E. **WHEREAS**, the Company has entered into an agreement to sell most of its patent portfolio andrelated assets (“***Patent Assets***”) to a patent acquisition company (the “***Patent Buyer***”) for up to a$9.5 million cash payment and it is anticipated that the Company will be granted a perpetual,worldwide, royalty-free, non-exclusive license to use the sold patents in its business (the “***PatentSale and License***”), a condition to which is a requirement that the Lenders release their Liensrelating to the Patent Assets; and          F. **WHEREAS,**the parties desire to effect a release of the Lenders’ Liens relating to thePatent Assets and extinguishment of a portion of the Outstanding Obligations under the DebtInstruments.**AGREEMENT**          **NOW THEREFORE,**in consideration of the foregoing and the agreements and covenants containedherein, the Parties agree as follows:          1. **Waiver of Default**. The Lenders hereby agree to waive *ab initio*any Defaults orEvents of Default (as defined in the Debt Instruments, Contingent Notes, Security Agreements andthat certain Certificate of Designations of Rights, Preferences, Privileges and Limitations ofSeries A-1 10% Cumulative Convertible Preferred Stock of the Company) relating to the potentialdelisting from the Nasdaq Capital Market described in the letter from the Nasdaq Staff datedJanuary 14, 2009, and any other delisting from the Nasdaq Stock Market.          2. **Repayment and Satisfaction of Outstanding Obligations; Application of Payments;Treatment of Surviving Obligations**. The Parties agree that $2.8 million of the balance of theOutstanding Obligations (the “***Settlement Payment***”) shall be repaid out of the proceeds from thePatent Sale and License, and the unpaid balance of the Outstanding Obligations shall become“***Surviving Obligations***”; provided that the Patent Buyer shall pay such amount directly to theLenders at the closing of the Patent Sale and License. The Settlement Payment shall be applied asset forth on Schedule B attached hereto. Upon the closing of the Patent Sale and Licenseand the payment of the Settlement Payment, approximately $63,374 of the principal and no intereston the Contingent Notes will be outstanding. The Lenders agree that the maturity date and/or termof the Surviving Obligations and Contingent Notes shall be extended from December 31, 2009 toSeptember 30, 2010. The Lenders’ Indemnification rights and rights of enforcement and the right toreceive indemnification related payments will continue to be due and exercisable pursuant to theterms of the documents giving rise to such rights.          3. **Release of Liens**. The Lenders agree to execute and deliver, concurrent with theexecution and delivery of this Agreement, the release of Liens relating to the Patent Assetsattached hereto as Exhibit A which will be released only upon actual receipt by Lenders ofthe Settlement Payment. If the Lenders foreclose on all or substantially all of the operatingassets of the Company, the Company agrees that it will use reasonable best efforts to transfer theCompany’s perpetual, worldwide, royalty-free, non-exclusive license described in Recital E tothe purchaser of all or substantially all of such operating assets in such foreclosure inaccordance with the terms set forth in such license under the section titled “Limitation onTransferability of Seller License.”
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          4. **Governing Law**. This Agreement shall be governed by, and construed in accordancewith, the laws of the State of New York without regard to conflicts of laws that would result inthe application of the substantive laws of another jurisdiction.          5. **Attorneys’ Fees**. If any action or proceeding in contract or tort arising out of orrelating to this Agreement is commenced by any party to this Agreement, the prevailing party shallbe entitled to receive from the other party, in addition to any other relief that may be granted,the reasonable attorneys’ fees, costs and expenses incurred in the action or proceeding by theprevailing party, along with any reasonable attorneys’ fees, costs and expenses incurred to collectany amount awarded in connection with any such action or proceeding.          6. **Waiver of Jury Trial and Setoff; Consent to Jurisdiction; Etc.** In any litigationin any court with respect to, in connection with, or arising out of this Agreement or anyinstrument or document delivered pursuant to this Agreement, or the validity, protection,interpretation, collection or enforcement hereof or thereof, or any other claim or disputehowsoever arising, between the parties hereto WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCHLITIGATION AND ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUALDAMAGES. EACH LENDER AGREES THAT THIS SECTION 6 IS A SPECIFIC AND MATERIAL ASPECT OF THISAGREEMENT AND ACKNOWLEDGE THAT THE OTHER PARTY WOULD NOT ENTER THIS AGREEMENT IF THIS SECTION 6WERE NOT PART OF THIS AGREEMENT. Each party irrevocably consents to the exclusive jurisdiction ofany State or Federal Court located within the County of New York, State of New York, in connectionwith any action or proceeding arising out of or relating to this Agreement or any document orinstrument delivered pursuant to this Agreement or otherwise. In any such litigation, each partywaives, to the fullest extent it may effectively do so, personal service of any summons, complaintor other process and agree that the service thereof may be made by certified or registered maildirected to such party at its address for notice determined in accordance with this Section 6.Each party hereby waives, to the fullest extent it may effectively do so, the defenses of forum nonconveniens and improper venue.          7. **Representation by Counsel**. The Parties acknowledge and agree that they have beenrepresented by counsel of their own choice in the negotiations leading to their execution of thisAgreement, that they have read this Agreement, and have had it fully explained to them by theircounsel. The Parties further acknowledge that the waivers they made herein are knowing, consciousand with full appreciation that they are forever foreclosed from pursuing any of the rights sowaived and that they understand this Agreement and are signing it voluntarily and without coercion.          8. **Admissibility of this Agreement**. Each of the parties agrees that any copy of thisAgreement signed by it and transmitted by facsimile for delivery to the other partyshall be admissible in evidence as the original itself in any judicial or administrativeproceeding, whether or not the original is in existence.          9. **Notices**. All notices, demands, requests, consents, approvals, and othercommunications required or permitted hereunder shall be in writing and, unless otherwise specifiedherein, shall be (i) personally served, (ii) deposited in the mail, registered or certified,
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returnreceipt requested, postage prepaid, (iii) delivered by reputable overnight courier service withcharges prepaid, or (iv) transmitted by hand delivery, electronic mail, or facsimile, addressed asset forth below or to such other address as such party shall have specified most recently bywritten notice. Any notice or other communication required or permitted to be given hereundershall be deemed effective (a) upon hand delivery or delivery by electronic mail or facsimile, withaccurate confirmation generated by the transmitting facsimile machine, at the address or numberdesignated below (if delivered on a business day during normal business hours where such notice isto be received), or the first business day following such delivery (if delivered other than on abusiness day during normal business hours where such notice is to be received) or (b) on the secondbusiness day following the date of mailing by express courier service, fully prepaid, addressed tosuch address, or upon actual receipt of such mailing, whichever shall first occur. The addressesfor such communications shall be: (i) if to the Company, to: Irvine Sensors Corporation, 3001 RedHill Avenue, Costa Mesa, CA 92650, Attn: Chief Financial Officer, facsimile: (714) 444-8773, with acopy by facsimile only to: Dorsey & Whitney LLP, 38 Technology Drive, Irvine, CA 92618, Attn: EllenS. Bancroft, Esq., facsimile: (949) 271-5318, and (ii) if to the Lenders, LONGVIEW FUND, LP, 600Montgomery Street, 44th Floor, San Francisco, CA 94111, Fax: (415) 981-5301, ALPHA CAPITAL ANSTALT,Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein, Fax: 011-42-32323196, with an additional copyby facsimile only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York10176, facsimile: (212) 697-3575.          10. **Amendments and Modification****.**No provision hereof shall be modified, altered,waived or limited except by written instrument expressly referring to this Agreement and to suchprovision, and executed by the parties hereto.          11. **Counterparts/Execution**. This Agreement may be executed in any number ofcounterparts and by the different signatories hereto on separate counterparts, each of which, whenso executed, shall be deemed an original, but all such counterparts shall constitute but one andthe same instrument. This Agreement may be executed by facsimile signature and deliveredelectronically.          12. **Successors and Assigns**. Whenever in this Agreement reference is made to anyparty, such reference shall be deemed to include the successors, assigns, heirs and legalrepresentatives of such party. No party hereto may transfer any rights under this Agreement,unless the transferee agrees to be bound by, and comply with all of the terms and provisions ofthis Agreement, as if an original signatory hereto on the date hereof.          13. **Severability**. In the event that any term or provision of this Agreement shall befinally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant toapplicable law by an authority having jurisdiction and venue, that determination shall not impairor otherwise affect the validity, legality or enforceability (i) by or before that authority of theremaining terms and provisions of this Agreement, which shall be enforced as if theunenforceable term or provision were deleted, or (ii) by or before any other authority of anyof the terms and provisions of this Agreement provided each party is able to receive thesubstantial benefit of this Agreement.          14. **Memorandum of Understanding**. Anything to the contrary notwithstanding, that certainMemorandum of Understanding for Settlement and Debt
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Conversion dated as of September 19, 2008 amongthe Parties (the “**MOU**”) shall remain in full force and effect, except that the first two sentencesof Section 5.4 of the MOU are deleted.
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          **IN WITNESS WHEREOF**, this Agreement has been executed to be effective as of the date and yearfirst above written. This Agreement may be executed in counterparts, each of which shall bedeemed an original, but all of which together shall constitute one and the same instrument. ThisAgreement may be executed by facsimile signature, which signature shall be deemed of the same legaleffect as an original hard copy signature.      **IRVINE SENSORS CORPORATION**