EXHIBIT 10.9

 

IRVINE SENSORS, INC.

DEFERRED COMPENSATION PLAN

 

PREAMBLE

 

Irvine Sensors, Inc. (the Corporation), a corporation formed under the laws of
the State of Delaware, desires to establish a deferred compensation plan for the
exclusive benefit of a select group of management and highly compensated
employees.

 

The Corporation intends that any Participant or Beneficiary under the Plan shall
have the status of an unsecured general creditor with respect to the Plan.

 

The Corporation hereby establishes the Irvine Sensors Deferred Compensation
Plan, effective as of September 27, 2002.

 

ARTICLE I

 

DEFINITIONS

 

I.1 “Account” shall mean the record maintained by the Committee showing the
number of shares of common stock deemed allocated to the account of each
Participant or Beneficiary as well as the amount of any cash contributions,
dividends or income or loss thereon deemed allocated to the Participant or
Beneficiary. The term “Account” shall refer only to a bookkeeping entry and
shall not be construed to require the segregation of assets or shares on behalf
of any Participant or Beneficiary.

 

I.2 “Beneficiary” shall mean the Beneficiary designated by each Participant
under the Irvine Sensors Deferred Compensation Plan; provided, however, that a
Participant may designate a different Beneficiary hereunder by delivering to the
Committee a written beneficiary designation in the form provided by the
Committee, and executed specifically with respect to this Plan. No beneficiary
designation shall be effective until received and accepted by the Committee.

 

I.3 “Board” shall mean the Board of Directors of the Corporation.

 

I.4 “Change in Control” shall mean the occurrence of any one or more of the
following events:

 

(a) any Person (as defined below) becomes the Beneficial Owner (as defined
below) of securities of the Corporation having fifty percent (50%) or more of
the total number of votes that may be cast for the election of directors of the
Corporation; or

 

(b) the shareholders of the Corporation approve the sale or other disposal of
all or substantially all of the assets of the Corporation (including a plan of
liquidation or dissolution) or the merger or consolidation of the Corporation
with or into another corporation, in accordance with the requirements of the
Certificate of Incorporation of the Corporation and

 

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applicable law; or(c) as a result of or in connection with any tender offer,
exchange offer, merger or other business combination, sale of assets or
contested election of directors, or any combination of the foregoing, the
individuals who are directors of the Corporation just prior to such event shall
cease to constitute the majority of the Board.

 

For purposes of this Section 1.4, a “Person” means any individual, firm,
corporation partnership, trust or other entity. Two or more Persons who agree to
act together for the purpose of acquiring, holding, voting, or disposing of
securities of the Corporation shall be deemed a “Person.” Excluded from the
definition of “Person” are the Corporation and any subsidiaries of the
Corporation, whether individually or in any combination.

 

For purposes of this Section 1.4, a person is a “Beneficial Owner” of securities
of the Corporation if such Person is any of such Person’s Affiliates (as defined
below) or Associates (as defined below) has or shares, directly or indirectly
through any contract, arrangement understanding or otherwise, the power to vote
or direct the voting of securities of the Corporation or the power to dispose or
direct the disposition of securities of the Corporation. A Person shall be the
Beneficial Owner of those securities of the Corporation that such person or any
of such Person’s Affiliates or Associates has the right to become the Beneficial
Owner of (whether such right is execrable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, options or otherwise.

 

For purposes of Section 1.4 only, an “Affiliate” of a specified Person is a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.

 

For purposes of this Section 1.4, an “Associate” of a specified Person is (i)
any corporation or organization (other than the Corporation or any subsidiary of
the Corporation) of which such Person is an officer or partner or is, directly
or indirectly, the Beneficial Owner of ten percent (10%) or more of any class of
equity securities, (ii) any trust or other estate in which such Person has
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, or (iii) any relative or spouse of such Person,
or any relative of such spouse, who has the same home as such Person or who is a
director or officer of the Corporation or any subsidiary of the Corporation.

 

I.5 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time, and the rules and regulations promulgated hereunder.

 

I.6 “Committee” shall mean the Committee appointed by the Board of Directors of
the Corporation to administer this Plan, or if none is appointed, the Board of
Directors.

 

I.7 “Corporation” shall mean Irvine Sensors, Inc. or its successors.

 

I.8 “Disability” shall mean that a Participant is permanently impaired to such
an extent that he or she cannot perform the material duties of his or her
position of employment with the Corporation. The determination hereunder as to
whether and when a Participant has a Disability shall be made by the Committee,
and for purposes of assisting the Committee in making any such determination,
the Committee may require the Participant to submit to an examination by a
competent physician or medical clinic selected by the Committee.

 

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I.9 “Effective Date” shall mean September 27, 2002.

 

I.10 “Normal Retirement Age” shall mean the age of Sixty Five (65) years.

 

I.11 “Participant” shall mean an individual who has been designated by the
Committee as being eligible to participate in the Plan.

 

I. 12 “Plan” shall mean the Irvine Sensors Deferred Compensation Plan, as
amended from time to time.

 

I.13 “Plan Year” shall mean the annual period beginning January 1 and ending
December 31, both dates inclusive of each year, except for the initial Plan Year
that shall be a partial year, beginning September 27, 2002 and ending December
31, 2002.

 

I.14 “Valuation Date” shall mean each business day on which the financial
markets are open for trading activity.

 

ARTICLE II

 

ELIGIBILITY

 

Participation in the Plan shall be made available to a select group of
individuals, as determined by the Committee, in its sole discretion, who are
providing services to the Corporation in key positions of management and
responsibility or who are highly compensated employees of the Corporation. Such
individuals may elect to participate hereunder by executing a participation
agreement in such form and at such time as the Committee shall require, within
thirty (30) days of the date on which he or she is notified by the Committee of
his/her eligibility to participate in the Plan. The determination as to the
eligibility of any individual to participate in the Plan shall be in the sole
and absolute discretion of the Committee, whose decision in that regard shall be
conclusive and binding for all purposes hereunder.

 

ARTICLE III

 

CREDITING OF CONTRIBUTIONS AND INCOME

 

III.1 As of each Valuation Date, the Committee shall credit to each
Participant’s Account the deemed income or losses attributable thereto,
determined pursuant to the provisions of Section 3,2 below, as well as any other
applicable credits to or charges against such Account, on account of deemed
Company Contributions or distributions to participants or similar transactions
or adjustments to such Account.

 

III.2 The Corporation may, in its sole discretion, make one or more deemed
Company Contributions to the Plan in such dollar amounts or shares of common
stock of the Corporation as the Corporation, in its sole discretion determines.
Deemed Company Contributions shall be allocated among the Accounts of
Participants as specified by the

 

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Corporation in its sole discretion, as of the Valuation Date immediately
following the date of the Company Contribution, or as provided in a
Participant’s participation agreement.

 

III.3 Each Participant’s Account shall be deemed to be invested in common stock
of the Employer, plus any cash contributions or cash dividends which would have
been paid on such shares had such shares been owned by the Participant. The
Account of each Participant shall be deemed to be credited with the amount of
dividends, income, gains and losses attributable thereto, as if the amounts
credited to such Account had been invested in common stock of the Corporation
except to the extent that the Company specifies that deemed contributions shall
be in cash. .

 

ARTICLE IV

 

BENEFITS

 

IV. 1 As provided in Article V, as soon as practicable following the death of a
Participant, the Beneficiary of such Participant shall be paid the number of
shares of common stock deemed credited to such Participant’s Account. In
addition the Beneficiary shall be paid the amount of deemed cash contributions
and deemed cash dividends, if any, which were allocated to the Participant’s
Account plus any earnings or losses thereon in the form of cash. The amount of
any such deemed cash contributions and deemed cash dividends shall be determined
as of the Valuation Date coincident with or next preceding the date such amount
is distributed.

 

IV.2 As provided in Article V, as soon as practicable following a Participant’s
Disability, termination of employment or attainment of Normal Retirement Age,
such Participant shall be paid the number of shares of common stock deemed
credited to such Participant’s Account, plus any earnings or losses thereon, in
the form of cash. The amount of any such deemed cash contributions and deemed
cash dividends shall be determined as of the Valuation Date coincident with or
next preceding the date such amount is distributed.

 

A Participant shall be deemed to have terminated employment only upon his actual
termination of employment with the Corporation, and not upon a leave of absence
or other temporary cessation of services.

 

IV.3 Each Participant’s Account shall be fully vested and nonforfeitable.

 

ARTICLE V

 

FROM OF PAYMENT OF BENEFITS

 

V.1 Payment of a Participant’s benefit as determined in accordance with Article
IV on account of termination of employment following the attainment of Normal
Retirement Age shall be made in the form of common stock of the Company to the
extent that the Participant’s Account is deemed to be invested in common stock
of the Company and in cash to the extent that the Participant’s Account is
deemed to be invested in cash or other property and shall be made in the method
of either a lump sum or payments in annual installments over a period not to
exceed 5 years, such method of payment to be irrevocably determined in the sole
discretion of the Committee at the time the distribution is made. Payment shall

 

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commence as soon as practicable following the date on which the Participant
attains Normal Retirement Age.

 

V.2 Payment of a Participant’s benefit as determined in accordance with Article
IV on account of death shall be made in the form of common stock of the Company
to the extent that the Participant’s Account is deemed to be invested in common
stock of the Company and in cash to the extent that the Participant’s Account is
deemed to be invested in cash or other property in the form of a lump sum.
Payment of a Participant’s death benefit shall be made to his Beneficiary as
soon as practicable following the Committee’s receipt of proper notice of such
Participant’s death.

 

V.3 Payment of a Participant’s benefit as determined in accordance with Article
IV on account of Disability or termination of employment for reasons other than
death or before attainment of Normal Retirement Age shall be made in the form of
common stock of the Company to the extent that the Participant’s Account is
deemed to be invested in cash or other property and shall be made in the method
of such payment to be irrevocably determined in the sole discretion of the
Committee at the time the distribution is made. In the case of payment on
account of a Participant’s Disability, payment shall commence either (i) as soon
as practicable after the Committee’s determination of such Disability or (ii) as
soon as practicable after the Participant attains the age of fifty-five (55)
years, such method of payment to be determined in the sole discretion of the
Committee.

 

V.4 If cash installment payments are made, such payments shall be charged pro
rata to the individual investment options in which amounts credited to the
Participant’s Account are deemed to be invested, pursuant to the provisions of
Section 3.2 hereof. Furthermore, the Committee shall continue to credit the
unpaid balance of the Participant’s Account with the deemed income and losses
attributable thereto, determined pursuant to the provisions of Section 3.2
hereof, as well as with any other credits to or charges against the unpaid
balance of such Account, during the period for which installment payments are
made.

 

V.5 Notwithstanding the provisions of Sections 5.1, 5.2 or 5.3, the benefits
payable hereunder may be paid in a lump sum in cash or shares of common stock
even if they are not otherwise payable if, based on a change in the federal or
applicable state tax or revenue laws, a published ruling or similar announcement
issued by the Internal Revenue Service, a regulation issued by the Secretary of
the Treasury, a decision by a court of competent jurisdiction involving a
Participant or a Beneficiary, or a closing agreement made under section 7121 of
the Code that is approved by the Internal Revenue Service and involves a
Participant, the Committee determines that a Participant has or will recognize
income for federal state income tax purposes with respect to amounts that are or
will be payable under the Plan before they otherwise would be paid. The amount
of any payments pursuant to this Section 5.5 shall not exceed the lesser of (a)
the amount in the Participant’s Account or (b) the amount of taxable income with
respect to which the tax liability is assessed or determined.

 

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ARTICLE VI

 

ADMINISTRATION OF THE PLAN

 

VI. 1 The Corporation may set aside funds or shares of common stock for payment
of all or a portion of the benefits payable pursuant to the Plan. The set aside
funds shall be subject to the claims of general creditors of the Corporation in
the event the Corporation becomes insolvent.

 

VI.2 The Plan shall be administered by the Committee who shall be appointed by
the Board of Directors of the Corporation. The members of the Committee shall
not receive compensation with respect to their services for the Committee. The
members of the Committee shall serve without bond or security for the
performance of their duties hereunder unless applicable law makes the furnishing
of such bond or security mandatory or unless required by the Corporation. Any
member of the Committee may resign by delivering his written resignation to the
Corporation and to the other members of the Committee.

 

VI.3 The Committee shall perform any act which the Plan authorizes expressed by
a vote at a meeting or in a writing signed by a majority of its members without
a meeting. The Committee may, by a writing signed by a majority of its members,
appoint any member of the Committee to act on behalf of the Committee. Any
person who is a member of the Committee shall not vote or decide upon any matter
relating solely to himself or vote in any case in which his individual right or
claim to any benefit under the Plan is particularly involved. If, in any matter
or case in which a person is so disqualified to act, the remaining persons
constituting the Committee cannot resolve such matter or case, the Board will
appoint a temporary substitute to exercise all the powers of the disqualified
person concerning the matter or case in which he is disqualified.

 

VI.4 The Committee may designate in writing other persons to carry out its
responsibilities under the Plan, and may remove any person designated to carry
out its responsibilities under the Plan by notice in writing to that person. The
Committee may employ persons to render advice with regard to any of its
responsibilities. All of the usual and reasonable expenses of the Committee
shall be paid by the Corporation. The Corporation shall indemnify and hold
harmless each member of the Committee from and against any and all claims and
expenses (including, without limitation attorney’s fees and related costs), in
connection with the performance by such member of his duties in that capacity,
other than any of the foregoing arising in connection with the willful neglect
or willful misconduct of the person so acting.

 

VI.5 The Committee shall establish rules, not contrary to the provisions of the
plan, the administration of the Plan and the transaction of its business. The
Committee shall determine the eligibility of any individual to participate in
the Plan, shall interpret the Plan in its sole and absolute discretion, and
shall determine all questions arising in the administration interpretation and
application of the Plan. A.11 determinations of the Committee shall be final,
conclusive and binding on all employees, participants and Beneficiaries.

 

VI.6 Any action to be taken hereunder by the Corporation shall be taken by
resolution adopted by the Board or an executive committee thereof; provided,
however, that by resolution, the Board or an executive committee thereof may
delegate to any officer of the Corporation the authority to take any actions
hereunder, other than the power to amend or terminate the Plan.

 

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VI.7 Each Participant will be issued a participation agreement under the Plan
which will specify, as to that Participant; the amount of Company contributions
to be made to the Plan on behalf of the Participant, the Participant’s vesting
schedule, and any other conditions or benefits the Committee deems in its sole
and absolute discretion to be appropriate.

 

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ARTICLE VII

 

CLAIM REVIEW PROCEDURE

 

VII.1 In the event that a Participant or Beneficiary is denied a claim for
benefits under this Plan (the “Claimant”), the Committee shall provide to the
Claimant written notice of the denial which shall set forth:

 

  1. the specific reason or reasons for the denial;

 

  2. specific references to pertinent Plan provisions on which the Committee
based its denial;

 

  3. a description of any additional material or information needed for the
Claimant to perfect the claim and an explanation of why the material or
information is needed;

 

  4. a statement that the Claimant may:

 

  (i) Request a review upon written application to the Committee;

 

  (ii) Review pertinent Plan Documents; and

 

  (iii) Submit issues and comments in writing; and

 

That any appeal the Claimant wishes to make of the adverse determination must be
in writing to the Committee within sixty (60) days after receipt of the
Committee’s notice of denial of benefits. The Committee’s notice must further
advise the Claimant that his failure to appeal the action to the Committee in
writing within the sixty (60) day period will render the Committee’s
determination final, binding, and conclusive.

 

VII.2 If the Claimant should appeal to the Committee, he, or his duly authorized
representative, may submit, in writing, whatever issues and comments he, or his
duly authorized representative, feels are pertinent. The Committee shall
re-examine all facts related to the appeal and make a final determination as to
whether the denial of benefits is justified under the circumstances. The
Committee shall advise the Claimant in writing of its decision on his appeal,
the specific reasons for the decision, and the specific Plan provisions on which
the decision is based. The notice of the decision shall be given within sixty
(60) days of the Claimant’s written request for review, unless special
circumstances (such as hearing) would make the rendering of a decision within
sixty (60) day period infeasible, but in no event shall the Committee render a
decision regarding the denial of a claim later than 120 days after its receipt
of a request for review. If an extension of time for review is required because
of special circumstances, written notice of the extension shall be furnished to
the Claimant prior to the date the extension period commences. The Committee’s
notice of denial of benefits shall identify the address to which the Claimant
may forward his appeal.

 

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ARTICLE VIII

 

LIMITATION OF RIGHTS

 

The establishment of this Plan shall not be construed as giving to any
Participant, employee of the Corporation or any person whomsoever, any legal,
equitable or other -rights against the Corporation, or its officers, directors,
agents or shareholders, or as giving to any Participant or Beneficiary any
equity or other interest in the assets or business of the Corporation or shares
of Corporation stock or as giving any employee the right to be retained in the
employment of the Corporation. All employees of the Corporation and Participants
shall be subject to discharge to the same extent they would have been if this
Plan had never been adopted. The rights of a Participant hereunder shall be
solely those of an unsecured general creditor of the Corporation.

 

ARTICLE IX

 

LIMITATION OF ASSIGNMENT AND PAYMENTS TO

LEGALLY INCOMPETENT DISTRIBUTEE

 

IX.1 No benefits which shall be payable under the Plan to any person shall be
subject in any manner to anticipation, alienation, tale, transfer, assignment,
pledge, encumbrance or charge and any attempt to anticipate, alienate, tell,
transfer, assign, pledge, encumber, charge or otherwise dispose of the same
shall be void.

 

IX.2 No benefit shall in any manner be subject to the debts, contracts,
liabilities, engagements or torts of any person, nor shall it be subject to
attachment or legal process for or against any person, except to the extent
required by law.

 

IX.3 Whenever any benefit which shall be payable under the Plan is to be paid to
or for the benefit of any person who it then a minor or determined by the
Committee, on the basis of qualified medical advice, to be incompetent, the
Committee need not require the appointment of a guardian or custodian, but shall
be authorized to cause the same to be paid over to the person having custody of
the minor or incompetent, or to cause the same to be paid to the minor or
incompetent without the intervention of a guardian or custodian, or to cause the
same to be paid to a legal guardian or custodian of the minor or incompetent, if
one has been appointed, or to cause the same to be used for the benefit of the
minor or incompetent.

 

ARTICLE X

 

AMENDMENT TO OR TERMINATION OF THE PLAN

 

The Corporation reserves the right at any time to amend or terminate the Plan in
whole or in part by resolution of the Board; provided, however, that upon a
Change in Control, any amendment of the Plan shall, for a period of two (2)
years following the effective date of such Change in Control, require the prior
written consent of a majority of all Participants and Beneficiaries hereunder,
including those Participants and Beneficiaries who, at the time of such
amendment, are currently entitled to a benefit hereunder, whether or not
employed at such time by the Corporation. No amendment shall have the effect of
retroactively changing or depriving Participant or Beneficiaries of rights
already accrued under the Plan. In the event that the Corporation shall change
its name, the Plan shall be deemed to be amended to reflect the name change
without further action of the Corporation,

 

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and the language of the Plan shall be changed accordingly. Notwithstanding any
other provision hereunder to the contrary, upon termination of the plan, the
Board shall direct that all vested benefits hereunder will be paid as soon as
administratively practicable thereafter, but in no event later that 30 days
following such termination.

 

ARTICLE XI

 

STATUS OF PARTICIPANT AS UNSECURED CREDITOR

 

All benefits under the Plan shall be the unsecured obligations of the
Corporation and no assets will be placed in trust or otherwise segregated from
the general assets of the Corporation for the payment of obligations hereunder.
To the extent that any person acquires a right to receive payments hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Corporation.

 

ARTICLE XII

 

GENERAL AND MISCELLANEOUS

 

XII.1 In the event that any provision of this Plan shall be declared illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions of this Plan but shall be fully severable and this Plan
shall be construed and enforced as if said illegal or invalid provision had
never been inserted herein.

 

XII.2 The section headings and numbers are included only for convenience of
reference and are not to be taken as limiting or extending the meaning of any of
the terms and provisions of this Plan. Whenever appropriate, words used in the
singular shall include the plural or the plural may be read as the singular.
When used herein, the masculine gender includes the feminine gender.

 

XII.3 The validity and effect of this plan and the rights and obligations of all
persons affected hereby shall be construed and determined in accordance with the
laws of the State of California unless preempted by federal law.

 

XII.4 The Corporation is not required to set aside any assets for payment of the
benefits provided under this Plan. A Participant shall have no security interest
in any such amounts. This Plan is intended to be and shall be construed to be a
plan which is funded and maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees.

 

XII.5 All amounts payable hereunder shall be reduced by any and all federal,
state and local taxes imposed upon the Participant or his Beneficiary which are
required to be paid or withheld by the Corporation.

 

Irvine Sensors, Corporation Inc has caused its corporate seal to be affixed
hereto and these presents to be duly executed in its name and behalf by its
proper officers thereunto duly authorized this 17th day of June, 2003.

 

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Irvine Sensors, Corporation

By:  

/s/ Robert G. Richards

ATTEST:

 

(Title)

 

[CORPORATE SEAL]