate  due to
actual or, as reasonably  determined by legal counsel to the Indemnified  Party,
potentially  differing  interests  between  such  parties in the  conduct of the
defense  of such  Claim,  or if there  may be legal  defenses  available  to the
Indemnified  Party that are in addition to or disparate from those  available to
the Indemnifying Party or (z) the Indemnifying Party shall have failed to employ
legal  counsel  reasonably  satisfactory  to  the  Indemnified  Party  within  a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances  other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne  exclusively by the  Indemnified  Party.  Except as
provided above, the  Indemnifying  Party shall not, in connection with any Claim
in the same  jurisdiction,  be liable for the fees and expenses of more than one
firm of counsel for the  Indemnified  Party  (together  with  appropriate  local
counsel).  The Indemnified Party shall not, without the prior written consent of
the  Indemnifying  Party (which  consent  shall not  unreasonably  be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not  include  an  unconditional  release  of the  Indemnifying  Party  from  all
liabilities with respect to such Claim or judgment.

         (C) CONTRIBUTION. If the indemnification provided for in this Section 6
is unavailable to or insufficient  to hold harmless an Indemnified  Person under
subsection  (A) above in respect of any losses,  claims,  damages or liabilities
(or actions in respect  thereof)  referred to  therein,  then each  Indemnifying
Party shall contribute to the amount paid or payable by such  Indemnified  Party
as a result of such  losses,  claims,  damages  or  liabilities  (or  actions in
respect  thereof) in such  proportion as is  appropriate to reflect the relative
fault of the Indemnifying Party and the Indemnified Party in connection with the
statements  or  omissions  which  resulted in such  losses,  claims,  damages or
liabilities  (or  actions in  respect  thereof),  as well as any other  relevant
equitable  considerations.  The relative  fault of such  Indemnifying  Party and
Indemnified  Party shall be  determined  by reference  to,  among other  things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged  omission to state a material  fact relates to  information  supplied by
such Indemnifying  Party or by such Indemnified Party, and the parties' relative
intent,  knowledge,  access to information and opportunity to correct or prevent
such  statement or omission.  The parties hereto agree that it would not be just
and equitable if  contribution  pursuant to this Section 6(D) were determined by
pro rata allocation (even if the Investors or any  underwriters  were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable  considerations  referred to in this Section 6(D).
The amount  paid or payable by an  Indemnified  Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be  deemed  to  include  any legal or other  fees or  expenses  reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such  action or  claim.  No person  guilty of  fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(D) to contribute  shall be several in proportion to the  percentage of
Registrable  Securities registered or underwritten,  as the case may be, by them
and not joint.

                                       10
<PAGE>

         (D)  Notwithstanding any other provision of this Section 6, in no event
shall any (i)  Investor be required to  undertake  liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be  received  by such  Investor  from  the sale of such  Investor's  Registrable
Securities  (after  deducting  any fees,  discounts and  commissions  applicable
thereto)  pursuant to any  Registration  Statement under which such  Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required  to  undertake  liability  to any Person  hereunder  for any amounts in
excess of the aggregate  discount,  commission or other compensation  payable to
such underwriter with respect to the Registrable  Securities  underwritten by it
and distributed pursuant to the Registration Statement.

         (E) The  obligations  of the Company  under this  Section 6 shall be in
addition  to  any  liability  which  the  Company  may  otherwise  have  to  any
Indemnified  Person and the  obligations  of any  Indemnified  Person under this
Section 6 shall be in addition to any liability  which such  Indemnified  Person
may otherwise have to the Company.  The remedies  provided in this Section 6 are
not exclusive and shall not limit any rights or remedies  which may otherwise be
available to an indemnified party at law or in equity.

         7. Rule 144

         With a view to making  available to the  Investors the benefits of Rule
144 under the  Securities  Act or any other  similar rule or  regulation  of the
Commission  that may at any time permit the Investors to sell  securities of the
Company to the public without  registration  ("RULE 144"), the Company agrees to
use its best efforts to:

         (1) comply with the provisions of paragraph (c) (1) of Rule 144 and

         (2) file with the  Commission  in a timely manner all reports and other
documents  required to be filed by the  Company  pursuant to Section 13 or 15(d)
under the  Exchange  Act;  and,  if at any time it is not  required to file such
reports but in the past had been required to or did file such reports,  it will,
upon the request of any Investor,  make available other  information as required
by, and so long as  necessary  to permit  sales of, its  Registrable  Securities
pursuant to Rule 144.

                                       11
<PAGE>

         8. Assignment

         The rights to have the Company register Registrable Securities pursuant
to this  Agreement  shall be  automatically  assigned  by the  Investors  to any
permitted  transferee of all or any portion of such  Registrable  Securities (or
all or any  portion  of the  Debenture  or  Warrant  of  the  Company  which  is
convertible  into such  securities)  only if (a) the Investor  agrees in writing
with the  transferee  or  assignee  to assign  such  rights,  and a copy of such
agreement  is  furnished  to the  Company  within a  reasonable  time after such
assignment,  (b) the Company is, within a reasonable time after such transfer or
assignment,  furnished  with written  notice of (i) the name and address of such
transferee  or  assignee  and (ii) the  securities  with  respect  to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or  assignment,  the  securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities and (d) at or before the
time the Company received the written notice  contemplated by clause (b) of this
sentence  the  transferee  or assignee  agrees in writing with the Company to be
bound by all of the provisions contained herein.

         9. Amendment and Waiver

         Any  provision  of this  Agreement  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 Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver  effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.

         10. Changes in Common Stock

         If, and as often as,  there are any changes in the Common  Stock by way
of stock split, stock dividend,  reverse split, combination or reclassification,
or through merger, consolidation,  reorganization or recapitalization, or by any
other means,  appropriate  adjustment shall be made in the provisions hereof, as
may be required, so that the rights and privileges granted hereby shall continue
with respect to the Common Stock as so changed.

         11. Miscellaneous

         (A) A person  or entity  shall be deemed to be a holder of  Registrable
Securities  whenever  such  person or entity  owns of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

         (B) If, after the date hereof and prior to the Commission declaring the
Registration  Statement to be filed pursuant to Section 2(a) effective under the
Securities  Act, the Company grants to any Person any  registration  rights with
respect to any Company  securities which are more favorable to such other Person
than those provided in this  Agreement,  then the Company  forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.

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

                                       12
<PAGE>

         (1)      if to the Company, to:

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

         (2)      if to the Buyer, to:

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

         (3) if to any other  Investor,  at such address as such Investor  shall
    have provided in writing to the Company.

The  Company,  the Initial  Investor or any  Investor  may change the  foregoing
address by notice given pursuant to this Section 11(C).

         (D)  Failure of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

         (E) This Agreement  shall be governed by and  interpreted in accordance
with the laws of the State of  California.  Each of the parties  consents to the
jurisdiction  of the federal  courts whose  districts  encompass any part of the
City of San Diego or the state courts of the State of California  sitting in the
City of San Diego in connection  with any dispute  arising under this  Agreement
and hereby  waives,  to the  maximum  extent  permitted  by law,  any  objection
including any objection  based on forum non  conveniens,  to the bringing of any
such proceeding in such jurisdictions.

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

                                       13
<PAGE>

         (G) The remedies  provided in this  Agreement  are  cumulative  and not
exclusive of any remedies provided by law. If any term,  provision,  covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants  and  restrictions  set forth  herein  shall  remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an  alternative  means to
achieve the same or substantially  the same result as that  contemplated by such
term, provision,  covenant or restriction.  It is hereby stipulated and declared
to be the  intention of the parties that they would have  executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

         (H) This Agreement,  the Securities Purchase  Agreement,  the Debenture
and the Conversion Warrants  Agreement,  of even date herewith among the Company
and the  Initial  Investor  constitute  the entire  agreement  among the parties
hereto with respect to the subject  matter  hereof.  There are no  restrictions,
promises, warranties or undertakings,  other than those set forth or referred to
herein.  These Agreements  supersede all prior agreements and undertakings among
the parties hereto with respect to the subject matter hereof.

         (I) Subject to the  requirements  of Section 8 hereof,  this  Agreement
shall inure to the benefit of and be binding upon the  successors and assigns of
each of the parties hereto.

         (J) All pronouns and any  variations  thereof  refer to the  masculine,
feminine or neuter, singular or plural, as the context may require.

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

         (L) This Agreement may be executed in counterparts, each of which shall
be  deemed  an  original  but both of which  shall  constitute  one and the same
agreement.  A facsimile transmission of this signed Agreement shall be legal and
binding on the parties hereto.

         IN WITNESS WHEREOF,  the parties hereto have duly caused this Agreement
to be executed and delivered on the date first above written.

                                      Integrated Performance Systems Inc.

                                      By:
                                         ------------------------------
                                         Name:
                                         Title:

                                      La Jolla Cove Investors, Inc.

                                      By:
                                         ------------------------------
                                         Name:
                                         Title:

                                       14

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