Exhibit 10.4

Term Note

 

   December 29, 2006 $1,130,250.00    New York, NY

The undersigned (collectively, the “Borrower”), for value received, hereby
promise to pay to ALPHA CAPITAL ANSTALT (the “Lender”), or order, on or before
December 29, 2008, the principal amount of ONE MILLION ONE HUNDRED THIRTY
THOUSAND TWO HUNDRED AND FIFTY DOLLARS ($1,130,250.00), or such lesser amount as
may, at the maturity hereof, whether by declaration, acceleration or otherwise,
be the aggregate unpaid principal amount of the Term Loan made by the Lender to
the Borrower pursuant to the Loan Agreement referred to below.

This Note shall bear interest (computed on the basis of the actual number of
days elapsed over a 360 -day year) on the unpaid principal amount hereof at the
rate or rates per annum specified in the Loan Agreement referred to below.
Commencing January 1, 2007, and on the 1st Business Day of each calendar quarter
thereafter, Borrower agrees to pay to Lender accrued interest, until and
including the maturity (whether by declaration, acceleration or otherwise).
During the continuance of any Event of Default, at the election of the Lender,
the Borrower shall pay the holder of this Note on demand by such holder,
interest on the unpaid and overdue principal of and (to the extent permitted by
law) on the unpaid interest on this Note at a rate per annum equal to the
Default Rate; and provide further that in no event shall the amount contract for
and agreed to be paid by the Borrower as interest on this Note exceed the
highest lawful rate permissible under any law applicable hereto.

This Note evidences a loan or loans under, and is expressly subject to the
provisions of, a certain Term Loan and Security Agreement dated as of
December 29, 2006 (as amended from time to time, the “Loan Agreement”) by and
between the Borrower and the Lender. The holder of this Note is entitled to the
benefits of the Loan Agreement, and to the benefits of the other Loan Documents
referred to therein. Neither this reference or such Loan Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal of and interest on this Note as
otherwise provided herein. All payments of principal of and interest on this
Note shall be payable in immediately available funds at the address of the
Lender set forth in the Loan Agreement without deduction, setoff or
counterclaim. Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Loan Agreement.

This Note is subject to prepayment in whole or in part and to acceleration on
default at times and in the manner specified in the Loan Agreement. The maker
and all endorsers of this Note hereby waive presentment, demand, notice,
protest, notice of intent to accelerate, notice to accelerate, and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note. In case of an Event of Default including, without
limitation, a default in the payment of any principal of or interest on this
Note, the Borrower will pay to the Lender such further amount as shall be
sufficient to cover the cost and expense of collection including, without
limitation, reasonable attorneys’ fees, expenses and disbursements.

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The Borrower hereby grants to Lender, a lien, security interest and right of set
off as security for all liabilities and obligations to Lender, whether now
existing or hereafter arising, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Lender, or in transit to any of them. At any time that
an Event of Default exists, without demand or notice, Lender may set off the
same or any part thereof and apply the same to any liability or obligation of
the Borrower and any guarantor even though unmatured and regardless of the
adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO
REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SET
OFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR
ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

This Note shall be construed in accordance with and governed by the internal
laws of the State of New York (without giving effect to conflicts of laws
principles) and is executed as a sealed instrument as of the date first above
written.

 

WITNESS:         IRVINE SENSORS CORPORATION

/s/ JAMES PIPP

    By:  

/s/ JOHN C. CARSON

    Name:   John C. Carson     Title:   President & CEO

 

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