Document:

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                                                                    EXHIBIT 10.5

                        FARMERS & MERCHANTS BANCORP, INC.
                               CHANGE IN CONTROL -
                        SEVERANCE COMPENSATION AGREEMENT

     This is a Change in Control - Severance Compensation Agreement (the
"Agreement") made by and between Farmers & Merchants Bancorp, Inc. ("Company")
and James Burkhart ("Executive").

                                    RECITALS

     WHEREAS, Company is a bank holding company which is engaged in the business
of banking and businesses incidental thereto.

     WHEREAS, Executive possesses unique skills, knowledge and experience
relating to the business of the Company and is presently employed by the Company
or one or more of its subsidiaries.

     WHEREAS, Company desires to recognize the past and future services of
Executive, and, in that connection, Executive desires to be assured that, in the
event of a change in the control of Company, Executive will be provided with an
adequate severance payment for termination without cause or as compensation for
Executive's severance because of a material change in his duties and functions.

     WHEREAS, Company desires to be assured of the objectivity of Executive in
evaluating a potential change of control and advising whether or not a potential
change of control is in the best interest of Company and its shareholders.

     WHEREAS, Company desires to induce Executive to remain in the employ of the
Company following a change of control to provide for continuity of management.

     NOW, THEREFORE, in consideration of the premises and of their mutual
covenants expressed in this Agreement, the parties hereto make the following
agreement, intending to be legally bound thereby:

SECTION 1 - DEFINITIONS

A.   Board - "Board" shall mean the Board of Directors of Farmers & Merchants
     Bancorp, Inc.

B.   Cause - "Cause" shall mean and be limited to Executive's (a) criminal
     dishonesty, (b) failure to perform his duties on an exclusive and
     substantially full-time basis (unless unable to so perform by reason of
     disability), (c) failure to act in accordance with any specific substantive
     instructions given by Company with respect to Executive's performance of
     duties normally associated with his position prior to the Change in Control
     (unless unable to so perform by reason of disability), or (d) engaging in
     conduct which

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     could be materially damaging to Company without a reasonable good faith
     belief that such conduct was in the best interest of Company.

C.   Change in Control - A "Change in Control" shall have the meaning set forth
     on Exhibit A.

D.   Code - "Code" shall mean the Internal Revenue Code of 1986, as amended from
     time to time.

E.   Company - "Company" shall mean Farmers & Merchants Bancorp, Inc. and,
     except in connection with the definition of Change in Control, any members
     of its Affiliated Group, as that term is defined in Section 1504 of the
     Code, and shall include any predecessor corporations of the Company and its
     Affiliated Group.

F.   Disability - "Disability" shall mean disability as determined under the
     plans, policies or programs applicable to the Executive and if no such
     plan, policy or program exists, "disability" shall mean the Executive is
     unable to perform the material and substantial functions or duties of the
     Executive's position due a medical condition (including mental conditions).

G.   Exchange Act - "Exchange Act" means The Securities Exchange Act of 1934.

H.   One Year of Compensation - "One Year of Compensation" means the annual
     equivalent of the highest rate of the Executive's salary in effect during
     the one-year period ending with the date of the Change in Control, and the
     average amount, paid in cash as bonus and other incentive compensation for
     the three year period ending with the date of the Change in Control. "One
     Year of Compensation" shall not include any amount, other than salary and
     cash bonuses or cash incentive compensation, that may be included in
     Executive's taxable compensation for federal income tax purposes and
     reported to Executive and Internal Revenue Service ("IRS") such as the
     reporting of previously deferred compensation or gain realized upon
     exercise of any non qualified stock options.

SECTION 2 - TERM OF AGREEMENT.

This Agreement shall be effective from the date hereof, until the termination of
employment of the Executive for any reason, or two years following a Change in
Control. Notwithstanding the forgoing, the obligations of the Company pursuant
to Section 4 of this Agreement shall survive such termination insofar as
provided thereunder. This Agreement shall not change, alter or amend any rights
which either Company or Executive may have in respect of the termination of the
employment of Executive by Company prior to a Change in Control. Nothing
contained in this Agreement shall be construed to create any additional right or
obligation of Executive to be employed by Company.

In addition to the forgoing this Agreement shall terminate on the date which the
Company or any other member of its Affiliated Group, and over which Executive
has managerial control, or which employs Executive, and which is a depository
institution that is insured by an agency of any state or the United States
Federal Government:

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     1.   becomes insolvent; or

     2.   has appointed any conservator or receiver; or

     3.   is determined by an appropriate federal banking agency to be in a
          troubled condition, as defined in the applicable law and regulations;
          or

     4.   is assigned a composite rating of 4 or 5 by the appropriate federal
          banking agency or is informed in writing by the Federal Deposit
          Insurance Corporation that it is rated a 4 or 5 under the Uniform
          Financial Institution's Rating System of the Federal Financial
          Institutions Examination Council; or

     5.   has initiated against it by the Federal Deposit Insurance Corporation
          a proceeding to terminate or suspend deposit insurance; or

     6.   reasonably determines in good faith and with due care that the
          payments called for under this Agreement, or the obligations and
          promises assumed and made under this Agreement have become proscribed
          under applicable law or regulations. Provided, however, if such law or
          regulations apply prospectively only, or for some other reason do not
          apply to this Agreement, then this Agreement shall not be deemed by
          Company to be proscribed.

SECTION 3 - REDUCTION IN COMPENSATION PROSCRIBED AFTER A CHANGE IN CONTROL

During the term of this Agreement from the date of a Change in Control forward,
Executive shall receive as compensation, while still employed by Company, a
salary at a rate no less than the highest rate in effect during the one-year
period before the Change in Control, and shall, in addition, be entitled to
receive a bonus equal to at least the average of the last three years of bonuses
paid before the Change in Control. In addition, during such period, the Company
shall provide for Executive all of the fringe benefits and other perquisites as
provided to any similarly situated employee of the Company, including but not
limited to retirement benefits, health, disability, dental, life insurance, club
memberships, etc., all of which shall be at levels and amounts no less favorable
than levels and amounts in effect as of the Change in Control and at the same
cost to Executive as provided to any similarly situated employee of Company.

SECTION 4 - PAYMENTS AND BENEFITS FOR TERMINATION OF EMPLOYMENT RELATED TO A
CHANGE IN CONTROL

A.   If during the term of this Agreement and:

     1.   within four (4) months before the date of a Change in Control,
          Executive resigns because he has: (i) had his compensation reduced, or
          (ii) had his principal place of employment transferred to a location
          greater than sixty (60) miles from the main office of the Company
          which is located at 307-11 N. Defiance Street, Archbold, Ohio.;

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     2.   within two (2) years after the date of a Change in Control, Executive
          is discharged without Cause or Executive resigns because he has: (i)
          had his compensation reduced or, (ii) had his principal place of
          employment transferred to a location greater than sixty (60) miles
          from the main office of the Company which is located at 307-11 N.
          Defiance Street, Archbold, Ohio; or

     3.   within one year before the date of a Change in Control, the Executive
          is discharged by Company other than for Cause;

     then the Company shall make the payments to Executive set forth in
     subsection B of this Section 4.

B.   In the event of the termination of Executive's employment as described in
     Section 4.A. Executive shall be entitled to receive One Year of
     Compensation paid in a single lump sum payment within fourteen (14) days of
     the later of termination of employment of the Executive or the occurrence
     of the Change in Control.

C.   If Executive's employment is terminated as described in Section 4.A. (1 or
     2), then in addition to the above cash payment(s), Company shall continue
     at no cost to Executive for the term of the Benefit Period as defined
     below, Executive's coverage in Company's health, disability, dental, and
     life insurance at the same levels that had been provided immediately prior
     to his termination of employment. The Benefit Period shall commence on the
     date of termination of the Executive's employment and shall end on the last
     day of the 12th consecutive whole month thereafter.

D.   In the event Executive dies before collecting all amounts and benefits due
     under this Section, any payments owed shall be paid to the person or
     persons as stated in the last designation of beneficiary concerning this
     Agreement signed by Executive and filed with Company, and if no such
     designation has been made, then to the surviving spouse, and if there is no
     surviving spouse, to his/her estate.

E.   Except as otherwise provided in Section 7, the payments and benefits
     provided for herein are in lieu of compensation, benefits or amounts the
     Executive might otherwise be entitled to from the Company by reason of
     termination of employment (except as required or mandated by law).

F.   In the event the payments required under this Agreement, when added
     together with any other amounts required to be included by Executive under
     the provisions of the Code, result in an "Excess Parachute Payment," as
     that term is defined in Section 280G of the Code, then the amount of the
     payments provided for in this Agreement shall be increased in an amount
     sufficient to fully reimburse the Executive for any excise tax imposed
     under Section 4999 (or any successor thereto) of the Code and otherwise
     payable by the Executive.

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G.   Any subsequent employment by Executive shall not reduce the obligation of
     the Company to make the full payments and provide the full benefits
     specified herein and Executive shall have no obligation to seek other
     employment or otherwise mitigate the effect of his discharge from
     employment.

H.   Notwithstanding the provisions of this agreement providing for payment of
     benefits, if at the time a benefit would otherwise be payable, Employee is
     a "specified employee" [as defined below], and the payment provided for
     would be deferred compensation with the meaning of the Internal Revenue
     Code (the "Code"), section 409A, the distribution of the Employee's benefit
     may not be made until six months after the date of the Employee's
     "separation from service" with the Company [as that term may be defined in
     Section 409A(a)(2)(A)(i) of the Code and regulations promulgated
     thereunder], or, if earlier the date of death of the Employee. This
     requirement shall remain in effect only for periods in which the stock of
     the Company is publicly traded on an established securities market. For
     purposes of this subsection a "specified employee" shall mean any Employee
     of the Company who is a "key employee" of the Company within the meaning of
     Code section 416(i). This shall include any Employee who is (i) a 5-percent
     owner of the Company's common stock, or (ii) an officer of the Company with
     annual compensation from the Company of $130,000.00 or more, or (iii) a
     1-percent owner of Company's common stock with annual compensation from the
     Company of $150,000.00 or more (or such higher annual limit as may be in
     effect for years subsequent to 2005 pursuant to indexing section 416(i) of
     the Code). The provisions of this subsection providing for a delay in
     payment have been adopted only in order to comply with Code section 409A.
     These provisions shall be interpreted and administered in a manner
     consistent with the requirements of Code section 409A, together with any
     regulations or other guidance which may be published by the Treasury
     Department or Internal Revenue Service interpreting such Code section 409A
     and the delay in payment provided for hereunder shall only be applicable to
     the extent that, and with respect to the portion of which, such payments
     are proscribed thereby.

I.   Notwithstanding anything in this Agreement to the contrary, in the event
     any payment called for under the terms hereof is prohibited by law,
     including 12 CFR Part 359 of the Code of Federal Regulations, the Company
     shall have no obligation to make such payment to the extent of such
     prohibition.

SECTION 5 - PROVISION FOR OUTPLACEMENT SERVICES

In the event of the termination of employment of Executive as specified in
Section 4.A. (1 and 2) of this Agreement, Executive shall be entitled to six
months of out-placement services following termination of employment. Such
services shall include employment counseling, resume services, executive
placement services and similar services generally provided to executives by
professional executive out placement service providers. All costs of such out
placement services shall be paid for by the Company.

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SECTION 6 - ARBITRATION

The parties hereto agree to arbitrate any issue, misunderstanding, disagreement
or dispute with respect to the terms of this Agreement before an arbitrator or
an arbitration panel as hereinafter provided. The parties may agree to one
mutually acceptable arbitrator. If the parties have been unable to agree upon
one arbitrator, then each party may appoint one arbitrator and the two appointed
arbitrators shall appoint a third neutral arbitrator. If the arbitrators
selected by the parties are unable or fail to agree upon the third arbitrator,
an Ohio common pleas court judge located in Fulton County Ohio chosen at random
shall select the third arbitrator. Failure by a party to appoint an arbitrator,
within 30 days of receipt of notice of the appointment of an arbitrator by the
other party, shall be deemed as acceptance of arbitration by such single
arbitrator. The arbitration shall occur in Archbold, Ohio, or such other place
as mutually agreed upon. The prevailing party shall be entitled to recover any
and all costs associated with any arbitration proceeding (and any subsequent
proceeding to enforce rights thereunder) including the recovery of reasonable
attorneys fees. Judgment on the award rendered by the arbitrator(s) may be
entered by any court having jurisdiction thereof.

SECTION 7 - RIGHT TO OTHER BENEFITS

Nothing in this Agreement shall abridge, eliminate, or cause Executive to lose
Executive's right or entitlement to any other Company benefit to which Executive
may be entitled due to his status as an employee under any plan or policy of
Company on such terms and conditions as are required of any employee under any
plan or policy of Company. Further, nothing in this Agreement shall create in
Executive any greater rights or entitlements, except as specified in this
Agreement. The plans and policies referred to in this Section 7 include, but are
not limited to, qualified and nonqualified retirement plans, life insurance
plans, dental, disability or health insurance benefits, severance policies, and
accrued vacation pay.

SECTION 8 - MISCELLANEOUS

A.   Notice and Payments

     All payments required or permitted to be made under the provisions of this
     Agreement, and all notices and other communications required or permitted
     to be given or delivered under this Agreement to Company or to Executive,
     which notices or communications must be in writing, shall be deemed to have
     been given if delivered by hand, or mailed by first-class mail, addressed
     as follows:

     1. If to Company:

        Farmers & Merchants State Bank
        Attn: Chairman, Compensation Committee
        307-11 N. Defiance Street
        Box 216
        Archbold, OH 43502

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     2. If to Executive:

        James Burkhart
        431 S. Squire St.
        Holgate, OH 43527

     Company or Executive may, by notice given to the other from time to time
     and at any time, designate a different address for making payments required
     to be made, and for the giving of notices or other communications required
     or permitted to be given, to the party designating such new address.

B.   Payroll Taxes

     Any payment required or permitted to be made or given to Executive under
     this Agreement shall be subject to the withholding and other requirements
     of applicable laws, and to the deduction requirements of any benefit plan
     maintained by Company in which Executive is a participant, and to all
     reporting, filing and other requirements in respect of such payments, and
     Company shall use its best efforts promptly to satisfy all such
     requirements.

C.   Governing Law

     This Agreement shall be governed by and construed in accordance with the
     laws of the State of Ohio.

D.   Duplicate Originals

     This Agreement may be executed in one or more counterparts, each of which
     shall be deemed to be a duplicate original, but all of which, taken
     together, shall constitute a single instrument.

E.   Captions

     The captions contained in this Agreement are included only for convenience
     of reference and do not define, limit, explain or modify this Agreement or
     its interpretations, construction or meaning and are in no way to be
     construed as a part of this Agreement.

F.   Severability

     If any provision of this Agreement or the application of any provision to
     any person or any circumstances shall be determined to be invalid or
     unenforceable, such provision or portion thereof shall nevertheless be
     effective and enforceable to the extent determined reasonable. Such
     determination shall not affect any other provision of this Agreement or the
     application of said provision to any other person or circumstance, all of
     which other

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     provisions shall remain in full force and effect, and it is the intention
     of Company and Executive that if any provision of this Agreement is
     susceptible of two or more constructions, one of which would render the
     provision enforceable and the other or others of which would render the
     provisions unenforceable, then the provisions shall have the meaning which
     renders it enforceable.

G.   Number and Gender

     When used in this Agreement, the number and gender of each pronoun shall be
     construed to be such number and gender as the context, circumstances or its
     antecedent may require.

H.   Successors and Assigns

     This Agreement shall inure to the benefit of and be binding upon the
     successors and assigns (including successive, as well as immediate,
     successors and assigns) of Company; provided, however, that Company may not
     assign this Agreement or any of its rights or obligations hereunder to any
     party other than a corporation which succeeds to substantially all of the
     business and assets of Company by merger, consolidation, sale of assets or
     otherwise. This Agreement shall inure to the benefit of and be binding upon
     the successor and assigns (including successive, as well as immediate,
     successors and assigns) of Executive; provided, however, that the right of
     Executive under this Agreement may be assigned only to his personal
     representative or trustee or by will or pursuant to applicable laws of
     descent and distribution.

I.   Prior Agreement

     This Agreement supersedes the prior Change in Control Agreement between
     Farmers & Merchants State Bank and Executive.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on and to be effective on November 27, 2007.

IN THE PRESENCE OF:                     EXECUTIVE

-------------------------------------   ----------------------------------------
                                        James Burkhart
-------------------------------------

IN THE PRESENCE OF:                     FARMERS & MERCHANTS
                                        BANCORP, INC.

                                        By:
-------------------------------------       ------------------------------------
                                        Its: President & Chief Executive Officer
-------------------------------------

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Exhibit A
Change in Control Definition

A "Change in Control" shall mean a "Change in Ownership" as defined in (a)
hereof; a "Change in Effective Control" as defined in (b), hereof; or a "Change
in Ownership of a Substantial Portion of Assets" as defined in (c) hereof.

     (a)  Change in Ownership. For purposes of this Agreement, a change in the
          ownership of the Company occurs on the date -

          (i)  that any one person, or more than one person acting as a group
               (as defined in subsection (d) hereof), acquires ownership of
               stock of the Company that, together with stock held by such
               person or group, constitutes more than 50 percent of the total
               fair market value or total voting power of the stock of the
               Company. However, if any one person, or more than one person
               acting as a group, is considered to own more than 50 percent of
               the total fair market value or total voting power of the stock of
               the Company, the acquisition of additional stock by the same
               person or persons is not considered to cause a change in the
               ownership of the Company (or to cause a change in the effective
               control of the Company within the meaning of subsection (b)
               hereof). An increase in the percentage of stock owned by any one
               person, or persons acting as a group, as a result of a
               transaction in which the Company acquires its stock in exchange
               for property will be treated as an acquisition of stock for
               purposes of this section.

          (ii) of the consummation of any merger, consolidation or
               reorganization with any other corporation pursuant to which the
               shareholders of the Company immediately prior to the merger,
               consolidation or reorganization do not immediately thereafter
               directly or indirectly own more than fifty percent of the
               combined voting power of the voting securities entitled to vote
               in the election of directors of the merged, consolidated or
               reorganized entity.

     (b)  Change in the Effective Control. For purposes of this Agreement, a
          change in the effective control of the Company occurs on the date that
          either -

          (i)  Any one person, or more than one person acting as a group (as
               determined under subsection (d) hereof), acquires (or has
               acquired during the 12-month period ending on the date of the
               most recent acquisition by such person or persons) ownership of
               stock of the Company possessing 35 percent or more of the total
               voting power of the stock of the Company; or

          (ii) a majority of members of the Company's board of directors is
               replaced during any 12-month period by directors whose
               appointment or election is not endorsed by a majority of the
               members of the Company's board of directors prior to the date of
               the appointment or election.

          In the absence of an event described in subsection (b)(i) or (ii)
          above, a change in the effective control of a Company will not have
          occurred.

     (c)  Change in the Ownership of a Substantial Portion of the Company's
          Assets. For purposes of this Agreement, a change in the ownership of a
          substantial portion of the Company's assets occurs on the date that
          any one person, or more than one person acting as a group (as
          determined in subsection(d) hereof), acquires (or has acquired during
          the 12-month period ending on the date of the most recent acquisition
          by such person or persons) assets from the Company that have a total
          gross fair market value equal to or more than 40 percent of the total
          gross fair market value of all of the assets of the Company
          immediately prior to such acquisition or acquisitions. For this
          purpose, gross fair market

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          value means the value of the assets of the Company, or the value of
          the assets being disposed of, determined without regard to any
          liabilities associated with such assets.

               There is no Change in Control Event under this subsection (c)
               when there is a transfer to an entity that is controlled by the
               shareholders of the Company immediately after the transfer, as
               provided in this paragraph. A transfer of assets by the Company
               is not treated as a change in the ownership of such assets if the
               assets are transferred to --

               (i)  A shareholder of the Company (immediately before the asset
                    transfer) in exchange for or with respect to its stock;

               (ii) An entity, 50 percent or more of the total value or voting
                    power of which is owned, directly or indirectly, by the
                    Company;

               (iii) A person, or more than one person acting as a group, that
                    owns, directly or indirectly, 50 percent or more of the
                    total value or voting power of all the outstanding stock of
                    the Company; or

               (iv) An entity, at least 50 percent of the total value or voting
                    power of which is owned, directly or indirectly, by a person
                    described in section (iii) above.

               For purposes of this subsection (c) and except as otherwise
               provided, a person's status is determined immediately after the
               transfer of the assets. For example, a transfer to a corporation
               in which the transferor corporation has no ownership interest
               before the transaction, but which is a majority-owned subsidiary
               of the transferor corporation after the transaction is not
               treated as a change in the ownership of the assets of the
               transferor corporation.

     (d)  Persons Acting as a Group. Persons will not be considered to be acting
          as a group solely because they purchase assets or purchase or own
          stock of the same corporation at the same time, or as a result of the
          same public offering. However, persons will be considered to be acting
          as a group if they are owners of a corporation that enters into a
          merger, consolidation, purchase or acquisition of stock, purchase or
          acquisition of assets, or similar business transaction with the
          Company. If a person, including an entity shareholder, owns stock in
          both corporations that enter into a merger, consolidation, purchase or
          acquisition of stock, or similar transaction, such shareholder is
          considered to be acting as a group with other shareholders in a
          corporation only to the extent of the ownership in that corporation
          prior to the transaction giving rise to the change and not with the
          ownership interest in the other corporation. Notwithstanding the
          foregoing, no trust Department or designated fiduciary or other
          trustee of such trust department of the Company or a subsidiary of the
          Company, or other similar fiduciary capacity of the Company with
          direct voting control of the stock shall be treated as a person or
          group within the meaning of hereof. Further, no profit-sharing,
          employee stock ownership, employee stock purchase and savings,
          employee pension, or other employee benefit plan of the Company or any
          of its subsidiaries, and no Trustee of any such plan in its capacity
          as such Trustee, shall be treated as a person or group within the
          meaning hereof.

                                       10exv10w74

 

Exhibit 10.74

REGISTRATION RIGHTS PURCHASE AGREEMENT,

CONSENT AND WAIVER

     This Registration Rights Purchase Agreement, Consent and Waiver (the “Agreement”) is made and
entered into this 28th day of November, 2007 (the “Effective Date”) by and among, Irvine Sensors
Corporation (the “Company”), Alpha Capital Anstalt (“Alpha”), Longview Fund, L.P. (“Longview”),
Jolie G. Kahn (“Kahn”) and Barbara R. Mittman (“Mittman”). Longview, Alpha, Kahn and Mittman are
sometimes collectively referred to herein as the “Investors.”

     WHEREAS, in December 2006, pursuant to the Subscription Documents set forth on Exhibit
A attached hereto (the “Subscription Documents”), Alpha and Longview agreed to loan the Company
$8.25 million and in connection therewith were issued the Company’s Class A Warrants, and purchased
the Company’s Series 1 and Series 2 Senior Convertible Notes in the original aggregate principal
amount of $10.0 million payable to Pequot Private Equity Fund III, L.P. and Pequot Offshore Private
Equity Partners III, L.P.(collectively, “Pequot”)

     WHEREAS, in December 2006, the Company issued shares of the Company’s common stock to Kahn and
Mittman (collectively, the “Stockholders”) and entered into a Joinder Agreement with the
Stockholders, pursuant to which the Company agreed that the Stockholders would be deemed to be
Subscribers under the Subscription Agreement and Purchasers under the Registration Rights
Agreement.

     WHEREAS, in July 2007, the Company entered into the following documents with Longview,
pursuant to which the Company borrowed an additional $2.0 million from Longview (collectively,
“July Loan Documents”): (i) the Loan Agreement between the Company and Longview, (ii) the Secured
Promissory Note payable to Longview in the principal amount of $2.1 million (the “July Note”);
(iii) the Class B Common Stock Purchase Warrant issued to Longview dated August 15, 2007 (the
“Class B Warrant”); (iv) Letter Agreement to dated July 19, 2007 executed by Alpha; (v) Consent and
Waiver dated July 19, 2007 executed by Alpha; (vi) Consent and Waiver dated July 2007 executed by
Kahn and Mittman; and (v) Confirmation dated July 27, 2007 between Longview and Alpha.

     WHEREAS, in connection with the foregoing transactions, Alpha and Longview were granted
security interests in the assets of the Company and its wholly-owned subsidiary, Optex Systems,
Inc. (“Optex”), and received a guaranty (the “Guaranty”) of the Company’s obligations, pursuant to
the Subscription Documentation and assumption of the Subordinated Debt and were granted and
received other rights pursuant to the Subscription Documents and assumption of the Subordinated
Debt pursuant to the “Existing Security Agreements,” as defined on Exhibit B hereto. The
Existing Security Agreements, the Subscription Documents, the Joinder Agreement and the July Loan
Documents, the Contingent Notes (as defined herein) and the Restructuring Notes (as defined herein)
are sometimes collectively referred to herein as the “Financing Documents.”

1

 

     WHEREAS, in connection with this Agreement, the Company is concurrently entering into a
Secured Promissory Note (Restructuring) of even date herewith with each of Longview and Alpha in
the original principal amounts of $1.0 million and $115,000, respectively (the “Restructuring
Notes”), pursuant to the terms attached hereto as Exhibit C.

     NOW THEREFORE, for good and valuable consideration paid by Longview and the Company, receipt
of which is acknowledged, the parties hereto agree as follows:

     1. Kahn and Mittman Agreement. Notwithstanding anything to the contrary contained in
the Joinder Agreement, the Securities Purchase Agreement, the Registration Rights Agreement or any
of the other Financing Documents that may be applicable to Kahn or Mittman, Kahn and Mittman hereby
agree that they shall be bound by any waiver, consent or modification under any of the Financing
Documents that has been or will be approved or adopted by Longview.

     2. Purchase of Registration Rights. In consideration for (i) the payment by the
Company of an aggregate of $1.0 million and $115,000 to Longview and Alpha, respectively, and (ii)
good and valuable consideration paid to Kahn and Mittman, receipt of which is acknowledged by them,
the Company hereby purchases from the Investors the Company’s requirement and obligation to
register with the U.S. Securities and Exchange Commission (the “SEC”) and any state regulatory body
or agencies, any shares of the Company’s securities owned by or issuable to any of the Investors
including Shares issuable upon exercise of Class A Warrants and Class B Warrants or upon the
conversion of the Series 1 Notes and the Series 2 Notes (collectively, the “Shares”) under any of
the Financing Documents. As a result of such purchase, the parties hereto agree that the Company
shall have no further obligation under any of the Financing Documents to register the Shares. The
purchase price payable to Longview and Alpha shall be payable pursuant to the terms and conditions
of the Contingent Secured Promissory Notes (Buyout), copies of which are attached hereto as
Exhibit C (the “Contingent Notes”).

     3. Amendment of Securities Purchase Agreement. Notwithstanding anything to the
contrary contained in the Securities Purchase Agreement, Longview and Alpha, as the holders of all
of the Series 1 Notes and the Series 2 Note, hereby agree that the Securities Purchase Agreement
shall be amended to clarify that the Company shall have no further obligation under the Securities
Purchase Agreement to register any Registrable Securities held by any party thereunder.

     4. No Liquidated Damages. The parties hereto agree that no liquidated damages or
other damages (and no default interest on such liquidated or other damages) have accrued in
connection with the Company’s failure to register the Shares except to the extent waived as of the
date hereof, and no such damages or default interest are outstanding and owing as a result of or
related to the Company’s failure to register the Shares. The Investors further waive any and all
events of default under any of the Financing Documents, whether or not declared, perfected or
asserted, that relate solely to the failure of the Company to so register such Shares.

2

 

     5. Registration Rights Prohibition. Notwithstanding anything to the contrary
contained in the Financing Documents, without the prior written consent of Longview and Alpha, the
Company shall not file any registration statement with the SEC or state regulatory authorities
until the end of the Exclusion Period (other than a Registration Statement on Form S-8, or any
successor form to the Form S-8, which the Investors hereby consent to, but such consent is limited
to the registration of the annual evergreen increase in shares issuable under the Company’s 2006
Omnibus Incentive Plans). The “Exclusion Period” shall end on the later of (i) June 30, 2008, or
(ii) 180 days after the date when all of the Shares held by the Investors may be sold without
restriction under Rule 144(k) (or any successor rule) promulgated under the Securities Act of 1933,
as amended (the “Securities Act”), provided that for the purposes of determining 144(k)
eligibility, it is assumed that all of such Shares are currently outstanding or will be issued
using the net exercise or cashless exercise provisions contained in the Class A Warrants and the
Class B Warrants, even if such warrants are ultimately exercised for cash. The parties hereto
further agree that Section 6.1(f) of the Subscription Agreement shall be deleted in its entirety.
The Exclusion Period as defined above shall be deemed to be the Exclusion Period for the purposes
of the Subscription Agreement.

     6. Consent to Approved Financing, Specified Indebtedness and Waivers. The parties
hereto agree that this Agreement shall be in addition to, and not in lieu of any prior consents and
waivers previously entered into among the parties hereto. Notwithstanding anything to the contrary
contained in the Financing Documents, the Investors hereby (i) consent to the issuance of the
Restructuring Notes and the Contingent Notes in substantially the forms attached hereto as
Exhibit C; and (ii) consent to the issuance by the Company of common stock and/or warrants
or options to purchase common stock in an aggregate amount not to exceed $2.0 million on or before
May 31, 2008; provided that any such issuances must be at a purchase price of not less than $1.30
per share for common stock or at an exercise price of not less than $1.30 per share for any
warrants or options to purchase common stock (the “Approved Financing”). The Investors hereby
waive any notice period under the Financing Documents for the Approved Financing and further waive
the Investors’ right of first offer, right of first refusal or other rights to participate in such
Approved Financing under the Financing Documents, as well as any repurchase right solely as it
relates to the Approved Financing or the issuance of the Restructuring Notes or the Contingent
Notes. The Investors agree that (i) any Approved Financing shall be deemed to be “Excluded Stock”
and “Excepted Issuances” under the Financing Documents, and (ii) to the extent that any of the
officers or directors of the Company participate in the Approved Financing, any such shares
purchased by such persons shall be deemed to be Excluded Stock, but shall not be included in the
calculation of the 5% limit in subparagraph (A) of the definition of Excluded Stock contained in
Section 1.1 of the Securities Purchase Agreement. Without limiting the foregoing, the Investors
hereby (A) waive the rights set forth in Section 3(c) of the Series 1 Notes and the Series 2 Note
with respect to the Additional Financing, the Restructuring Notes and the Contingent Notes; and (C)
waive the right of first refusal (including any right to notice thereof) set forth in Section 10(a)
of the Subscription Agreement solely in connection with the Approved Financing, the Restructuring
Notes and the Contingent Notes.

3

 

     7. Increase in Existing Indebtedness. The Company and Investors agree that the
references in the following documents to “$1,000,000” shall be amended and changed to “$2,000,000”
but only with respect to accounts payable: (i) Section 2.7 of the Company’s Secured Promissory Note
dated July 19, 2007 payable to Longview; and (ii) Section 8(a)(iii) in the Series 1 Notes and the
Series 2 Note. The other Investors hereby consent to the foregoing amendments.

     8. Looney Default and Other Defaults. In November 2007, the Company received written
notice from Timothy Looney and TWL Group, L.P. (collectively, “Looney”) that the Company was in
default regarding its obligations to register or qualify the shares of the Company’s common stock
held by Looney under that certain Registration Rights Agreement dated December 30, 2005 (the
“Looney Default”), and Looney demanded liquidated damages thereunder for such default. The Company
also acknowledges that Looney Default and the Company’s failure to obtain Longview’s and Alpha’s
consent to the Company’s issuance on May 16, 2007 of a warrant to purchase up to 200,000 shares of
common stock constitute a technical event of default under the Subscription Agreement and certain
of the other Financing Documents (the “Consent Default”). Notwithstanding the foregoing, the
Investors agree that (i) the Looney Default (but only to the extent that Looney does not take any
further action to accelerate or collect any obligations owed to Looney by the Company or forecloses
on any of Looney’s security interests in any of the assets of the Company or if Looney gives
further written notice to the Company in accordance with the terms of any of the loan documents
between Looney and either of the Company or Optex to so accelerate, collect or foreclose), (ii) the
Consent Default and (iii) any event identified in a writing designated as the “Other Written
Information,” which will be delivered on or prior to the execution of this Agreement, to (and
accepted by) a representative of Longview and Alpha, shall not be deemed to be a cross default for
the purposes of any of the Financing Documents, and the Investors waive their right to accelerate
or require repurchase of any of its obligations under the Financing Documents or triggering default
interest under the Financing Documents, exercising remedies with respect to any collateral under
the Existing Security Agreement solely with respect to the Looney Default, the Consent Default or
the event identified in the Other Written Information.

     9. September 2007 Note Amendments. In September 2007, the Company, Alpha and Longview
reached a preliminary agreement to amend the Series 1 Notes, the Series 2 Note, the Term Notes and
the July Note, which agreement is memorialized in the September 2007 Amendments, executed copies of
which are attached hereto as Exhibit D (collectively, the “September 2007 Note
Amendments”). The Company, Alpha and Longview agree and confirm that such September 2007 Note
Amendments have been duly executed and delivered and are in full force and effect.

     10. Company Representations and Warranties.

     (a) Power and Authority; Due Execution. The Company has (i) full corporate power,
authority and legal right to execute, deliver and perform its obligations under this Agreement,
(ii) taken all necessary actions to authorize the execution, delivery and

4

 

performance by the Company of this Agreement, and (iii) caused the Agreement to be duly
executed and delivered on behalf of the Company.

     (b) Legal, Valid, Binding Obligation. This Agreement constitutes the legal, valid,
and binding obligation of the Company, enforceable against the Company in accordance with their
terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency,
moratorium and other similar laws affecting creditors’ rights generally and subject to limitations
on the availability of equitable remedies.

     (c) Organization, Existence, Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of Delaware, (ii) has
the power and authority and the legal right to own, lease and operate its property and to conduct
the business in which it is currently engaged; and (iv) is duly qualified to do business and is in
good standing as a foreign entity in each other jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

     (d) Consents. Except as have been obtained, no consent, permit, license, approval or
authorization of, or registration, declaration or filing with or notice to, any governmental
authority, bureau or agency or any other person or entity is required in connection with the
execution, delivery or performance by the Company of this Agreement.

     (e) No Material Inside Information. Upon the filing of the Company’s Annual Report on
Form 10-K with the SEC and the public dissemination of such Form 10-K, the Company confirms that
the Company shall not have provided the Investors with any material, inside information. For the
purposes of this Section 8(e), any information provided to the persons identified in the Other
Written Information shall not be deemed to have been provided to the Investors.

     (f) Net Exercise Tacking. The Series 1 Notes, the Series 2 Note, the Class A Warrants
and the Class B Warrants contain cashless or net exercise provisions, and provided that the Series
1 Notes and the Series 2 Note are converted into shares of the Company’s common stock in accordance
with such net exercise provisions, or the Class A Warrants and the Class B Warrants are exercised
in accordance with such cashless exercise provisions, the holding period under Rule 144 promulgated
under the Securities Act, as in effect as of the date hereof, for the shares of common stock issued
to Alpha and Longview upon such net exercise or cashless exercise, shall commence December 29, 2006
with respect to the Class A Warrants, and on August 15, 2007 with respect to the Class B Warrants.

     11. Investors Representations and Warranties. Each of the Investors hereby represents
and warrants to the Company as follows:

     (a) Power and Authority; Due Execution. Such Investor has (i) the full power,
authority and legal right to execute, deliver and perform such Investor’s obligations under

5

 

this Agreement, (ii) taken all necessary actions to authorize the execution, delivery and
performance by the Investor of this Agreement, and (iii) caused the Agreement to be duly executed
and delivered on behalf of such Investor.

     (b) Legal, Valid, Binding Obligation. This Agreement constitutes the legal, valid,
and binding obligation of such Investor, enforceable against such Investor in accordance with its
terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency,
moratorium and other similar laws affecting creditors’ rights generally and subject to limitations
on the availability of equitable remedies.

     (c) Organization, Existence, Good Standing. To the extent the Investor is a legal
entity and not an individual, such Investor is a duly formed, validly existing and in good standing
under the laws of its formation, and (ii) has the power and authority and the legal right to own,
lease and operate its property and to conduct the business in which it is currently engaged; and
(iii) is duly qualified to do business and is in good standing as a foreign entity in each other
jurisdiction where its ownership, lease or operation of property or the conduct of its business
requires such qualification, except where the failure to be so qualified would not have a material
adverse effect on such Investor.

     (d) Consents. Except as have been obtained, no consent, permit, license, approval or
authorization of, or registration, declaration or filing with or notice to, any governmental
authority, bureau or agency or any other person or entity is required in connection with the
execution, delivery or performance by such Investor of this Agreement.

     12. Miscellaneous. The notice, venue, jurisdiction, governing law and other
miscellaneous provisions of Section 11 of the Subscription Agreement are incorporated herein and
shall be applicable to this Consent.

6

 

     IN WITNESS WHEREOF, this Agreement has been duly executed by each of the parties hereto as of
the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 
	IRVINE SENSORS CORPORATION

“Company”	 	 	 	LONGVIEW FUND, L.P.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/S/ JOHN C. CARSON
	 	 	 	By:
	 	/S/ S. MICHAEL RUDOLPH	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Name: John C. Carson
	 	 	 	 	 	Name: S. Michael Rudolph	 	 
	 

	 	Title: President and CEO
	 	 	 	 	 	Title: CFO — Investment Adviser	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALPHA CAPITAL ANSTALT	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/S/ KONRAD ACKERMAN	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name: Konrad Ackerman

Title: Director	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/S/ JOLIE G. Kahn	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Jolie G. Kahn	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	/S/ BARBARA R. MITTMAN	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Barbara R. Mittman	 	 

[Signature Page to 

Registration Rights Purchase Agreement, Consent and Waiver]

7

 

EXHIBIT A

Subscription Documents

     For purposes of this Agreement to which this Exhibit A is attached, the “Subscription
Documents” include the following agreements, all dated as of December 29, 2006, except as otherwise
stated below:

	 	1.	 	Subscription Agreement among the Company, Longview and Alpha (the “Subscription
Agreement”);
	 
	 	2.	 	Class A Common Stock Purchase Warrants issued to Alpha and Longview (the “Class A
Warrants”);
	 
	 	3.	 	The Irvine Sensors Corporation Series 1 Senior Subordinated Secured Convertible Notes
(the “Series 1 Notes”) dated as of December 30, 2005 issued by the Company in favor of
Pequot as assigned to Longview and Alpha;
	 
	 	4.	 	The Irvine Sensors Corporation Series 2 Senior Subordinated Secured Convertible Note
(the “Series 2 Note”) dated as of December 30, 2005 by the Company in favor of Pequot as
assigned to Longview\,
	 
	 	5.	 	The September 2007 Note Amendments effective as of September 2007;
	 
	 	6.	 	The Securities Purchase Agreement dated December 30, 2005 originally between the
Company and Pequot, as amended by that certain Amendment to Securities Purchase Agreement
dated March 31, 2006, and as assigned to Longview and Alpha (collectively, the “Securities
Purchase Agreement”);
	 
	 	7.	 	The Assignment of Series 1 and Series 2 Senior Subordinated Secured Convertible Notes
dated December 30, 2005, and related Addendum thereto;
	 
	 	8.	 	Registration Rights Agreement among the Company, Longview and Alpha; and
	 
	 	9.	 	The Term Loan and Security Agreement among the Company, Longview and Alpha (“Loan
Agreement”) and related Term Notes issued by the Company to Longview and Alpha (the “Term
Notes”), together with the documents evidencing the Subordinated Debt as defined in the
Loan Agreement.

8

 

EXHIBIT B

     For purposes of this Agreement to which this Exhibit B is attached, the “Existing
Security Agreements” include the following agreements, all dated as of December 29, 2006, except as
otherwise stated below with respect to certain security agreements and a guaranty originally
executed and delivered by Irvine Sensors and Optex to and/or in favor of Pequot, which are all
dated as of December 30, 2005:

	 	1.	 	Irvine Sensors Intellectual Property Security Agreement, executed and delivered by
Irvine Sensors in favor of Longview and Alpha;
	 
	 	2.	 	Optex Intellectual Property Security Agreement, executed and delivered by Optex in
favor of Longview and Alpha;
	 
	 	3.	 	Optex Guaranty, executed and delivered by Optex in favor of Longview and Alpha;
	 
	 	4.	 	Optex Third Party Security Agreement, executed and delivered by Optex in favor of
Longview and Alpha;
	 
	 	5.	 	Term Loan and Security Agreement by and between Irvine Sensors, on the one hand, and
Longview and Alpha, on the other;
	 
	 	6.	 	Security Agreement dated December 30, 2005, by and among Irvine Sensors and various
Pequot entities;
	 
	 	7.	 	Subsidiary Security Agreements, all dated December 30, 2005, by and among various
subsidiaries of Irvine Sensors (including Optex) and various Pequot entities;
	 
	 	8.	 	Subsidiary Guaranty, dated December 30, 2005, by and among various subsidiaries of
Irvine Sensors and various Pequot entities (items 6 — 8, all as assigned to Longview and
Alpha pursuant to that certain Assignment Agreement by and among the various Pequot
entities, Longview and Alpha, dated December 29, 2006).
	 
	 	9.	 	Omnibus Security Interest Acknowledgement executed and delivered by Irvine and Optex
in favor of Longview and Alpha, dated July 19, 2007;
	 
	 	10.	 	Unconditional Guaranty executed and delivered by Borrower in favor of Lender, dated
July 19, 2007; and
	 
	 	11.	 	Collateral Agent Agreement, dated on or about July 19, 2007, by and among S. Michael
Rudolph, as collateral agent, Lender and Alpha Capital Anstalt, and acknowledged by
Borrower.
	 
	 	12.	 	Subordination Agreement among Timothy Looney, Longview and Alpha.
	 
	 	13.	 	Subordinated Security Agreement dated January 17, 2007 between Optex and TWL Group,
L.P.

9

 

EXHIBIT C

Restructuring Notes and Contingent Notes

(attached hereto)

10

 

Exhibit D

September 2007 Note Amendments

(attached hereto)

11

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