Exhibit 10.5
 
Irvine Sensors Corporation
2000 Non-Qualified Stock Option Plan
restated to give effect to September 2001 reverse split
 
1.    Purpose.  The purpose of the Irvine Sensors Corporation 2000 Non-Qualified
Stock Option Plan (“Plan”) is to promote the interests of Irvine Sensors
Corporation (“Company”) and its stockholders by enabling it to offer an
opportunity to acquire an equity interest in the Company so as to better
attract, retain, and reward employees, directors, and other persons providing
services to the Company (e.g., as consultants, advisors, and other independent
contractors) and, accordingly, to strengthen the mutuality of interests between
those persons and the Company’s stockholders by providing those persons with a
proprietary interest in pursuing the Company’s long-term growth and financial
success.
 
2.    Definitions.  For purposes of this Plan, the following terms shall have
the meanings set forth below.
 
(a)  “Board” means the Board of Directors of Irvine Sensors Corporation.
 
(b)  “Code” means the Internal Revenue Code of 1986. Reference to any specific
section of the Code shall be deemed to be a reference to any successor
provision.
 
(c)  “Committee” means the administrative committee of this Plan that is
provided in Section I3 of this Plan.
 
(d)  “Common Stock” means the common stock of the Company or any security issued
in substitution, exchange, or in lieu thereof.
 
(e)  “Company” means Irvine Sensors Corporation, a Delaware corporation, or any
successor corporation. Except where the context indicates otherwise, the term
“Company” shall include its parent and subsidiaries.
 
(f)  “Disabled” means permanent and total disability, as defined in Code Section
22(e)(3).
 
(g)  “Exchange Act” means the Securities Exchange Act of 1934.
 
(h)  “Fair Market Value” of Common Stock for any day shall be determined in
accordance with the following rules.
 
(i)  If the Common Stock is admitted to trading or listed on a national
securities exchange, the last reported sale price on that day regular way, or if
no such reported sale takes place on that day, the average of the last reported
bid and ask prices on that day regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed.
 
(ii)  If not listed or admitted to trading on any national securities exchange,
the last sale price regular way on that day reported on the Nasdaq National
Market (“Nasdaq National Market”) of the Nasdaq Stock Market (“NSM”), or if no
such reported sale takes place on that day, the average of the

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closing bid and ask prices regular way on that day.
 
(iii)  If not traded or listed on a national securities exchange or included in
the Nasdaq National Market, the last reported sale price on that day regular
way, or if no such reported sale takes place on that day, the average of the
closing bid and ask prices regular way on that day reported by the NSM, or any
comparable system on that day.
 
(iv)  If the Common Stock is not included in (i), (ii) or (iii) above, the last
reported sale price on that day regular way, or if no such reported sale takes
place on that day, the average of the closing bid and ask prices regular way on
that day as furnished by any member of the National Association of Securities
Dealers, Inc. (“NASD”) selected by the Company for that purpose.
 
If the national securities exchange, Nasdaq National Market, NSM, or NASD,
whichever is applicable, is closed on such date, the “Fair Market Value” shall
be determined as of the last preceding day on which the Common Stock was traded
or for which bid and ask prices are available.
 
(i)  “Insider” means a person who is subject to Section 16 of the Exchange Act.
 
(j)  “Option” means a Non-Qualified Stock Option.
 
(k)  “Participant” means a person who has been granted an Option.
 
(l)  “Plan” means this Irvine Sensors Corporation 2000 Stock Option Plan.
 
(m)  “Reload Options” means Options that are issued with respect to a
Participant who exercises an Option by means of the surrender of shares of
Common Stock the Participant previously acquired.
 
(n)  “Rule 16b-3” means Rule 16b-3 promulgated by the Securities and Exchange
Commission.
 
(o)  “Severance” means, with respect to a Participant, the termination of the
Participant’s provision of services to the Company as an employee, director, or
independent contractor, whether by reason of death, disability, retirement, or
any other reason. A Participant will not be considered to have incurred a
Severance because of a transfers between the Company, subsidiary, or parent.
 
(p)  “Substitute Option” means an Option granted to optionee who had performed
services for an entity that was acquired by the Company in substitution of stock
options previously granted to those individuals by the acquired entity.
 
3.    Administration.
 
(a)  This Plan shall be administered by a Committee appointed by the Board. To
obtain the benefits of Rule 16b-3, all of the members of the Committee must be
composed of individuals satisfying the requirements of that provision.
 
(b)  The Committee may delegate its responsibilities to others under such
conditions and limitations as it may prescribe, except that the Committee may
not delegate

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its authority with regard to the granting of Options to Insiders. However, if
the grant to an Insider would not be exempt under Rule 16b-3 if made by the
Committee, such grant may be made by the Board.
 
c)  The Committee is authorized to interpret this Plan and to adopt rules and
procedures relating to the administration of this Plan. All actions of the
Committee in connection with the interpretation and administration of this Plan
shall be binding upon all parties. No member of the Committee shall incur any
liability for any actions taken or inactions done in connection with the Plan.
 
(d)  Subject to the limitations of Sections I9 and I14 of this Plan, the
Committee is expressly authorized to make such modifications to this Plan and
the Options granted under this Plan, as are necessary to effectuate the intent
of this Plan as a result of any changes in the tax, accounting, or securities
laws treatment of Participants and of the Plan.
 
4.    Duration of Plan.  This Plan shall be effective as of October 31, 2000.
This Plan shall terminate on the tenth (10th) anniversary of the date of the
date of its adoption, except with respect to Options then outstanding.
 
5.    Number of Shares.
 
(a)    The maximum number of shares of Common Stock which may be issue pursuant
to this Plan shall be 75,000 after giving effect to the 1-for-20 reverse split
of September 2001. This number may be adjusted as set forth in Section I13 of
this Plan.
 
(b)    Upon the expiration or termination of an Option (for any reason) which
has not been exercised in full, any shares of Common Stock remaining unissued
shall again become available for the granting of additional Options.
 
(c)    In the event a Participant pays part or all of the exercise price of an
Option by surrendering shares of Common Stock that the Participant had
previously acquired, only the number of shares issuable to the Participant in
excess of those surrendered shall be taken into account for purposes of
determining the maximum number of shares that may be issued under the Plan
Similarly, shares that are not issued to a Participant, but rather, are used to
satisfy the income tax withholding obligations are not taken into account for
purposes of determining the maximum number of shares that may be issued under
the Plan.
 
6.    Eligibility.
 
(a)  Persons eligible to receive grants consist of (i) employees, (ii) members
of the Board of Directors of the Company, and (iii) other persons providing
services to the Company (e.g., consultants, advisors, and other independent
contractors), other than persons only providing services in connection with a
capital raising transaction. Also, grants may be made to consultants that are
entities only to the extent permitted by the Form S-8 rules.
 
(b)  The Committee may authorize the issuance of Substitute Options upon such
terms and conditions as the Committee shall determine.
 
7.    Form of Options.  Options shall be granted under this Plan in such
amounts, at such times, to such persons, on such terms, and in such form as the
Committee may approve, which shall not be inconsistent with the provisions of
this Plan, but which need not be identical

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from grant to grant.
 
(a)  The exercise price per share of Common Stock purchasable under an Option
shall be set forth in the Option.
 
(b) An Option shall be exercisable at such time or times and be subject to such
terms and conditions as may be set forth in the Option.
 
(c) The date of the grant of an Option will be the date on which the Committee
determines to issue that Option, except as otherwise specified by the Committee.
 
8.    Exercise of Options.
 
(a)  Options shall only be exercised for whole numbers of shares. The minimum
number of shares that the Participant may purchase at one time is one hundred
(100), or the remaining number of shares of Common Stock that are currently
exercisable under that Option, whichever is less.
 
(b)  Options are exercised by payment of the full amount of the purchase price
to the Company as follows:
 
(i)  The payment shall be in cash or such other form or forms of consideration
as the Committee shall deem acceptable, such as the surrender of outstanding
shares of Common Stock owned by the Participant for the minimum period of time
necessary to avoid adverse accounting treatment (if applicable).
 
(ii)  After giving due consideration to the consequences under Section 16 of the
Exchange Act and under the Code, the Committee may also authorize the exercise
of Options by the delivery to the Company or its designated agent of an executed
written notice of exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares of Common
Stock and to deliver the sale or margin loan proceeds directly to the Company to
pay all or a portion of the exercise price of the Option and/or any income tax
withholding obligations.
 
(c) The Participant may exercise the Option following his or her Severance only
to the extent that the Option could have been exercised on the date of the
Severance. Thus, no events (including the passage of time and events described
in Section I11) that occur following Severance will increase the vested portion
of the Option.
 
9.    Modification of Options.
 
(a)  After due consideration of the accounting consequences (if any), the
Committee may modify an existing Option, including the right to:
 
(i)  Change the exercise price;
 
(ii)  Accelerate the right to exercise it;
 
(iii)  Extend or renew it; or
 
(iv)  Cancel it and issue a new Option.

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However, no modification may be made to an Option that would impair the rights
of the Participant holding the Option without his or her consent.
 
(b)  Whether a modification of an existing Option previously granted to an
Insider will be treated as a new grant for purposes of Section 16 will be
determined in accordance with Rule 16b-3.
 
(c)  Notwithstanding the provisions of the last sentence of Paragraph (a), if
the Company enters into a transaction that is intended to qualify for the
pooling of interests method of accounting, but it is determined that one or more
Options (or an aspect of an Option or Options) could preclude such treatment,
then the Committee may modify (to the minimum extent required) or revoke (if
necessary) the Option or Options (or any provision or provisions thereof) to the
extent necessary for the transaction to be subject to pooling of interests
method of accounting.
 
10.    Termination of Options.  Except to the extent otherwise provided by
Section I11 or by the terms of the Option, each Option shall terminate on the
earliest of the following dates:
 
(a)  The date that is ten (10) years from the date on which the Option is
granted;
 
(b)  The date that is one (1) year from the date of the Severance of the
Participant, if the Participant was Disabled at the time of Severance;
 
(c)  The date that is one (1) year from the date of the Severance of the
Participant, if his or her death occurs:
 
(i)  While the Participant is employed by the Company; or
 
(ii)  Within three (3) months following the Participant’s Severance; or
 
(d)  In the case of any Severance other than one described in Paragraph (b) or
(c) above, the date that is three (3) months from the date of the Participant’s
Severance.
 
11.    Change in Control.
 
(a)  Except as otherwise provided in the Option, all Options granted under this
Plan shall become fully exercisable as a result of a Change in Control.
 
(b)  In the event of a Change in Control, each Participant:
 
(i)  Who is not tendered an option by the surviving corporation which
substantially preserves the economic rights and benefits of the Options then
held by the Participant; or
 
(ii)  Who does not accept any such substituted option that is so tendered; shall
have the right until seven (7) days before the effective date of the Change in
Control to exercise, in whole or in part, any outstanding Option or Options that
had been issued to the Participant under this Plan. Any Options that are not
exercised prior to the Change in Control shall automatically terminate as of the
effective time of the Change in Control.
 
(c)  “Change in Control” shall mean the occurrence of any of the following:

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(i)  Any acquisition by an unrelated party of fifty percent (50%) or more of the
outstanding shares of Common Stock of the Company;
 
(ii)  A sale or other disposition of all or substantially all of the assets of
the Company; or
 
(iii)  A merger or consolidation of the Company with any other entity in which
the Delaware of the Company immediately preceding such merger or consolidation
will not hold a majority of the outstanding capital stock or equity interests of
the surviving entity (whether or not the Company is the surviving entity)
immediately after such merger or consolidation.
 
12.    Non-Transferability of Options.  During the lifetime of the Participant,
Options are exercisable only by the Participant. Options are not assignable or
transferable except by will or the laws of descent and distribution. The
preceding sentences will not apply to an Option, to the extent the grant
expressly authorizes transfers.
 
13.    Adjustments.
 
(a)  In the event of any change in the capitalization of the Company affecting
its Common Stock (e.g., a stock split, reverse stock split, stock dividend,
recapitalization, combination, or reclassification), the Committee shall make
such adjustments as it may deem appropriate with respect to:
 
(i)  The number, kind, and exercise price per share of Common Stock covered by
each outstanding Option; and
 
(ii)  The maximum number and/or kind of shares that may be granted under this
Plan.
 
(b)  The Committee may also make such adjustments in the event of a spin-off or
other distribution of Company assets to Delaware (other than normal cash
dividends).
 
14.    Amendment and Termination.  The Board may at any time amend or terminate
this Plan. However, except as provided in Paragraph (c) of Section I9, no
amendment or termination may impair the rights of a Participant holding an
Option without the Participant’s consent. The Plan may not be amended other than
by a written document executed by the Company. Furthermore, no Participant may
rely upon any statement (oral or written) that is inconsistent with the terms of
the plan document.
 
15.    Tax Withholding.
 
(a)    The Company shall have the right to take such actions as may be necessary
to satisfy its tax withholding obligations arising because of the operation of
this Plan.
 
(b)    To the extent authorized by the Committee, Participants may surrender
previously acquired shares of Common Stock or have shares withheld upon the
exercise of an Option in satisfaction of the tax withholding obligations. To the
extent necessary to avoid adverse accounting treatment, the number of shares
that may be withheld for this purpose shall not exceed the minimum number needed
to satisfy the applicable income and employment tax withholding rules.

6

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(c)    If Common Stock is used to satisfy the Company’s tax withholding
obligations, the stock shall be valued at its Fair Market Value when the tax
withholding is required to be made.
 
16.    No Additional Rights.
 
(a)  Neither the adoption of this Plan nor the granting of any Option shall:
 
(i)  Affect or restrict in any way the power of the Company to undertake any
corporate action otherwise permitted under applicable law; or
 
(ii)  Confer upon any Participant the right to continue performing services for
the Company, nor shall it interfere in any way with the right of the Company to
terminate the services of any Participant at any time, with or without cause,
subject to the terms of any applicable employment or consulting agreement
between the Participant and the Company.
 
(b)  No Participant shall have any rights as a stockholder with respect to any
shares covered by a Option until the date a certificate for such shares has been
issued to the Participant following the exercise of the Option.
 
17.    Securities Law Restrictions.
 
(a)  No shares of Common Stock shall be issued under this Plan unless the
Committee shall be satisfied that the issuance will be in compliance with
applicable federal and state securities laws and the requirements of any stock
exchange or other securities market on which the Company’s securities may then
be traded. Similarly, a Participant will not be permitted to exercise an Option
if such exercise would violate the Company’s internal policies.
 
(b)  The Committee may require certain investment or other representations and
undertakings by any person exercising an Option in order to comply with
applicable law.
 
(c)  Certificates for shares of Common Stock delivered under this Plan may be
subject to such restrictions as the Committee may deem advisable. The Committee
may cause a legend to be placed on the certificates to refer to these
restrictions.
 
(d)  The inability of the Company to obtain registration, qualification, or
other necessary authorization, or the unavailability of an exemption from any
registration or qualification obligation deemed by the Company’s counsel to be
necessary for the lawful issuance and sale of any shares of its Common Stock
under this Plan shall suspend the Company’s obligation to permit the exercise of
any Option or to issue any shares under this Plan and shall relieve the Company
of any liability in respect of the nonissuance or sale of the shares as to which
the requisite authority or exemption shall not have been obtained.
 
18.    Indemnification.
 
(a)  To the maximum extent permitted by law, the Company shall indemnify each
member of the Committee and of the Board, as well as any other employee of the
Company with duties under this Plan, against expenses and liabilities (including
any amount paid in settlement) reasonably incurred by the individual in
connection with any

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claims against the individual by reason of the performance of the individual’s
duties under this Plan, unless the losses are due to the individual’s gross
negligence or lack of good faith.
 
(b)  The Company will have the right to select counsel and to control the
prosecution or defense of the suit.
 
(c)  In the event that more than one person who is entitled to indemnification
is subject to the same claim, all such persons shall be represented by a single
counsel, unless such counsel advises the Company in writing that he or she
cannot represent all such persons under applicable rules of professional
responsibility.
 
(d)  The Company will not be required to indemnify any person for any amount
incurred through any settlement unless the Company consents in writing to the
settlement.
 
19.    Governing Law.  This Plan and all actions taken under this Plan shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to its conflicts of laws provisions.