Exhibit 10.1

SECURED SUBORDINATED REVOLVING PROMISSORY NOTE

 

$2,000,000   January 17, 2007

FOR VALUE RECEIVED, the undersigned, OPTEX SYSTEMS, INC., a Texas corporation
(“Maker”), promises to pay to the order of TWL GROUP, LP, a Texas limited
partnership (“Payee”), whose address is 4306 Savannah, Parker, TX 75002 the sum
of Two Million Dollars ($2,000,000) or so much thereof as may be advanced by
Payee to Maker and be outstanding hereunder, together with interest on the
unpaid principal balance from time to time remaining at a rate per annum
(calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days) which shall from day to day be equal to
10%.

The principal balance of this note shall be due and payable on the earlier of
(i) February 27, 2009 and (ii) 60 days after the date the Senior Debt
(hereinafter defined) is paid in full or refinanced. Accrued interest on this
note shall be due and payable in arrears on the first anniversary of the date of
this note and on the date this note becomes due and payable in full or is
otherwise paid in full. Payment shall be deemed made at the time the holder of
this note receives such payment, subject to the condition subsequent that any
check or similar instrument is honored as drawn on sufficient funds. All amounts
paid hereunder shall be applied first to accrued and unpaid interest and then to
principal.

All past due principal of and accrued interest on this note shall bear interest
from maturity (stated, by acceleration, or otherwise) until paid at the rate of
18% per annum (the “Default Rate”).

1. No Commitment. Payee shall have no obligation to make any advance under this
note, and each advance under this note shall be made in the sole discretion of
Payee.

2. Prepayments and Reborrowings. The unpaid principal balance of this note may
be prepaid by Maker in whole or in part at any time without premium or penalty;
provided that each prepayment of principal shall be accompanied by the payment
of accrued interest on the amount of such prepayment. Subject to Paragraph 1 of
this note, principal amounts prepaid by Maker may be reborrowed, and, to the
extent principal amounts are prepaid and reborrowed, this note is a revolving
note.

3. [Intentionally Omitted].

4. Collateral. The payment of this note is secured by the liens and security
interests created by that certain Subordinated Security Agreement (the “Security
Agreement”) dated as of the date hereof, executed by Maker in favor of Payee.

5. Representations and Warranties. On the date hereof and on the date of each
advance made hereunder, Maker represents and warrants to Payee as follows:

(a) Existence, Etc. Maker is a corporation duly organized validly existing and
in good standing under the laws of the state of its organization and is duly
qualified to do business and is in good standing in each other state where the
failure to be so qualified and in good standing could reasonably be expected to
have a material adverse effect on the business, operations or condition
(financial or otherwise) of Maker or on the ability of Maker to perform or
comply with the terms and conditions of this note, the Security Agreement or the
Subordination Agreement (hereinafter defined) (collectively the “Loan
Documents”) (such a material adverse effect being herein called a “Material
Adverse Effect”).

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(b) Power and Authority. Maker has all requisite power and authority to own or
lease its properties, to conduct its business as now conducted and to execute,
deliver and perform the Loan Documents.

(c) Authorization and Enforceability. The execution, delivery and performance of
the Loan Documents have been duly authorized by all necessary corporate action
of Maker and require no consent of any person or entity that has not been
obtained, and the Loan Documents constitute valid and binding obligations of
Maker, enforceable in accordance with their terms, except as such enforceability
may be limited by Debtor Relief Laws (hereinafter defined) and by general
principles of equity.

(d) No Violation. The execution, delivery and performance of the Loan Documents
do not and will not violate Maker’s charter, bylaws, or other organizational
documents, any laws applicable to Maker or any agreement to which Maker is a
party or by which Maker is bound, except for violations of laws or agreements
that could not reasonably be expected to have a Material Adverse Effect. No
consent or approval of any person or entity is required in connection with such
execution, delivery and performance, except as has been obtained and is in full
force and effect.

(e) Financial Statements. The financial statements of Maker and Irvine Sensors
Corporation, a Delaware corporation (“Parent”) most recently delivered to Payee
have been prepared in accordance with generally accepted accounting principles
(“GAAP”) and fairly present the financial condition and results of operations of
Maker and Parent as of the date thereof and for the period covered thereby, and
no material adverse change has occurred in such financial condition since the
date of the financial statements most recently delivered to Payee prior to the
date of this note.

(f) Litigation. Except as disclosed in financial statements (or the notes
thereto) or other writings heretofore delivered to Payee, there is no litigation
pending or, to the knowledge of Maker, threatened against Maker that could
reasonably be expected to have a Material Adverse Effect.

(g) General. All financial statements, reports and other information heretofore
delivered by Maker to Payee, taken as a whole, do not contain any untrue
statements of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

6. Covenants. Unless and until this note has been paid in full or Lender
otherwise agrees in writing, Maker agrees as follows:

(a) Financial Statements, etc. Maker will deliver to Payee, (i) as soon as
available, but in any event within 30 days after the end of each calendar month,
a company prepared consolidated and consolidating balance sheet and income
statement covering Parent’s operations during such period, in a form reasonably
acceptable to Payee and certified by the president, any vice president or the
treasurer of Parent, together with a certificate executed by the president, any
vice president or the treasurer of Maker certifying that Maker is in compliance
with the terms and conditions of the Loan Documents; (ii) as soon as available,
but in any event not later than the date on which Parent is obligated to file
its Form 10-K with the Securities and Exchange Commission, audited consolidated
and consolidating financial statements of Parent prepared in accordance with
GAAP, consistently applied, together with an opinion which is unqualified or
otherwise consented to in writing by Payee on such financial statements of an
independent

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certified public accounting firm reasonably acceptable to Payee; (iii) if
applicable, copies of all statements, reports and notices sent or made available
generally by Parent to its security holders or to any holders of its debt and
all reports on Forms 10-K and 10-Q filed with the Securities and Exchange
Commission; (iv) promptly upon receipt of notice thereof, notice of the
occurrence of any Default under this Note and a report of any legal actions
pending or threatened against Maker that could result in damages or costs to
Maker of $100,000 or more; (v) promptly upon receipt, each management letter
prepared by Parent’s independent certified public accounting firm regarding
Parent’s management control systems; and (vi) such budgets, sales projections,
operating plans or other financial information generally prepared by Parent or
Maker in the ordinary course of business as Payee may reasonably request from
time to time;

(b) Books and Records. Maker will keep its financial books and records in
accordance with GAAP and permit Payee to inspect and to discuss with its
officers, directors and accountants such books and records and its properties
and business operations during reasonable business hours.

(c) Existence and Qualification. Maker will maintain its corporate existence and
its qualification to do business and good standing where necessary and all
permits and licenses necessary for the conduct of its business, except to the
extent a failure to so maintain could not reasonably be expected to have a
Material Adverse Effect.

(d) Obligations, etc. Maker will timely pay and perform all of its material
taxes and other obligations, except to the extent being contested by appropriate
proceedings; Maker will maintain insurance (including self insurance) in such
amounts with such deductibles, and against such risks as is customary for
similarly situated businesses; and Maker will observe and comply with all
material applicable laws (including environmental laws) and all material
agreements to which it is a party or by which it is bound.

(e) Dividends and Distributions, Loans and Investments, etc. If any indebtedness
is then outstanding under this note, without the prior written consent of Payee,
which shall not be unreasonably withheld, Maker will not make any dividend or
distribution on its capital stock, or redeem or purchase any of its capital
stock, or make any loan or advance to Parent or any other person or entity, or
transfer any assets to Parent or otherwise make any payment to Parent, other
than dividends, distributions, loans, advances, transfers or other payments made
by Maker to Parent in an aggregate amount not to exceed $2,250,000 per annum.

(f) Indebtedness. If any indebtedness is then outstanding under this note,
without the prior written consent of Payee, which shall not be unreasonably
withheld, Maker will not incur or suffer to exist for itself any indebtedness
for borrowed money or under capital leases or for the purchase price of
property, except (i) indebtedness owing to or held by Longview Fund, L.P. and
Alpha Capital Anstalt (collectively, “Senior Lender”) under or pursuant to that
certain Term Loan and Security Agreement dated as of December 29, 2006, among
Parent and Senior Lender (the “Term Loan and Security Agreement”), or other
indebtedness owing or to be owing to or held or to be held by Senior Lender;
(ii) indebtedness evidenced by this note; (iii) unsecured indebtedness of Maker
existing on the date hereof and disclosed in the financial statements, most
recently delivered to Payee, provided that none of such indebtedness shall be
renewed, extended or otherwise modified in any material respect; (iv) unsecured
current liabilities (not the result of borrowing) incurred in the ordinary
course of business and not overdue; (v) capital leases and other purchase money
financing of capital assets; (vi) other indebtedness that is subordinated in
right of payment to the indebtedness evidenced by this note; and
(vii) extensions, refinancings and renewals of any items above, provided that,
with respect to items (iii) through (vi) above, the principal amount is not
increased or the terms modified to impose more burdensome terms upon Maker.

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(g) Liens. If any indebtedness is then outstanding under this note, without the
prior written consent of Payee, which shall not be unreasonably withheld, Maker
will not incur or suffer to exist any liens or security interests on any of its
property, except (i) landlords’, carriers’, warehousemen’s, mechanics’ and other
similar liens arising by operation of law in the ordinary course of Maker’s
business; provided, however, that all such liens shall be discharged or bonded
off within sixty (60) days from the filing thereof; (ii) liens arising out of
pledge or deposits under worker’s compensation, unemployment insurance, old age
pension, social security, retirement benefits or other similar legislation;
(iii) liens in favor of Senior Lender (including not only the liens created by
the Term Loan and Security Agreement but also any other liens in favor of Senior
Lender now existing or hereafter granted or incurred) and of Payee; (iv) liens
for taxes (excluding any lien imposed pursuant to any provision of ERISA) not
yet due or which are being contested in good faith by appropriate proceedings
and Maker maintains appropriate reserves in respect thereto provided that in
Payee’s judgment such lien does not adversely affect Payee’s rights or the
priority of Payee’s lien in the collateral securing this note; (v) easements,
rights of way, restrictions and other similar charges or liens relating to real
property and not interfering in a material way with the ordinary conduct of
Maker’s business; (vi) other liens outstanding on the date of this note;
(v) liens to secure purchase money financing of capital assets provided that the
liens only secure payment of the indebtedness so incurred and extend only to the
capital asset purchased; (vi) liens subordinated to the liens securing this note
on terms and conditions reasonably satisfactory to Payee; and (vi) liens
renewing and extending liens permitted by this subparagraph.

(h) Sales of Assets. If any indebtedness is then outstanding under this note,
without the prior written consent of Payee, which shall not be unreasonably
withheld, Maker will not sell any assets, except (i) sales of inventory in the
ordinary course of Maker’s business; (ii) dispositions of obsolete or worn out
equipment or equipment no longer used in its business; (iii) sales of other
equipment, provided such equipment is promptly replaced with equipment of equal
or greater value and utility to Maker), (iv) licenses and similar arrangements
for the use of the property of Maker in the ordinary course of business; and
(v) other assets of Maker that do not in the aggregate exceed $100,000 during
any fiscal year.

(i) Fundamental Changes. If any indebtedness is then outstanding under this
note, without the prior written consent of Payee, Maker will not liquidate or
dissolve or merge or consolidate with any other person or entity.

(j) Use of Proceeds. If any indebtedness is then outstanding under this note,
without the prior written consent of Payee, Maker will not use the proceeds of
any advance made by Payee to Maker hereunder, except for working capital.

Notwithstanding anything to the contrary stated in this paragraph 6.(e) – (j),
if a Default or an Event of Default (or an event or occurrence which, with
notice or lapse of time or both, would, if not cured or waived, become an Event
of Default) is then existing with respect to the Senior Debt, Payee waives its
rights to withhold consent in subparagraphs 6.(e) – (j).

7. Subordination. Notwithstanding anything contained herein that may be to the
contrary, the payment of this note and the rights and remedies of Payee and any
other holder of this note under this note and the other Loan Documents are
subordinate to the indefeasible payment in full of the Senior Debt as defined in
that certain Subordination Agreement (herein so called) of even date herewith,
among

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Payee, Longview Fund L.P. and Alpha Credit Anstalt, and are otherwise
subordinate to the rights of Senior Lender as set forth in the Subordination
Agreement and are otherwise subject to such Subordination Agreement.

8. Default and Remedies. Any one or more of the following events or occurrences
shall constitute a default (a “Default”) under this note:

(a) The failure or refusal of Maker to pay all or any part of the principal of
or accrued interest on this note as and when same becomes due and payable in
accordance with the terms hereof, and such failure or refusal is not cured
within ten (10) days after notice of such failure or refusal is given to Maker
in accordance with Paragraph 12 below; or

(b) A breach by Maker of any provision of this note, and such breach is not
cured within twenty (20) days after notice of such breach is given to Maker in
accordance with Paragraph 12 below.

(c) Maker shall (i) become insolvent within the meaning of the Bankruptcy Code
of the United States, as amended, (ii) admit in writing its inability to pay or
otherwise fail to pay its debts generally as they become due, (iii) voluntarily
seek consent to, or acquiesce in the benefit or benefits of any Debtor Relief
Law, or (iv) be made the subject of any proceeding provided for by any Debtor
Relief Law that could suspend or otherwise affect any of the rights of the
holder hereof and such proceeding shall continue for sixty (60) days without
dismissal or discharge. As used herein, “Debtor Relief Laws” means the
Bankruptcy Code of the United States, as amended and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws from time
to time in effect affecting the rights of creditors generally; or

(d) The nonpayment when due of any material indebtedness exceeding $250,000 owed
by Maker (including the Senior Debt), or the occurrence of any event under any
document or instrument evidencing, securing, or executed in connection with any
such indebtedness which could give the holder thereof the right to declare such
indebtedness or any part thereof due prior to its scheduled maturity; or

(e) The occurrence of a default or event of default under any other Loan
Document.

Upon the occurrence of a Default, the holder of this note may, subject to the
subordination provisions set forth in and the terms of the Subordination
Agreement referenced in Paragraph 7, (a) by written notice to Maker, declare the
entire unpaid principal balance of this note, together with any accrued and
unpaid interest, immediately due and payable, (b) offset against this note any
sum or sums owed by the holder hereof to Maker, (c) foreclose any or all liens
or security interests given to secure the repayment of the indebtedness
evidenced by this note, and (d) proceed to protect and enforce its rights either
by suit in equity and/or by action at law, or by other appropriate proceedings,
whether for the specific performance of any covenant or agreement contained in
this note or any other Loan Document or in aid of the exercise of any power or
right granted by this note or any other Loan Document or to enforce any other
legal or equitable right of the holder of this note or any other Loan Document.

9. Cumulative Rights. No delay on the part of the holder of this note in the
exercise of any power or right under this note, or under any other Loan
Document, shall operate as a waiver thereof, nor shall a single or partial
exercise of any other power or right. Enforcement by the holder of this note of
any security for the payment hereof shall not constitute any election by it of
remedies so as to preclude the exercise of any other remedy available to it.

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10. Waiver. Maker, and each other surety, endorser, guarantor, and other party
ever liable for the payment of any sum of money payable on this note, jointly
and severally waive demand, presentment, protest, notice of nonpayment, notice
of intention to accelerate, notice of acceleration, notice of protest, and any
and all lack of diligence or delay in collection or the filing of suit hereon
which may occur, and agree that their liability on this note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, or by any release or change in any security for the payment of this
note, and hereby consent to any and all renewals, extensions, indulgences,
releases, or changes, regardless of the number of such renewals, extensions,
indulgences, releases, or changes.

11. Attorneys’ Fees and Costs. In the event a Default shall occur, and in the
event that thereafter this note is placed in the hands of an attorney for
collection and subject to the subordination provisions set forth in and the
terms of the Subordination Agreement referenced in Paragraph 7, or in the event
this note is collected in whole or in part through legal proceedings of any
nature, then and in any such case Maker promises to pay all costs of collection,
including, but not limited to, reasonable attorneys’ fees incurred by the holder
hereof on account of such collection, whether or not suit is filed. In addition,
concurrently with the execution and delivery of the Loan Documents, Maker agrees
to pay reasonable attorneys fees incurred by Payee in connection with the
negotiation, execution and delivery of this note and the other Loan Documents.

12. Notices. Any notice or demand given hereunder by the holder shall be deemed
to have been given and received (a) when actually received by Maker, if
delivered in person or by courier or messenger, or (b) two Business Days
(hereinafter defined) after a letter containing such notice, certified or
registered, with postage prepaid, addressed to Maker, is deposited in the United
States Mail. The address of Maker is 1420 Presidential Drive, Richardson, Texas
75081, or such other address as Maker shall advise the holder hereof by
certified or registered letter.

13. Governing Law; Jurisdiction; Waiver of Jury Trial. This note is being
executed and delivered and is intended to be performed, in the State of Texas,
and the laws of such state shall govern the construction, validity, enforcement
and interpretation hereof, except to the extent federal laws otherwise govern
the validity, construction, enforcement and interpretation hereof. Maker hereby
irrevocably (a) submits to the non-exclusive jurisdiction of any United States
Federal or State court sitting in Dallas, Texas in any action or proceeding
arising out of or relating to this note, and (b) waives to the fullest extent
permitted by law, any defense asserting an inconvenient forum in connection
therewith. Service of process by the holder of this note in connection with such
action or proceeding shall be binding on Maker if sent to Maker as provided in
Paragraph 12 of this note. TO THE EXTENT ALLOWED BY LAW, MAKER AND PAYEE EACH
WAIVE JURY TRIAL IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE.

14. Headings. The headings of the sections of this note are inserted for
convenience only and shall not be deemed to constitute a part hereof.

15. Successors and Assigns. All of the covenants, stipulations, promises and
agreements in this note contained by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of the holder hereof, assign
any rights, duties, or obligations under this note.

16. Maximum Interest Rate. Regardless of any provision contained herein, or in
any other document executed in connection herewith, the holder hereof shall
never be entitled to receive, collect or apply, as interest hereon, any amount
in excess of the maximum rate of interest permitted to be charged from time to
time by applicable law, and in the event the holder hereof ever receives,
collects or applies, as interest, any such excess, such amount which would be
excessive interest shall be deemed a partial

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prepayment of the principal hereof and treated hereunder as such; and, if the
principal hereof is paid in full, any remaining excess shall forthwith be paid
to Maker. In determining whether or not the interest paid or payable, under any
specified contingency, exceeds the highest lawful rate, Maker and the holder
hereof shall, to the maximum extent permitted under applicable law,
(a) characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) spread the total amount of interest throughout the entire contemplated term
hereof; provided that if the indebtedness evidenced hereby is paid and performed
in full prior to the end of the full contemplated term thereof, and if the
interest received for the actual period of existence thereof exceeds the maximum
lawful rate, the holder hereof shall refund to Maker the amount of such excess
or credit the amount of such excess against the principal hereof, and in such
event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging, or receiving interest in excess of the
maximum lawful rate.

17. Business Day; Payments. As used herein, the expression (a) “Business Day”
means every day on which banks located in the State of Texas are generally open
for business, and (b) “Nonbusiness Day” means every day which is not a Business
Day. Each payment of the principal of or accrued interest on this note shall be
due and payable in lawful money of the United States of America. In any case
where a payment of principal or interest hereon is due on a Nonbusiness Day,
Maker shall be entitled to delay such payment until the next succeeding Business
Day, but interest shall continue to accrue until the payment is, in fact, made.

18. Modifications in Writing. No waiver or modification of any of the terms or
provisions of this note shall be valid or binding unless set forth in a writing
signed by Maker and Payee, and then only to the extent therein specifically set
forth.

THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS EXECUTED AND DELIVERED IN
CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES.

[Remainder of Page Left Blank.

Signature Page Follows.]

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IN WITNESS WHEREOF, the undersigned has executed this note as of the day and
year first above written.

 

MAKER: OPTEX SYSTEMS, INC. By:   /s/ JOHN J. STUART, JR.   Name: John J. Stuart,
Jr.                                            Title: Chief Financial
Officer                                

ACKNOWLEDGED AND AGREED:

PAYEE:

 

TWL GROUP, LP By:   TWL Group Management, LLC,   General Partner   By: /s/
TIMOTHY W. LOONEY                          

Timothy W. Looney, President

Signature Page to Secured Subordinated Revolving Promissory Note