Exhibit 10.16

SUBSIDIARY GUARANTY

SUBSIDIARY GUARANTY (this “Guaranty”), dated as of December 30, 2005, made by
each of the corporations that are signatories hereto (each a “Guarantor” and
collectively, the “Guarantors”), in favor of Pequot Private Equity Fund III,
L.P. and Pequot Offshore Private Equity Partners III, L.P. (each, a “Purchaser”
and collectively, the “Purchasers”).

WITNESSETH

WHEREAS, pursuant to that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated as of December 30, 2005, by and among Irvine Sensors
Corporation, a Delaware corporation (the “Borrower”) and the Purchasers, the
Borrower is issuing, and the Purchasers are purchasing, the Notes and Warrants
(as those terms are defined in the Purchase Agreement);

WHEREAS, in order to induce the Purchasers to purchase the Notes and the
Warrants, each Guarantor will execute and deliver this Guaranty pursuant to
which such Guarantor will guarantee, among other things, payment of all of the
Secured Obligations (as such term is defined in the Company Security Agreement);
and

WHEREAS, it is of material benefit to each Guarantor that the Purchasers
purchase the Notes and Warrants.

NOW, THEREFORE, in consideration of the foregoing and to induce the Purchasers
to enter into the Purchase Agreement and to purchase the Notes and Warrants,
each Guarantor hereby agrees with the Purchasers as follows:

1. Defined Terms.

(a) Unless otherwise defined herein, terms defined in the Purchase Agreement and
used herein shall have the meanings given to them in the Purchase Agreement.

(b) The words “hereof,” “herein” and “hereunder” and words of similar import
when used in this Guaranty shall refer to this Guaranty as a whole and not to
any particular provision of this Guaranty, and section and paragraph references
are to this Guaranty unless otherwise specified.

(c) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.

2. Guaranty.

(a) Subject to the provisions of Section 15, each Guarantor hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Purchasers and
their respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations.

(b) Each Guarantor further agrees to pay any and all fees and expenses of the
Purchasers (including, without limitation, all reasonable fees and disbursements
of counsel) which may be paid or incurred by the Purchasers in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Secured Obligations and/or enforcing any rights
with respect to, or collecting against, such Guarantor under this Guaranty.

(c) Each Guarantor agrees that the Secured Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guaranty or affecting the rights and remedies of the
Purchasers hereunder.

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(d) No payment or payments made by the Borrower, any of the Guarantors, any
other guarantor or any other Person or received or collected by the Purchasers
from the Borrower, any of the Guarantors, any other guarantor or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Secured Obligations shall be deemed to modify, reduce, release or otherwise
affect the liability of any Guarantor hereunder which shall, notwithstanding any
such payment or payments other than payments made by such Guarantor in respect
of the Secured Obligations or payments received or collected from such Guarantor
in respect of the Secured Obligations, remain liable for the Secured Obligations
up to the maximum liability of such Guarantor hereunder until the Secured
Obligations are indefeasibly paid in full in immediately available funds.

(e) Each Guarantor agrees that whenever, at any time, or from time to time, it
shall make any payment to the Purchasers on account of its liability hereunder,
it shall notify the Purchasers in writing that such payment is made under this
Guaranty for such purpose; provided, that the failure to give such notice shall
not effect the validity of such payment.

3. Right of Set-off. Each Guarantor hereby irrevocably authorizes the Purchasers
from time to time without notice to such Guarantor or any other Guarantor, any
such notice being expressly waived by each Guarantor, upon occurrence of and
during the continuation of any Event of Default, to set-off and appropriate and
apply any and all deposits (general or special, time or demand, provisional or
final), and any other credits, indebtedness or claims, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by the Purchasers to or for the credit or the account of such
Guarantor, or any part thereof in such amounts as the Purchasers may elect,
against and on account of the obligations and liabilities of such Guarantor to
the Purchasers arising under the Purchase Agreement, the Notes or any other
Transaction Document or otherwise, as the Purchasers may elect, whether or not
the Purchasers have made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. The Purchasers shall
notify such Guarantor of any such set-off and the application made by the
Purchasers; provided, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Purchasers under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Purchasers may have.

4. No Subrogation. Notwithstanding any payment or payments made by any of the
Guarantors hereunder or any set-off or application of funds of any of the
Guarantors by the Purchasers, no Guarantor shall be entitled to be subrogated to
any of the Purchasers against the Borrower or any other Guarantor or any
collateral security or guaranty or right of offset held by the Purchasers for
the payment of the Secured Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing by the Borrower on account of the Secured Obligations are
indefeasibly paid in full in immediately available funds. If any amount shall be
paid to any Guarantor on account of such subrogation rights at any time when all
of the Secured Obligations shall not have been indefeasibly paid in full, such
amount shall be held by such Guarantor in trust for the Purchasers, segregated
from other funds of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Purchasers in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Purchasers, if required or
reasonably requested), to be applied against the Secured Obligations, whether
matured or unmatured, in such order as the Purchasers may determine.

5. Amendments, etc. with respect to the Secured Obligations; Waiver of Rights.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Secured
Obligations made by the Purchasers may be rescinded by such party and any of the
Secured Obligations continued, and the Secured Obligations, or the liability of
any other party upon or for any part thereof, or any collateral security or
guaranty therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Purchasers, and the Purchase
Agreement, the Note and the other Transaction Documents and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Purchasers may deem
advisable from time to time, and any collateral security, guaranty or right of
offset at any time held by the Purchasers for the payment of the Secured
Obligations may be sold, exchanged, waived, surrendered or released. The
Purchasers shall not have any obligation to protect, secure, perfect or insure
any lien at any time held by it as security for the Secured Obligations or for
this Guaranty or any property subject thereto.

 

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When making any demand hereunder against any of the Guarantors, the Purchasers
may, but shall be under no obligation to, make a similar demand on the Borrower
or any other Guarantor, and any failure by the Purchasers to make any such
demand or to collect any payments from the Borrower or any such other Guarantor
or any release of the Borrower or such other Guarantor shall not relieve any of
the Guarantors in respect of which a demand or collection is not made or any of
the Guarantors not so released of their several obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Purchasers against any of the Guarantors.
For the purposes hereof “demand” shall include the commencement and continuance
of any legal proceedings.

6. Guaranty Absolute and Unconditional.

(a) Each Guarantor waives any and all notice of the creation, renewal, extension
or accrual of any of the Secured Obligations and upon notice of or proof of
reliance by the Purchasers upon this Guaranty or acceptance of this Guaranty,
the Secured Obligations, and any of them, such Secured Obligations shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Guaranty; and all dealings
between the Borrower and any of the Guarantors, on the one hand, and the
Purchasers, on the other hand, likewise shall be conclusively presumed to have
been had or consummated in reliance upon this Guaranty. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower or any of the Guarantors with respect to the
Secured Obligations. Each Guarantor understands and agrees that this Guaranty
shall be construed as a continuing, absolute and unconditional guaranty of
payment without regard to (i) the validity, regularity or enforceability of the
Purchase Agreement, the Notes or any other Transaction Document, any of the
Secured Obligations or any other collateral security therefor or guaranty or
right of offset with respect thereto at any time or from time to time held by
the Purchasers, (ii) any defense, set-off or counterclaim (other than a defense
of indefeasible payment or performance) which may at any time be available to or
be asserted by the Borrower against the Purchasers, or (iii) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrower
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for the Secured Obligations, or of
such Guarantor under this Guaranty, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against any Guarantor, the Purchasers
may, but shall be under no obligation to, pursue such rights and remedies as it
or they may have against the Borrower or any other Person or against any
collateral security or guaranty for the Secured Obligations or any right of
offset with respect thereto, and any failure by the Purchasers to pursue such
other rights or remedies or to collect any payments from the Borrower or any
such other Person or to realize upon any such collateral security or guaranty or
to exercise any such right of offset, or any release of the Borrower or any such
other Person or any such collateral security, guaranty or right of offset, shall
not relieve such Guarantor of any liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Purchasers against such Guarantor. This Guaranty shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon each Guarantor and the successors and assigns thereof,
and shall inure to the benefit of the Purchasers and their respective
successors, indorsees, transferees and assigns until all the Secured Obligations
and the obligations of each Guarantor under this Guaranty shall have been
indefeasibly satisfied by payment in full in immediately available funds.

(b) Without limiting the generality of any other waiver contained herein, each
Guarantor waives any right to require the Purchasers to: (i) proceed against any
other Guarantor or any other Person; (ii) proceed against or exhaust any
collateral, including, without limitation, any collateral secured by any of the
Security Agreements; or (iii) pursue any other right or remedy for such
Guarantor’s benefit. Each Guarantor agrees that the Purchasers may proceed
against such Guarantor with respect to the Secured Obligations without taking
any actions against any other Guarantor or any other Person and without
proceeding against or exhausting any collateral. Each Guarantor agrees that each
of the Purchasers may unqualifiedly exercise in its sole discretion any or all
rights and remedies available to it against any other Guarantor without
impairing the Purchasers’ rights and remedies in enforcing this Guaranty, under
which such Guarantor’s liabilities shall remain independent and unconditional.
Each Guarantor agrees and acknowledges that the Purchasers’ exercise of certain
of such rights or remedies may affect or eliminate such Guarantor’s right of
subrogation or recovery against any other Guarantor and that such Guarantor may
incur a partially or totally nonreimbursable liability in performing under this
Guaranty. Without limiting the generality of any other waivers in this Guaranty,
each Guarantor expressly waives any statutory or other right that such Guarantor
might otherwise have to: (A) limit such Guarantor’s liability after a
nonjudicial foreclosure sale to the difference between the Secured Obligations
and the fair market value of the property or interests sold at such

 

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nonjudicial foreclosure sale or to any other extent; (B) otherwise limit the
Purchasers’ right to recover a deficiency judgment after any foreclosure sale;
or (C) require the Purchasers to exhaust its collateral before the Purchasers
may obtain a personal judgment for any deficiency. Any proceeds of a foreclosure
or similar sale may be applied first to any obligations of the Guarantors that
do not also constitute Secured Obligations. Each Guarantor acknowledges and
agrees that any nonrecourse or exculpation provided for in any Transaction
Document or elsewhere, or any other provision of a Transaction Document or any
other agreement limiting the Purchasers’ recourse to specific collateral or
limiting the Purchasers’ right to enforce a deficiency judgment against any
other Guarantor, shall have absolutely no application to such Guarantor’s
liability under this Guaranty. To the extent that the Purchasers collect or
receive any sums or payments from a particular Guarantor, the Purchasers shall
have the right, but not the obligation, to apply such amounts first to that
portion of any Guarantor’s indebtedness and obligations to the Purchasers that
are not covered by this Guaranty, regardless of the manner in which any such
payments and/or amounts are characterized by the person making payment.

(c) Without limiting the generality of any other waiver contained herein, each
Guarantor waives all rights and defenses that such Guarantor may have because
any other Guarantor’s obligations may be secured by real property. This means,
among other things, that (1) the Purchasers may collect from such Guarantor
without first foreclosing on any real or personal property collateral pledged by
any other Guarantor, and (2) if the Purchasers foreclose on any real property
collateral pledged by any Guarantor, (A) the amount of the Secured Obligations
may be reduced only by that portion of the price for which that collateral is
sold at a foreclosure sale, even if the collateral is worth more than the sale
price, and (B) the Purchasers may collect from such Guarantor even if the
Purchasers, by foreclosing on the real property collateral, have destroyed any
right such Guarantor may have to collect from any other Guarantor. This
paragraph (c) is an unconditional and irrevocable waiver of any rights and
defenses any Guarantor may have because any other Guarantor’s obligations are
secured by real property.

(d) Without limiting the generality of any other waiver contained herein, each
Guarantor waives all rights and defenses arising out of an election of remedies
by the Purchasers, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any obligation has destroyed such
Guarantor’s rights of subrogation and reimbursement against any other Guarantor
by operation of applicable law or otherwise.

(e) Without limiting the generality of the foregoing, each Guarantor expressly
and irrevocably waives, to the fullest extent permitted by applicable law, any
and all rights and defenses including, without limitation, any rights of
indemnification and contribution which might otherwise be available to such
Guarantor under applicable law or otherwise; provided, however, that nothing in
this Section 6(e) shall in any way modify or otherwise affect any Guarantor’s
rights under Section 4 hereof.

7. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Secured Obligations is rescinded or must otherwise be restored or
returned by the Purchasers in connection with the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.

8. Payments. Each Guarantor hereby guarantees that payments hereunder shall be
paid to the Purchasers without set-off or counterclaim in United States dollars
at the addresses set forth on the signature pages to the Purchase Agreement.

9. Representations and Warranties; Covenants and Other Secured Obligations. Each
Guarantor hereby, jointly and severally, affirms the representations and
warranties made by the Borrower under the Purchase Agreement, and agrees,
jointly and severally, that it shall not fail to perform or observe any of the
covenants, commitments or other obligations of the Borrower contained in the
Purchase Agreement, and represents and warrants that:

(a) the execution, delivery and performance of this Guaranty will not violate
any provision of any law applicable to such Guarantor, any contractual
obligation or any organizational documents of such Guarantor and will not result
in or require the creation or imposition of any lien or encumbrance on any of
the properties or revenues of such Guarantor pursuant to any law applicable to
such Guarantor or contractual obligation of such Guarantor;

 

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(b) no consent or authorization of, filing with, or other act by or in respect
of, any arbitrator or governmental authority and no consent of any other Person
(including, without limitation, any stockholder or creditor of such Guarantor,
but not including the holders of Liens as permitted pursuant to Section 4.10(b)
of the Purchase Agreement) is required in connection with the execution,
delivery, performance, validity or enforceability of this Guaranty;

(c) no litigation, investigation or proceeding of or before any arbitrator or
governmental authority is pending or, to the knowledge of such Guarantor,
threatened by or against such Guarantor or against any of its properties or
revenues with respect to this Guaranty or any of the transactions contemplated
hereby, which could reasonably be expected to have a Material Adverse Effect;
and

(d) such Guarantor has accurately prepared and timely filed all tax returns
required to be filed by it and has paid or made provision for the payment of all
taxes, including without limitation, all sales and use taxes and all taxes that
it is obligated to withhold from amounts owing to employees, creditors and third
parties, with respect to the periods covered by such tax returns (whether or not
such amounts are shown as due on any tax return). No deficiencies for taxes with
respect to such Guarantor have been claimed or proposed in writing or assessed
by any tax authority. There are no pending or, to its knowledge, threatened
audits, assessments or other actions for or relating to any liability in respect
of taxes of such Guarantor. There are no matters under discussion with any tax
authority, or known to it, with respect to taxes that are likely to result in an
additional liability for taxes with respect to such Guarantor. The accruals and
reserves on the books and records of such Guarantor in respect of tax
liabilities for any taxable period not finally determined are adequate to meet
any assessments and related liabilities for any such period and, since most
recent year-end, such Guarantor has not incurred any liability for taxes other
than in the ordinary course of its business. There are no liens for taxes upon
the assets of such Guarantor.

10. Notices. All notices and other communications provided for herein shall be
in writing and shall be delivered by hand or overnight courier service or sent
by telecopier as noted below. Notices sent by hand or overnight courier service
shall be deemed to have been given when received; notices sent by telecopier
shall be deemed to have been given when sent (except that, if not given during
normal business hours for the recipient, shall be deemed to have been given at
the opening of business on the next business day for the recipient).

(a) Notices to the Purchasers shall be sent to the address or transmission
number for notices as provided in Section 7.4 of the Purchase Agreement; and

(b) Notices to any Guarantor shall be sent to its address or transmission number
for notices set forth under its signature below.

11. Counterparts. This Guaranty may be executed by one or more of the Guarantors
on any number of separate counterparts (including by facsimile) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

12. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

13. Integration. This Guaranty represents the agreement of each Guarantor with
respect to the subject matter hereof and there are no promises or
representations by the Purchasers relative to the subject matter hereof not
reflected herein.

14. Amendments in Writing; No Waiver; Cumulative Remedies. None of the terms or
provisions of this Guaranty may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by each Guarantor and the
Purchasers.

 

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(a) The Purchasers shall not by any act of (except by a written instrument
pursuant to Section 14 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Purchasers, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Purchasers of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
Purchasers would otherwise have on any future occasion.

(b) The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any other rights or remedies
provided by law.

15. Limitation on Guaranteed Obligations. Notwithstanding any provision in this
Guaranty or any other Transaction Document to the contrary, the liability of
each Guarantor under this Guaranty shall be limited to an amount not to exceed
as of any date of determination the amount which could be claimed by the
Purchasers from such Guarantor under this Guaranty without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of Title II of the United
States Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.

16. Section Headings. The section headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

17. Successors and Assigns. This Guaranty shall be binding upon the successors
and assigns of each Guarantor and shall inure to the benefit of the Purchasers
and their respective successors, transferees, endorsees and assigns.

18. Governing Law. This Guaranty shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.

19. Termination. Upon indefeasible payment and satisfaction in full of the
Secured Obligations (other than contingent indemnification obligations not yet
due and payable) in immediately available funds, this Guaranty shall terminate.

20. Jurisdiction, Jury Trial Waiver, Etc. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS GUARANTY SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE
INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THIS GUARANTY (WHETHER BROUGHT
AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS,
SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE
AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN. EACH
PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH
ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT
TO THE ENFORCEMENT OF ANY OF THIS GUARANTY), AND HEREBY IRREVOCABLY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION
OR PROCEEDING IS IMPROPER. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS GUARANTY AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN

 

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ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF
THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. IF
ANY PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF
THIS GUARANTY OR ANY TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN SUCH
ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE
ATTORNEYS’ FEES AND EXPENSES AND OTHER REASONABLE COSTS AND EXPENSES INCURRED
WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR
PROCEEDING.

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SIGNATURE PAGES FOLLOW.]

 

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IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty to be duly
executed and delivered by its duly authorized officer as of the day and year
first above written.

 

Guarantors: NOVALOG, INC. By:  

/s/ John J. Stuart, Jr.

Name:  

John J. Stuart, Jr.

Title:

 

CFO

 

Address for Notice:

MICROSENSORS, INC. By:  

/s/ John J. Stuart, Jr.

Name:  

John J. Stuart, Jr.

Title:

 

CFO

 

Address for Notice:

REDHAWK VISION, INC. By:  

/s/ John J. Stuart, Jr.

Name:  

John J. Stuart, Jr.

Title:

 

CFO

 

Address for Notice:

iNETWORKS CORPORATION By:  

/s/ John J. Stuart, Jr.

Name:  

John J. Stuart, Jr.

Title:

 

CFO

Address for Notice:

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OPTEX SYSTEMS, INC. By:  

/s/ John J. Stuart, Jr.

Name:  

John J. Stuart, Jr.

Title:

 

CFO/Secretary

Address for Notice:

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Agreed and accepted

as of the date first written above:

 

PEQUOT PRIVATE EQUITY FUND III, L.P.

By:

 

Pequot Capital Management, Inc.,

its Investment Manager

 

By:

 

/s/ Carlos Rodrigues

Name:

 

Carlos Rodrigues

Title:

 

Chief Financial Officer

Pequot Ventures

 

PEQUOT OFFSHORE PRIVATE EQUITY
PARTNERS III, L.P.

By:

 

Pequot Capital Management, Inc.,

its Investment Manager

 

By:

 

/s/ Carlos Rodrigues

Name:

 

Carlos Rodrigues

Title:

 

Chief Financial Officer

Pequot Ventures