Document:

Exhibit 10.3

Exhibit 10.3

Execution Version

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Security Agreement”) is executed as of December 23, 2010, by
Irvine Sensors Corporation, a Delaware corporation (“Debtor”), whose address is 3001 Red Hill
Avenue, Building 4, Suite 108, Costa Mesa, California 92626, and Costa Brava Partnership III L.P.,
in its capacity as Holder Representative under the Notes (as such term is defined below) (in such
capacity, together with any successor appointed pursuant to the terms of the Notes, “Holder
Representative”).

RECITALS

A. Pursuant to that certain Securities Purchase Agreement, dated as of December 23, 2010 (the
“Securities Purchase Agreement”), by and among the Debtor, Costa Brava Partnership III L.P. (“Costa
Brava”), The Griffin Fund LP (“Griffin” and, together with Costa Brava, the “Purchasers”), and such
of the Bridge Note Holders (as defined in the Securities Purchase Agreement) as agree from time to
time to be bound by the terms of the Securities Purchase Agreement (such Bridge Note Holders, the
“Additional Purchasers”), Debtor has agreed to issue to the Purchasers and to the Additional
Purchasers, and the Purchasers and the Additional Purchasers have agreed to purchase from Debtor,
certain Subordinated Secured Convertible Notes (the “Notes”).

B. This Security Agreement is integral to the transactions contemplated by the Securities
Purchase Agreement and by the Notes, and the execution and delivery hereof are conditions precedent
to the willingness of the Purchasers and the Additional Purchasers to purchase and extend credit
under the Notes.

ACCORDINGLY, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Debtor and Holder Representative hereby agree as follows:

1. REFERENCE TO LOAN DOCUMENTS. This Security Agreement is one of the “Transaction Documents”
referred to in the Securities Purchase Agreement and the Notes.

2. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context hereof otherwise
requires, each term defined in any of the Securities Purchase Agreement, the Notes or the UCC is
used in this Security Agreement with the same meaning; provided that, if the definition given to
such term in the Securities Purchase Agreement or in the Notes conflicts with the definition given
to such term in the UCC, the Securities Purchase Agreement or Notes definition, as applicable,
shall control to the extent legally allowable; and if any definition given to such term in Chapter
9 of the UCC conflicts with the definition given to such term in any other chapter of the UCC, the
Chapter 9 definition shall prevail. As used herein, the following terms have the meanings
indicated:

Collateral has the meaning set forth in Section 4 hereof.

Collateral Obligor means any person or entity obligated with respect to any of the Collateral,
whether as an account debtor, obligor on an instrument, issuer of securities, or otherwise.

 

 

 

Copyrights has the meaning set forth in Section 4 hereof.

Intellectual Property has the meaning set forth in Section 4 hereof.

Obligation means, collectively, all indebtedness, liabilities, and obligations of Debtor to
the holders of the Notes and the Holder Representative arising under the Notes and this Security
Agreement. The Obligation shall include, without limitation, future, as well as existing,
indebtedness, liabilities, and obligations owed by Debtor to the holders of the Notes and the
Holder Representative arising under the Notes and this Security Agreement.

Patents has the meaning set forth in Section 4 hereof.

Permitted Liens means the liens and security interests permitted by the Note, including, for
the avoidance of doubt, the liens and security interests securing Debtor’s obligations with respect
to the Existing Secured Note.

Security Interest means the security interest granted and the pledge and assignment made under
Section 3 hereof.

Summit means Financial Resources, L.P., a Hawaii limited partnership.

Summit Consent Letter means the letter, dated as of December 21, 2010, from Summit to the
Company consenting, among other things, to the issuance of the Notes and waiving certain defaults
under the Summit Financing Agreement.

Summit Debt means all obligations, liabilities and indebtedness of every nature of the Company
from time to time owed to Summit under the Summit Financing Agreement, including, without
limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest
and all costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and from time to time hereafter owing, due or payable, whether before or after the
filing of a Proceeding under the Bankruptcy Code together with any interest accruing thereon after
the commencement of a Proceeding, without regard to whether or not such interest is an allowed
claim.

Summit Financing Agreement means the Financing Agreement, dated as of June 16, 2009,
between the Company and Summit.

Trademarks has the meaning set forth in Section 4 hereof.

UCC means the Uniform Commercial Code, including each such provision as it may subsequently be
renumbered, as enacted in the State of New York or other applicable jurisdiction, as amended at the
time in question.

 

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3. SECURITY INTEREST. In order to secure the full and complete payment and performance of the
Obligation when due, Debtor hereby grants to Holder Representative for the benefit of the holders
of the Notes a Security Interest in all of Debtor’s rights, titles, and interests in and to the
Collateral and pledges, collaterally transfers, and assigns the Collateral to Holder Representative
for the benefit of the holders of the Notes, all upon and subject to the terms and conditions of
this Security Agreement. Such Security Interest is granted and pledge and assignment are made as
security only and shall not subject Holder Representative to, or transfer or in any way affect or
modify, any obligation of Debtor with respect to any of the Collateral or any transaction involving
or giving rise thereto. If the grant, pledge, or collateral transfer or assignment of any specific
item of the Collateral is expressly prohibited by any contract or by law, then the Security
Interest created hereby nonetheless remains effective to the extent allowed by such contract, the
UCC or other applicable laws, but is otherwise limited by that prohibition.

4. COLLATERAL. As used herein, the term “Collateral” means the following items and types of
property, wherever located, now owned or in the future acquired by Debtor, and all proceeds and
products thereof, and any substitutes or replacements therefor:

(a) All accounts, chattel paper (whether tangible or electronic), goods (including inventory,
equipment, and any accessions thereto), software, instruments, investment property, documents,
deposit accounts, money, commercial tort claims, letters of credit or letter-of-credit rights,
supporting obligations, tax refunds, general intangibles (including payment intangibles) and all
books and records pertaining to the foregoing;

(b) (i) All copyrights (whether statutory or common law, registered or unregistered), works
protectable by copyright, copyright registrations, copyright licenses, and copyright applications
of Debtor, including, without limitation, all of Debtor’s right, title, and interest in and to all
copyrights registered in the United States Copyright Office or anywhere else in the world and also
including, without limitation, the copyrights set forth on Schedule B; (ii) all renewals,
extensions, and modifications thereof; (iii) all income, licenses, royalties, damages, profits, and
payments relating to or payable under any of the foregoing; (iv) the right to sue for past,
present, or future infringements of any of the foregoing; and (v) all other rights and benefits
relating to any of the foregoing throughout the world; in each case, whether now owned or hereafter
acquired by Debtor (the “Copyrights”);

(c) (i) All patents, patent applications, patent licenses, and patentable inventions of
Debtor, including, without limitation, registrations, recordings, and applications thereof in the
United States Patent and Trademark Office or in any similar office or agency of the United States,
any state thereof or any other country or any political subdivision thereof, including, without
limitation, those set forth on Schedule B, and all of the inventions and improvements described and
claimed therein; (ii) all continuations, divisions, renewals, extensions, modifications,
substitutions, reexaminations, continuations-in-part, or reissues of any of the foregoing; (iii)
all income, royalties, profits, damages, awards, and payments relating to or payable under any of
the foregoing; (iv) the right to sue for past, present, and future infringements of any of the
foregoing; and (v) all other rights and benefits relating to any of the foregoing throughout the
world; in each case, whether now owned or hereafter acquired by Debtor (the “Patents”);

 

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(d) (i) All trademarks, trademark licenses, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, certification marks,
collective marks, logos, other business identifiers, all registrations, recordings, and
applications thereof, including, without limitation, registrations, recordings, and applications in
the United States Patent and Trademark Office or in any similar office or agency of the United
States, any state thereof or any other country or any political subdivision thereof, including,
without limitation, those set forth on Schedule B; (ii) all reissues, extensions, and renewals
thereof; (iii) all income, royalties, damages, and payments now or hereafter relating to or payable
under any of the foregoing, including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (iv) the right to sue for past, present, and future
infringements of any of the foregoing; (v) all rights corresponding to any of the foregoing
throughout the world; and (vi) all goodwill associated with and symbolized by any of the foregoing,
in each case, whether now owned or hereafter acquired by Debtor (the “Trademarks”, and collectively
with the Copyrights and the Patents, the “Intellectual Property”); provided that (i) with respect
to any Trademarks, applications in the United States Patent and Trademark Office to register
Trademarks or service marks on the basis of the Company’s “intent to use” such Trademarks or
service marks will not be deemed to be Collateral unless and until a “Statement of Use” or
“Amendment to Allege Use” has been filed and accepted in the United States Patent and Trademark
Office, whereupon such application shall be automatically subject to the security interest granted
herein and deemed to be included in the Collateral;

(e) All present and future distributions, income, increases, profits, combinations,
reclassifications, improvements, and products of, accessions, attachments, and other additions to,
tools, parts, and equipment used in connection with, and substitutes and replacements for, all or
part of the Collateral described above;

(f) All present and future accounts, contract rights, general intangibles, chattel paper,
documents, instruments, cash and noncash proceeds, and other rights arising from or by virtue of,
or from the voluntary or involuntary sale or other disposition of, or collections with respect to,
or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other
claims against the manufacturer of, or claims against any other person or entity with respect to,
all or any part of the Collateral heretofore described in this clause or otherwise; and

(g) All present and future security for the payment to Debtor of any of the Collateral
described above and goods which gave or will give rise to any such Collateral or are evidenced,
identified, or represented therein or thereby.

The description of the Collateral contained in this Section 4 shall not be deemed to permit
any action prohibited by this Security Agreement or by the terms incorporated in this Security
Agreement. Furthermore, notwithstanding any contrary provision, Debtor agrees that, if, but for
the application of this paragraph, granting a Security Interest in the Collateral would constitute
a fraudulent conveyance under 11 U.S.C. § 548 or a fraudulent conveyance or transfer under any
state fraudulent conveyance, fraudulent transfer, or similar law in effect from time to time (each
a “fraudulent conveyance”), then the Security Interest remains enforceable to the maximum extent
possible without causing such Security Interest to be a fraudulent conveyance, and this Security
Agreement is automatically amended to carry out the intent of this paragraph.
For the sake of clarity, the Debtor and Holder Representative acknowledge and agree that
Collateral does not include the interests owned by Optics 1, Inc. in certain Intellectual Property
that is co-owned by Optics 1, Inc. and Debtor.

 

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5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Holder Representative as
of the date hereof that:

(a) Transaction Documents. Certain representations and warranties in the Transaction
Documents are applicable to it or its assets or operations, and each such representation and
warranty is true and correct.

(b) Binding Obligation/Perfection. This Security Agreement creates a legal, valid,
and binding Security Interest in and to the Collateral in favor of Holder Representative and
enforceable against Debtor except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors’
rights generally, and except for judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies. For Collateral in which the Security Interest may be
perfected by the filing of Financing Statements, once those Financing Statements have been properly
filed in the jurisdiction described on Schedule A hereto, and, in the case of the Registered IP (as
defined below) with respect to which a security interest may be perfected by filing, recording or
registration in the United States (or any political subdivisions thereof) and its territories and
possessions, upon the receipt and recording of a short form of this Security Agreement with the
United States Patent and Trademark Office or the United States Copyright Office, as applicable, the
Security Interest in such Collateral will be fully perfected, subject only to Permitted Liens.
Other than the Financing Statements and with respect to this Security Agreement, there are no other
financing statements or control agreements covering any Collateral, other than those evidencing
Permitted Liens. The creation of the Security Interest does not require the consent of any person
or entity that has not been obtained.

(c) Debtor Information. Debtor’s exact legal name, mailing address, jurisdiction of
organization, type of entity, and state issued organizational identification number are as set
forth on Schedule A hereto.

(d) Location/Fixtures. (i) Debtor’s place of business and chief executive office is
where Debtor is entitled to receive notices hereunder; the present and foreseeable location of
Debtor’s books and records concerning any of the Collateral that is accounts is as set forth on
Schedule A hereto, and the location of all other Collateral, including, without limitation,
Debtor’s inventory and equipment is as set forth on Schedule A hereto; and, except as noted on
Schedule A hereto, all such books, records, and Collateral are in Debtor’s possession.

(e) Governmental Authority. No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority is required for the pledge by Debtor of the
Collateral pursuant to this Security Agreement or for the execution, delivery, or performance of
this Security Agreement by Debtor, other than filings with applicable governmental authorities to
perfect the security interests created hereby.

(f) Liens. Debtor owns all existing Collateral free and clear of all liens, except
Permitted Liens.

 

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(g) Intellectual Property.

(i) All of Debtor’s interests in the Debtor’s issued Patents, Patent applications,
registered Trademarks, Trademark applications, registered Copyrights, and Copyright
applications are identified on Schedule B hereto (the “Registered IP”). Debtor hereby
agrees to deliver to Holder Representative, within 30 days of the date hereof, fully
executed short forms of this Security Agreement in substantially the form attached as
Exhibits I, II and III, as applicable, containing a description of the Registered IP
consisting of Patents or Patent applications, Trademarks or Trademark applications or
Copyrights or Copyright applications, as applicable, for recording by the United States
Patent and Trademark Office or the United States Copyright Office, as applicable.

(ii) Debtor is the owner of the Registered IP included in the Collateral, free and
clear of any liens other than (A) any Permitted Liens or (B) any licenses permitted by
Section 8(c).

6. COVENANTS. Until the Obligation is paid and performed in full, Debtor covenants and agrees
with Holder Representative that Debtor will:

(a) Information/Record of Collateral. Maintain, at the place where Debtor is entitled
to receive notices under the Securities Purchase Agreement, a current record of where all material
Collateral is located, permit representatives of Holder Representative at any time, upon reasonable
prior written notice during normal business hours to inspect and make abstracts from such records
(provided, that so long as no Default exists, Holder Representative shall conduct such inspections
no more frequently than annually), and furnish to Holder Representative, at such intervals as
Holder Representative may reasonably request, such documents, lists, descriptions, certificates,
and other information as may be reasonably necessary or proper to keep Holder Representative
informed with respect to the identity, location, and status of the Collateral.

(b) Schedules. Notwithstanding any other provision herein, Debtor’s failure to
describe any Collateral required to be listed on any schedule hereto shall not impair Holder
Representative’s Security Interest therein.

(c) Obligations. Notwithstanding anything contained herein to the contrary, (i)
Debtor shall remain liable under the contracts, agreements, documents, and instruments included in
the Collateral to the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Security Agreement had not been executed, and (ii) unless
and until Holder Representative forecloses thereon and becomes the owner thereof pursuant to the
exercise of its remedies hereunder, Holder Representative shall not have any liability or
obligation under any of such contracts, agreements, documents and instruments, and Holder
Representative shall not be obligated to perform any of the obligations or duties of
Debtor thereunder or to take any action to collect or enforce any claim for payment assigned
thereunder.

 

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(d) Notices. (i) Except as may be otherwise expressly permitted under the terms of
the Transaction Documents, promptly notify Holder Representative of (A) any claim, action, or
proceeding that materially affects title to all or any of the Collateral or the Security Interest;
(B) any material damage to or loss of any material Collateral, and (C) the occurrence of any other
event or condition (including, without limitation, matters as to lien priority) that could have a
material adverse effect on the Collateral (taken as a whole) or the Security Interest created
hereunder; and (ii) give Holder Representative thirty (30) days written notice before any proposed
(A) relocation of its principal place of business or chief executive office, (B) change of its name
or identity; (C) relocation of the place where its books and records concerning its accounts are
kept; (D) relocation of any Collateral (other than delivery of inventory in the ordinary course of
business to third party contractors for processing and sales of inventory in the ordinary course of
business or as permitted by the Transaction Documents) to a location not described on the attached
Schedule A, and (E) change of its jurisdiction of organization or organizational identification
number, as applicable. Prior to making any of the changes contemplated in clause (ii) preceding,
Debtor shall execute and deliver all such additional documents and perform all additional acts as
Holder Representative may reasonably request in order to continue or maintain the existence and
priority of the Security Interest in all of the Collateral.

(e) Further Assurances. At Debtor’s expense and Holder Representative’s reasonable
request (i) after a Default, file or cause to be filed such applications and take such other
actions as Holder Representative may reasonably request to obtain the consent or approval of any
governmental authority to Holder Representative’s rights hereunder, including, without limitation,
the right to sell all the Collateral upon a Default without additional consent or approval from
such governmental authority (and, because Debtor agrees that Holder Representative’s remedies at
law for failure of Debtor to comply with this provision would be inadequate and that such failure
would not be adequately compensable in damages, Debtor agrees that its covenants in this provision
may be specifically enforced); (ii) from time to time, either before or after a Default, promptly
execute and deliver to Holder Representative all such other assignments, certificates, supplemental
documents, and financing statements, and do all other acts or things as Holder Representative may
reasonably request in order to more fully create, evidence, perfect, continue, and preserve the
priority of the Security Interest and to carry out the provisions of this Security Agreement; and
(iii) either before or after a Default, pay all filing fees in connection with any financing,
continuation, or termination statement or other instrument with respect to the Security Interest.

(f) Encumbrances. Not create, permit, or suffer to exist, and shall defend the
Collateral against, any lien or other encumbrance on the Collateral other than Permitted Liens, and
shall defend Debtor’s rights in the Collateral and Holder Representative’s Security Interest in,
the Collateral against the claims and demands of all persons or entities except those holding or
claiming Permitted Liens.

(g) Collection of Accounts. In accordance with prudent business practices, endeavor
to collect or cause to be collected from each account debtor under its accounts, as and when due,
any and all amounts owing under such accounts.

 

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(h) Intellectual Property.

(i) Give Holder Representative prompt written notice if Debtor shall obtain rights to
or become entitled to the benefit of any additional issued patents, registered trademarks or
registered copyrights (or makes application therefor) that are not identified on Schedule B
hereto; promptly (but in no event later than 30 days thereafter) deliver to Holder
Representative an appropriate short form of this Security Agreement in substantially the
form of Exhibit I, II or III, as applicable, containing a description of such additional
Registered IP, for recording by the United States Patent and Trademark Office or the United
States Copyright Office, as applicable; and cooperate as reasonably necessary to enable
Holder Representative to make such recordations.

(ii) If a Default exists, use its reasonable efforts to obtain any consents, waivers,
or agreements necessary to enable Holder Representative to exercise its rights and remedies
with respect to the Intellectual Property.

(iii) Not transfer, assign or otherwise dispose of any of the Intellectual Property
included in the Collateral except as permitted in the Note.

(iv) Except to the extent that failure to act could not reasonably be expected to have
a Material Adverse Effect, take all commercially reasonable steps necessary to (x) maintain
the validity and enforceability of any Registered IP and maintain such Registered IP in full
force and effect and (y) pursue the application, obtain the relevant registration and
maintain the registration of each of its Patents, Trademarks and Copyrights, including,
without limitation, by the payment of required fees and taxes, the filing of responses to
office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or
other governmental authorities, the filing of applications for renewal or extension, the
filing of affidavits, the filing of divisional, continuation, continuation-in-part, reissue
and renewal applications or extensions, the payment of maintenance fees and the
participation in interference, reexamination, opposition, cancellation, infringement and
misappropriation proceedings.

(v) Except to the extent that failure to act could not reasonably be expected to have a
Material Adverse Effect, not do or permit any act or knowingly omit to do any act whereby
any of its Intellectual Property may lapse, be terminated, or become invalid or
unenforceable or placed in the public domain (or in case of a trade secret, lose its
competitive value).

(vi) Except to the extent that failure to act could not reasonably be expected to have
a Material Adverse Effect, take all commercially reasonable steps to preserve and protect
each item of its Intellectual Property, including, without limitation, maintaining the
quality of any and all products or services used or provided in connection with any of the
Trademarks, consistent with the quality of the products and services as of
the date hereof, and taking all commercially reasonable steps necessary to ensure that
all licensed users of any of the Trademarks abide by the applicable license’s terms with
respect to the standards of quality.

Notwithstanding the foregoing provisions of this subsection (i) or anything to the contrary in
this Security Agreement, nothing in this Security Agreement shall prevent Debtor from discontinuing
the use or maintenance of any of its Intellectual Property, the enforcement of its license
agreements or the pursuit of actions against infringers, if Debtor determines in its reasonable
business judgment that such discontinuance is desirable in the conduct of its business.

 

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7. DEFAULT; REMEDIES. If a Default exists, Holder Representative may, at its election (but
subject to Section 9 below and to the terms and conditions of the Transaction Documents), exercise
any and all rights available to a secured party under the UCC, in addition to any and all other
rights afforded by the Transaction Documents, at law, in equity, or otherwise, including, without
limitation, (a) requiring Debtor to assemble all or part of the Collateral and make it available to
Holder Representative at a place to be designated by Holder Representative which is reasonably
convenient to Debtor and Holder Representative, (b) surrendering any policies of insurance on all
or part of the Collateral and receiving and applying the unearned premiums as a credit on the
Obligation, (c) applying by appropriate judicial proceedings for appointment of a receiver for all
or part of the Collateral (and Debtor hereby consents to any such appointment), and (d) applying to
the Obligation any cash held by Holder Representative under this Security Agreement.

(a) Notice. Reasonable notification of the time and place of any public sale of the
Collateral, or reasonable notification of the time after which any private sale or other intended
disposition of the Collateral is to be made, shall be sent to Debtor and to any other person or
entity entitled to notice under the UCC. It is agreed that notice sent or given not less than ten
calendar days prior to the taking of the action to which the notice relates is reasonable
notification and notice for the purposes of this subparagraph.

(b) Condition of Collateral; Warranties. Holder Representative has no obligation to
clean-up or otherwise prepare the Collateral for sale. Holder Representative may sell the
Collateral without giving any warranties as to the Collateral. Holder Representative may
specifically disclaim any warranties of title or the like. This procedure will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.

(c) Compliance with Other Laws. Holder Representative may comply with any applicable
state or federal laws in connection with a disposition of the Collateral and compliance will not be
considered to adversely affect the commercial reasonableness of any sale of the Collateral.

(d) Application of Proceeds. Holder Representative shall apply the proceeds of any
sale or other disposition of the Collateral under this Section 7 in the following order: first, to
the payment of all expenses incurred in retaking, holding, and preparing any of the Collateral for
sale(s) or other disposition, in arranging for such sale(s) or other disposition, and in actually
selling or disposing of the same (all of which are part of the Obligation); second, toward
repayment of amounts expended by Holder Representative under Section 8; and third, toward
payment of the balance of the Obligation in the order and manner as Holder Representative
determines in its sole discretion. Any surplus remaining shall be delivered to Debtor or as a
court of competent jurisdiction may direct. If the proceeds are insufficient to pay the Obligation
in full, then Debtor shall remain liable for any deficiency.

(e) Sales on Credit. If Holder Representative sells any of the Collateral upon
credit, Debtor will be credited only with payments actually made by the purchaser, received by the
Holder Representative, and applied to the indebtedness of the purchaser. In the event the
purchaser fails to pay for the Collateral, Holder Representative may resell the Collateral and
Debtor shall be credited with the proceeds of the sale.

 

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8. OTHER RIGHTS OF HOLDER REPRESENTATIVE.

(a) Performance. If Debtor fails to pay when due all taxes on any of the Collateral
in the manner required by the Transaction Documents, or fails to preserve the priority of the
Security Interest in any of the Collateral, or fails to keep the Collateral insured as required by
the Transaction Documents, or otherwise fails to perform any of its obligations under the
Transaction Documents with respect to the Collateral, then Holder Representative may, at its
option, but without being required to do so, and upon prior written notice to Debtor if no Default
otherwise exists, pay such taxes, prosecute or defend any suits in relation to the Collateral, or
insure and keep insured the Collateral in any amount deemed appropriate by Holder Representative,
or take all other action which Debtor is required, but has failed or refused, to take under the
Transaction Documents. Any sum which may be expended or paid by Holder Representative under this
subparagraph (including, without limitation, court costs and reasonable attorneys’ fees) shall be
payable by Debtor to Holder Representative upon demand and shall be part of the Obligation.

(b) Collection. If a Default exists and upon written notice from Holder
Representative, each Collateral Obligor with respect to any payments on any of the Collateral
(including, without limitation, insurance proceeds payable by reason of loss or damage to any of
the Collateral) is hereby authorized and directed by Debtor to make payment directly to Holder
Representative, regardless of whether Debtor was previously making collections thereon. Until such
notice is given, Debtor is authorized to retain and expend all payments made on Collateral. If a
Default exists, Holder Representative shall have the right in its own name or in the name of Debtor
to compromise or extend time of payment with respect to all or any portion of the Collateral for
such amounts and upon such terms as Holder Representative may determine; to demand, collect,
receive, receipt for, sue for, compound, and give acquittances for any and all amounts due or to
become due with respect to Collateral; to take control of cash and other proceeds of any
Collateral; to endorse the name of Debtor on any notes, acceptances, checks, drafts, money orders,
or other evidences of payment on Collateral that may come into the possession of Holder
Representative; to sign the name of Debtor on any invoice or bill of lading relating to any
Collateral, on any drafts against Collateral Obligors or other persons or entities making payment
with respect to Collateral, on assignments and verifications of accounts or other Collateral and on
notices to Collateral Obligors making payment with respect to Collateral; to send requests for
verification of obligations to any Collateral Obligor; and to do all other acts and things
necessary to carry out the intent of this Security Agreement. If a Default exists and any
Collateral Obligor fails or refuses to make payment on any Collateral when due, Holder
Representative is authorized, in its sole discretion, either in its own name or in the name of
Debtor, to take such action as Holder Representative shall deem appropriate for the collection of
any amounts owed with respect to Collateral or upon which a delinquency exists. Regardless of any
other provision hereof, however, Holder Representative shall never be liable for its failure to
collect, or for its failure to exercise diligence in the collection of, any amounts owed with
respect to Collateral, nor shall it be under any duty whatsoever to anyone except Debtor to account
for funds that it shall actually receive hereunder.

 

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(c) Intellectual Property. For purposes of enabling Holder Representative to exercise
its rights and remedies under this Security Agreement and enabling Holder Representative and its
successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Holder
Representative an irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to Debtor) to use, license, or sublicense any of Debtor’s rights in the
Intellectual Property to the extent such rights are transferable but only during such time as a
Default exists. During the existence of a Default, Debtor shall provide Holder Representative with
reasonable access to all media in which any of the Intellectual Property may be recorded or stored
and all computer programs used for the completion or printout thereof. This license shall also
inure to the benefit of all successors, assigns, and transferees of Holder Representative. If a
Default exists, Holder Representative may require that Debtor assign all of its right, title, and
interest in and to the Intellectual Property or any part thereof to Holder Representative or such
other person or entity as Holder Representative may designate pursuant to documents satisfactory to
Holder Representative. If no Default exists, then Debtor shall have the exclusive right and
license to use the Intellectual Property in the ordinary course of business and the exclusive right
to grant to other persons or entities licenses and sublicenses with respect to the Intellectual
Property.

(d) Use and Operation of Collateral. Should any Collateral come into the possession
of Holder Representative while a Default exists, Holder Representative may use or operate such
Collateral for the purpose of preserving it or its value pursuant to the order of a court of
appropriate jurisdiction or in accordance with any other rights held by Holder Representative in
respect of such Collateral. Debtor covenants to promptly reimburse and pay to Holder
Representative, at Holder Representative’s request, the amount of all reasonable expenses
(including, without limitation, the cost of any insurance and payment of taxes or other charges)
incurred by Holder Representative in connection with its custody and preservation of Collateral,
and all such expenses, costs, taxes and other charges shall be payable by Debtor to Holder
Representative upon demand and shall become part of the Obligation. However, the risk of
accidental loss or damage to, or diminution in value of, Collateral is on Debtor, and Holder
Representative shall have no liability whatever for failure to obtain or maintain insurance, nor to
determine whether any insurance ever in force is adequate as to amount or as to the risks insured.
With respect to Collateral that is in the possession of Holder Representative, Holder
Representative shall have no duty to fix or preserve rights against prior parties to such
Collateral and shall never be liable for any failure to use diligence to collect any amount payable
in respect of such Collateral, but shall be liable only to exercise reasonable care in the
safekeeping of any Collateral in its possession (it being agreed that treatment substantially equal
to that which the Holder Representative accords its own property shall be deemed to constitute the
exercise of
reasonable care) and to account to Debtor for what it may actually collect or receive thereon.
The provisions of this subparagraph are only applicable during the existence of a Default.

 

11

 

(e) Power of Attorney. Debtor hereby irrevocably constitutes and appoints Holder
Representative and any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of Debtor or in its own name,
while a Default exists, to take any and all action and to execute any and all documents and
instruments which Holder Representative at any time and from time to time deems necessary or
desirable to accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, Debtor hereby gives Holder Representative the power and right on
behalf of Debtor and in its own name to do any of the following while a Default exists, without
notice to or the consent of Debtor:

(i) to use the Intellectual Property or to grant or issue any exclusive or
non-exclusive license under the Intellectual Property to anyone else, and to perform any act
necessary for the Holder Representative to assign, pledge, convey, or otherwise transfer
title in or dispose of the Intellectual Property to any other person or entity;

(ii) to demand, sue for, collect, or receive, in the name of Debtor or in its own name,
any money or property at any time payable or receivable on account of or in exchange for any
of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances,
money orders, documents of title or any other instruments for the payment of money under the
Collateral or any policy of insurance;

(iii) to pay or discharge taxes, liens, or other encumbrances levied or placed on or
threatened against the Collateral;

(iv) to notify post office authorities to change the address for delivery of Debtor to
an address designated by Holder Representative and to receive, open, and dispose of mail
addressed to Debtor; and

(v) (A) to direct account debtors and any other parties liable for any payment under
any of the Collateral to make payment of any and all monies due and to become due thereunder
directly to Holder Representative or as Holder Representative shall direct; (B) to receive
payment of and receipt for any and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, proxies, stock powers, verifications, and notices in
connection with accounts and other documents relating to the Collateral; (D) to commence and
prosecute any suit, action, or proceeding at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (E) to defend any suit, action, or proceeding brought against
Debtor with respect to any Collateral; (F) to settle, compromise, or adjust any suit,
action, or proceeding described above and, in connection therewith, to give such discharges
or releases as Holder Representative may deem appropriate; (G) to exchange any of the
Collateral for other property upon any merger, consolidation, reorganization,
recapitalization, or other readjustment of the issuer thereof

 

12

 

and, in connection therewith, deposit any of the Collateral with any committee,
depositary, transfer agent, registrar, or other designated agency upon such terms as Holder
Representative may determine; (H) to add or release any guarantor, indorser, surety, or
other party to any of the Collateral; (I) to renew, extend, or otherwise change the terms
and conditions of any of the Collateral; (J) to endorse Debtor’s name on all applications,
documents, papers, and instruments necessary or desirable in order for Holder Representative
to use or maintain any of the Intellectual Property; (K) to make, settle, compromise or
adjust any claims under or pertaining to any of the Collateral (including claims under any
policy of insurance); (L) to file on behalf of Debtor any financing statements or
continuation statements with respect to the Security Interests created hereby, and to do any
and all acts and things to protect and preserve the Collateral, including, without
limitation, the protection and prosecution of all rights included in the Collateral; and (M)
to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though Holder Representative were the
absolute owner thereof for all purposes, and to do, at Holder Representative’s option and
Debtor’s expense, at any time, or from time to time, all acts and things which Holder
Representative deems necessary to protect, preserve, maintain, or realize upon the
Collateral and Holder Representative’s Security Interest therein. This power of attorney is
a power coupled with an interest and shall be irrevocable unless or until all principal and
interest payable under the Note have been repaid in full. Holder Representative shall be
under no duty to exercise or withhold the exercise of any of the rights, powers, privileges,
and options expressly or implicitly granted to Holder Representative in this Security
Agreement, and shall not be liable for any failure to do so or any delay in doing so.
Neither Holder Representative nor any person or entity designated by Holder Representative
shall be liable for any act or omission or for any error of judgment or any mistake of fact
or law. This power of attorney is conferred on Holder Representative solely to protect,
preserve, maintain, and realize upon its Security Interest in the Collateral. Holder
Representative shall not be responsible for any decline in the value of the Collateral and
shall not be required to take any steps to preserve rights against prior parties or to
protect, preserve, or maintain any Lien given to secure the Collateral; provided, however,
that the Holder Representative shall use reasonable care in the safekeeping of any
Collateral in its possession (it being agreed that treatment substantially equal to that
which the Holder Representative accords its own property shall be deemed to constitute the
exercise of reasonable care).

(f) Holder Representative’s Fees and Expenses; Indemnification.

(i) The parties hereto agree that Holder Representative shall be entitled to
reimbursement of its expenses incurred hereunder as provided in Section 20(f) of the Notes.

(ii) Debtor hereby assumes all liability for the Collateral, for the Security Interest,
and for any use, possession, maintenance, and management of, all or any of the Collateral,
including, without limitation, any transfer taxes arising as a result of, or in connection
with, the transactions contemplated herein, and agrees to assume liability for, and to
indemnify and hold Holder Representative harmless from and against, any and all claims,
causes of action, or liability, for injuries to or deaths of persons or
entities and damage to property, howsoever arising from or incident to such use,
possession, maintenance, and management, whether such persons or entities be agents or
employees of Debtor or of third parties, or such damage be to property of Debtor or of
others; provided, however, that the indemnity set forth in this Section 8(f) will not apply
to any such claims, causes of action or liability caused by the gross negligence, bad faith
or willful misconduct of Holder Representative.

 

13

 

9. SUBORDINATION OF LIENS. It is a requirement of the Existing Secured Note and of the Summit
Consent Letter that the liens or security interests securing the Notes be subordinate and junior to
the liens and security interests securing the Indebtedness of the Company in respect of the
Existing Secured Note and the Summit Debt, respectively. Accordingly, and notwithstanding anything
contained herein or in the other Transaction Documents, the Holder Representative, on behalf of the
holders of the Notes, hereby covenants and agrees with the Company as follows:

(a) Acknowledgment. The Holder Representative acknowledges that the Existing Secured
Note Holder has been granted a security interest in the Collateral and that Summit has been granted
a security interest in a portion of the Collateral. The Holder Representative acknowledges and
agrees that the security interest granted to it in the Collateral for the benefit of the holders of
the Notes is subordinated to the respective security interests of the Existing Secured Note Holder
and Summit in the Collateral (to the extent that a security interest in the Collateral has been
granted to such Person) in the manner and pursuant to the terms set forth in this Section 9.

(b) Priority of Liens. The Holder Representative hereby confirms that regardless of
the relative times of attachment or perfection thereof, and regardless of anything in any
Transaction Document to the contrary, any security interests or liens granted from time to time to
the Existing Secured Note Holder or Summit in all or any part of the Collateral as security for the
Existing Secured Debt or the Summit Debt, as applicable, shall in all respects be first and senior
security interests and liens, superior to any security interests or liens at any time granted to
the Holder Representative for the benefit of the holders of the Notes in such Collateral as
security for the Obligations. The priorities specified herein are applicable irrespective of the
time, order or method of attachment or perfection of security interests or the time or order of
filing of financing statements. The Holder Representative agrees on behalf of the holders of the
Notes not to seek to challenge, to avoid, to subordinate or to contest or directly or indirectly to
support any other Person in challenging, avoiding, subordinating or contesting in any judicial or
other proceeding, including, without limitation, any Proceeding involving the Company, the
priority, validity, extent, perfection or enforceability of any lien held by the Existing Secured
Note Holder or Summit in all or any part of the Collateral.

(c) Release of Collateral. If, in connection with the exercise by either the Existing
Secured Note Holder or Summit of its rights and remedies in respect of the Collateral, the Existing
Secured Note Holder or Summit, as applicable, releases any of its liens on any part of the
Collateral, then the liens, if any, of the Holder Representative, for itself and on behalf of the
holders of the Notes, shall be automatically, unconditionally and simultaneously released;
provided, that after the Existing Secured Debt and (if secured by liens on such Collateral) the
Summit Debt have each been indefeasibly paid in full in cash, the balance, if any, of the proceeds
of such Collateral shall be applied to the Obligations for the benefit of the holders of the
Notes. The Holder Representative agrees promptly to execute and deliver to the Company, the
Existing Secured Note Holder or Summit (as applicable) such termination statements, releases and
other documents as the Existing Secured Note Holder or Summit (as applicable) may reasonably
require to effectively confirm such release.

(d) No Improvements. This Section 9 shall not be construed in any way to limit or
impair the right of (i) the Holder Representative to bid for and purchase any Collateral at any
private sale, public sale or judicial foreclosure upon such Collateral initiated by the Existing
Secured Note Holder or Summit, (ii) the Holder Representative to join (but not control) any
foreclosure or other judicial lien enforcement proceeding with respect to the Collateral initiated
by the Existing Secured Note Holder or Summit thereon, so long as it does not delay or interfere
with the exercise by the Existing Secured Note Holder or Summit (as applicable) of its rights and
(iii) subject to the terms of this Security Agreement, the right of the Holder Representative to
receive payments from the proceeds of the collection, sale or other disposition of any Collateral
after the Existing Secured Debt and the Summit Debt (if secured by liens on such Collateral) has
been indefeasibly paid in full in cash.

 

14

 

10. MISCELLANEOUS.

(a) Continuing Security Interest. This Security Agreement creates a continuing
security interest in the Collateral and shall (i) remain in full force and effect until the
Obligation is paid and performed in full; and (ii) inure to the benefit of and be enforceable by
Holder Representative and its successors, transferees, and assigns. Without limiting the
generality of the foregoing clause (ii), Holder Representative may assign or otherwise transfer any
of their respective rights under this Security Agreement to any other person or entity upon ten
business days prior written notice to Debtor provided that the assignee agrees to be bound by the
terms and conditions of the Transaction Documents. To the extent of such assignment or transfer,
such person or entity shall thereupon become vested with all the rights and benefits in respect
thereof granted herein or otherwise to Holder Representative. Upon payment in full of the
Obligation, Debtor shall be entitled to the return, upon its request and at its expense, of (i) any
confidential information provided to Holder Representative or its agents or assignees pursuant to
the Transaction Documents and (ii) such of the Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof.

(b) Termination and Release.

(i) Upon the full and final payment and performance of the Obligation, this Security
Agreement shall automatically terminate.

(ii) The liens created by this Security Agreement on any of the Collateral shall be
automatically released if Debtor disposes of such Collateral pursuant to a transaction
permitted by the Note.

(iii) In connection with any termination or release pursuant to clauses (i) or (ii),
Holder Representative shall promptly execute and deliver to Debtor, at Debtor’s expense, all
documents that Debtor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this
Section 10(b)(iii) shall be without recourse to or warranty by Holder Representative.

(c) Actions Not Releases. The Security Interest and Debtor’s obligations and Holder
Representative’s rights hereunder shall not be released, diminished, impaired, or adversely
affected by the occurrence of any one or more of the following events: (i) the taking or accepting
of any other security or assurance for any or all of the Obligation; (ii) any release, surrender,
exchange, subordination, or loss of any security or assurance at any time existing in connection
with any or all of the Obligation; (iii) the modification of, amendment to, or waiver of compliance
with any terms of any of the other Transaction Documents without the notification or consent of
Debtor, except as required therein; (iv) the insolvency, bankruptcy, or lack of corporate or trust
power of any party at any time liable for the payment of any or all of the Obligation, whether now
existing or hereafter occurring; (v) any renewal, extension, or rearrangement of the payment of any
or all of the Obligation, either with or without notice to or consent of Debtor, or any adjustment,
indulgence, forbearance, or compromise that may be granted or given by Holder Representative to
Debtor; (vi) any

 

15

 

 neglect, delay, omission, failure, or refusal of Holder Representative to take or prosecute any action in connection with any other agreement, document, guaranty, or instrument
evidencing, securing, or assuring the payment of all or any of the Obligation; (vii) any failure of
Holder Representative to notify Debtor of any renewal, extension, or assignment of the Obligation
or any part thereof, or the release of any Collateral or other security, or of any other action
taken or refrained from being taken by Holder Representative against Debtor or any new agreement
between or among Holder Representative and Debtor, it being understood that except as expressly
provided herein or required by law, Holder Representative shall not be required to give Debtor any
notice of any kind under any circumstances whatsoever with respect to or in connection with the
Obligation, including, without limitation, notice of acceptance of this Security Agreement or any
Collateral ever delivered to or for the account of Holder Representative hereunder; (viii) the
illegality, invalidity, or unenforceability of all or any part of the Obligation against any party
obligated with respect thereto by reason of the fact that the Obligation, or the interest paid or
payable with respect thereto, exceeds the amount permitted by applicable laws, the act of creating
the Obligation, or any part thereof, is ultra vires, or the officers, partners, or trustees
creating same acted in excess of their authority, or for any other reason; or (ix) if any payment
by any party obligated with respect thereto is held to constitute a preference under applicable
laws or for any other reason Holder Representative is required to refund such payment or pay the
amount thereof to someone else.

(d) Waivers. Except to the extent expressly otherwise provided herein or in other
Transaction Documents and to the fullest extent permitted by applicable laws, Debtor waives (i) any
right to require Holder Representative to proceed against any other person or entity, to exhaust
its rights in Collateral, or to pursue any other right which Holder Representative may have; (ii)
with respect to the Obligation, presentment and demand for payment, protest, notice of protest and
nonpayment, and notice of the intention to accelerate; and (iii) all rights of marshaling in
respect of any and all of the Collateral.

(e) Financing Statement; Authorization. Debtor hereby irrevocably authorizes Holder
Representative at any time and from time to time to file in any UCC jurisdiction any initial
financing statements and amendments thereto (without the requirement for Debtor’s
signature thereon) that (i) indicate the Collateral (A) as all assets of Debtor or words of
similar effect, regardless of whether any particular asset comprised in the Collateral falls within
the scope of Article 9 of the UCC of the state or such jurisdiction or whether such assets are
included in the Collateral hereunder, or (B) as being of an equal or lesser scope or with greater
detail, and (ii) contain any other information required by Article 9 of the UCC of the state or
such jurisdiction for the sufficiency or filing office acceptance of any financing statement or
amendment, including whether the Company is an organization, the type of organization, and any
organization identification number issued to Debtor. Debtor agrees to furnish any such information
to Holder Representative promptly upon request.

 

16

 

(f) Amendments. This Security Agreement may be amended only by an instrument in
writing executed jointly by Debtor and Holder Representative, and supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.

(g) Multiple Counterparts. This Security Agreement has been executed in a number of
identical counterparts, each of which shall be deemed an original for all purposes and all of which
constitute, collectively, one agreement; but, in making proof of this Security Agreement, it shall
not be necessary to produce or account for more than one such counterpart.

(h) Parties Bound; Assignment. This Security Agreement shall be binding on Debtor and
Debtor’s heirs, legal representatives, successors, and assigns and shall inure to the benefit of
Holder Representative and Holder Representative’s successors and assigns; provided that Debtor may
not, without the prior written consent of Holder Representative, assign any rights, duties, or
obligations hereunder.

(i) General Authority of Holder Representative. By acceptance of the benefits of this
Security Agreement, each holder of the Notes (whether or not a signatory hereto) shall be deemed
irrevocably (a) to consent to the appointment of Holder Representative as its agent hereunder, (b)
to confirm that Holder Representative shall have the authority to act as the exclusive agent of
such Person for the enforcement of any provisions of this Security Agreement against Debtor, the
exercise of remedies hereunder and the giving or withholding of any consent or approval hereunder
relating to any Collateral or Debtor’s obligations with respect thereto, (c) to agree that it shall
not take any action to enforce any provisions of this Security Agreement against Debtor, to
exercise any remedy hereunder or to give any consents or approvals hereunder except as expressly
provided in this Security Agreement or in the Notes and (d) to agree to be bound by the terms of
this Security Agreement.

(j) GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND
PERFORMANCE OF THIS NOTE SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
NEW YORK OR ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTIONS OTHER THAN THE STATE OF NEW YORK.

Remainder of Page Intentionally Blank.

Signature Page to Follow.

 

17

 

EXECUTED as of the date first stated in this Security Agreement.

	 	 	 	 	 
	 	DEBTOR:

IRVINE SENSORS CORPORATION

 	 
	 	By:  	/s/ John C. Carson	 
	 	 	Name:  	John C. Carson	 
	 	 	Title:  	President & CEO	 

Signature Page to Security Agreement

 

 

 

	 	 	 	 	 
	 	HOLDER REPRESENTATIVE:

COSTA BRAVA PARTNERSHIP III L.P.

 	 
	 	By:  	Roark, Rearden & Hamot, LLC,
 	 
	 	 	its General Partner 	 
	 	 	 
	 	By:  	/s/ Seth W. Hamot	 
	 	 	Name:  	Seth W. Hamot 	 
	 	 	Title:  	President 	 

Signature Page to Security Agreement

 

 

 

SCHEDULE A

DEBTOR INFORMATION AND LOCATION OF COLLATERAL

	 	 	 	 	 	 	 
	A.

	 	Exact Legal Name of Debtor:
	 	Irvine Sensors Corporation

	 
	 	 	 	 	 	 
	B.

	 	Mailing Address of Debtor:
	 	3001 Red Hill Avenue, Building 4,
Suite 108 Costa Mesa, California
92626

	 
	 	 	 	 	 	 
	C.

	 	Type of Entity:
	 	Corporation

	 
	 	 	 	 	 	 
	D.

	 	Jurisdiction of Organization:
	 	Delaware

	 
	 	 	 	 	 	 
	E.

	 	State Issued Organizational

Identification Number:
	 	2149404
	 
	 	 	 	 	 	 
	F.

	 	Location of Books and Records:
	 	3001 Red Hill Avenue, Buildings 3
and 4, Suite 108 Costa Mesa,
California 92626

	 
	 	 	 	 	 	 
	G.

	 	Location(s) of Collateral:
	 	3001 Red Hill Avenue, Buildings 3
and 4, Suite 108 Costa Mesa,
California 92626

Certain of Debtor’s assets that
are co-owned by Optics 1, Inc.
pursuant to that teaming
agreement between Optics 1, Inc.
and Debtor may be located at the
offices of Optics 1, Inc. located
at 1050 Holt Avenue, Manchester,
New Hampshire 03109.

	 
	 	 	 	 	 	 
	H.

	 	Jurisdiction(s) for Filing

Financing Statements:
	 	DelawareExhibit 10.4

Exhibit 10.4

Execution Version

STOCKHOLDERS AGREEMENT

among

IRVINE SENSORS CORPORATION

COSTA BRAVA PARTNERSHIP III L.P.

and

THE GRIFFIN FUND LP

Dated as of December 23, 2010

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	1. EFFECTIVENESS
	 	 	1	 
	 
	 	 	 	 
	1.1. Closing
	 	 	1	 
	 
	 	 	 	 
	2. RIGHT OF PARTICIPATION
	 	 	1	 
	 
	 	 	 	 
	2.1. Right of Participation
	 	 	2	 
	2.1.1. Offer
	 	 	2	 
	2.1.2. Exercise
	 	 	2	 
	2.1.3. Certain Legal Requirements
	 	 	3	 
	2.1.4. Further Assurances
	 	 	3	 
	2.1.5. Expenses
	 	 	3	 
	2.1.6. Issuance Process
	 	 	4	 
	2.1.7. Closing
	 	 	4	 
	2.2. Excluded Transactions
	 	 	4	 
	 
	 	 	 	 
	3. REGISTRATION RIGHTS
	 	 	5	 
	 
	 	 	 	 
	3.1. Demand Registration Rights for Investors
	 	 	5	 
	3.1.1. General
	 	 	5	 
	3.1.2. Form
	 	 	6	 
	3.1.3. Payment of Expenses
	 	 	6	 
	3.1.4. Additional Procedures
	 	 	6	 
	3.2. Piggyback Registration Rights
	 	 	7	 
	3.2.1. Piggyback Registration
	 	 	7	 
	3.2.2. Payment of Expenses
	 	 	8	 
	3.2.3. Additional Procedures
	 	 	8	 
	3.2.4. Registration Statement Form
	 	 	8	 
	3.3. Certain Other Provisions
	 	 	8	 
	3.3.1. Underwriter’s Cutback
	 	 	8	 
	3.3.2. Other Actions
	 	 	10	 
	3.3.3. Selection of Underwriters and Counsel
	 	 	11	 
	3.3.4. Lock-Up
	 	 	11	 

 

- i -

 

TABLE OF CONTENTS
continued

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	3.3.5. Other Agreements
	 	 	11	 
	3.3.6. Other Registration-Related Matters
	 	 	11	 
	3.4. Indemnification and Contribution
	 	 	12	 
	3.4.1. Indemnities of the Company
	 	 	12	 
	3.4.2. Indemnities to the Company
	 	 	14	 
	3.4.3. Contribution
	 	 	14	 
	3.4.4. Limitation on Liability of Holders of Registrable Securities
	 	 	15	 
	3.4.5. Indemnification Procedures
	 	 	15	 
	3.4.6. Non-Exclusivity
	 	 	15	 
	 
	 	 	 	 
	4. COVENANTS
	 	 	16	 
	 
	 	 	 	 
	4.1. Reporting Requirements; Access to Records
	 	 	16	 
	4.2. Integration
	 	 	16	 
	4.3. Securities Laws Disclosure; Publicity
	 	 	16	 
	4.4. Reservation of Common Stock
	 	 	17	 
	4.5. Relisting of Common Stock
	 	 	17	 
	4.6. Filings
	 	 	17	 
	4.7. Financings of the Company
	 	 	17	 
	4.8. Stockholders Meeting
	 	 	18	 
	4.9. Expenses for Board Meetings
	 	 	18	 
	4.11. Key Man Insurance
	 	 	18	 
	4.12. Information
	 	 	18	 
	4.13. Budget
	 	 	19	 
	4.14. Confidentiality
	 	 	19	 
	4.15. Other Business Opportunities
	 	 	20	 
	 
	 	 	 	 
	5. REMEDIES
	 	 	20	 
	 
	 	 	 	 
	5.1. Generally
	 	 	20	 
	5.2 1933 Act Legends
	 	 	20	 
	5.3. Stop Transfer Instruction
	 	 	20	 
	5.4. Termination of 1933 Act Legend
	 	 	21	 

 

- ii -

 

TABLE OF CONTENTS
continued

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	6. AMENDMENT, TERMINATION, ETC.
	 	 	21	 
	 
	 	 	 	 
	6.1. Oral Modifications
	 	 	21	 
	6.2. Written Modifications
	 	 	21	 
	6.3. Effect of Termination
	 	 	21	 
	 
	 	 	 	 
	7. DEFINITIONS
	 	 	21	 
	 
	 	 	 	 
	7.1. Certain Matters of Construction
	 	 	21	 
	7.2. Definitions
	 	 	21	 
	 
	 	 	 	 
	8. MISCELLANEOUS
	 	 	25	 
	 
	 	 	 	 
	8.1. Authority; Effect
	 	 	25	 
	8.2. Notices
	 	 	26	 
	8.3. Binding Effect, Etc.
	 	 	27	 
	8.4. Descriptive Headings
	 	 	27	 
	8.5. Counterparts
	 	 	27	 
	8.6. Severability
	 	 	27	 
	8.7. No Recourse
	 	 	28	 
	 
	 	 	 	 
	9. GOVERNING LAW
	 	 	28	 
	 
	 	 	 	 
	9.1. Governing Law
	 	 	28	 
	9.2. Consent to Jurisdiction
	 	 	28	 
	9.3. WAIVER OF JURY TRIAL
	 	 	29	 
	9.4. Exercise of Rights and Remedies
	 	 	29	 

 

- iii -

 

IRVINE SENSORS CORPORATION

STOCKHOLDERS AGREEMENT

This Stockholders Agreement (the “Agreement”) is made as of December 23, 2010 by and
among:

	 	(i)	 	Irvine Sensors Corporation, a Delaware corporation (the “Company”);

	 	(ii)	 	Costa Brava Partnership III L.P., a Delaware limited partnership (“Costa
Brava”)

	 	(iii)	 	The Griffin Fund LP, a Delaware limited liability partnership
(“Griffin”) (Griffin and Costa Brava are sometimes collectively referred to as
the “Investors”);

	 	(iv)	 	such other Persons who from time to time become party hereto by executing a
counterpart signature page hereof in the form of Exhibit A hereto or such other
form as may be designated by the Board of Directors (the “Other Investors,” and
together with the Investors, the “Stockholders”)

Capitalized terms used herein but not defined herein have the meanings set forth in the Securities
Purchase Agreement, among the Company and the Investors, dated as of the date hereof (the
“Purchase Agreement”).

RECITALS

WHEREAS, on the date hereof, the Investors and the Company entered into the Purchase Agreement
whereby the Investors purchased shares of Common Stock and Notes, and committed to purchase
Milestone Notes upon the fulfillment of certain Milestone Conditions.

WHEREAS, the parties believe that it is in the best interests of the Company and the
Stockholders to set forth their agreements on certain matters.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and
agreements of the parties hereto, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. EFFECTIVENESS.

1.1. Closing. This Agreement shall become effective upon consummation of the Initial
Closing as defined in the Purchase Agreement (the “Closing”).

2. RIGHT OF PARTICIPATION. The Company shall not issue or sell any shares of any of its capital
stock or any securities convertible into or exchangeable for any shares of its capital stock, issue
or grant any Options or Warrants for the purchase of, or enter into any agreements providing for
the issuance (contingent or otherwise) of, any of its capital stock or any stock or securities
convertible into or exchangeable for any shares of its capital stock (each an “Issuance” of
“Subject Securities”) without first complying with this Section 2.

 

- 1 -

 

2.1. Right of Participation.

2.1.1. Offer. Not fewer than fifteen days prior to the consummation of an
Issuance, a notice (the “Participation Notice”) shall be furnished by the Company to
each Investor. The Participation Notice shall include:

(a) (i) the amount and kind of Subject Securities to be included in the
Issuance, (ii) the number of Equivalent Shares represented by such Subject
Securities (if applicable), (iii) the percentage of the total number of Equivalent
Shares outstanding as of immediately prior to giving effect to such Issuance which
the number of Equivalent Shares held by such Investor constitutes (the
“Participation Portion”), (iv) the maximum and minimum price (including, if
applicable, the maximum and minimum Price Per Equivalent Share) per unit of the
Subject Securities; (v) the material terms and conditions of the Issuance; and (vi)
the anticipated date of the Issuance of the Subject Securities.

(b) An offer by the Company to issue, at the option of each Investor, to such
Investor, such portion of the Subject Securities to be included in the Issuance as
may be requested by such Investor (not in any event to exceed the Investor’s
Participation Portion of the total amount of Subject Securities to be included in
the Issuance), on the same economic terms and conditions, with respect to each unit
of Subject Securities issued to the Investor, as each of the other prospective
subscribers for the Issuance (the “Prospective Subscribers”) shall be issued
units of the Subject Securities.

2.1.2. Exercise.

2.1.2.1. General. Each Investor desiring to accept the offer contained
in the Participation Notice shall send a written commitment to the Company within
ten days after receipt of the Participation Notice specifying the amount of Subject
Securities (not in any event to exceed the Investor’s Participation Portion of the
total amount of Subject Securities to be included in the Issuance) which such
Investor desires to be issued (each a “Participating Investor”). Each
Investor who has not so accepted such offer shall be deemed to have waived all of
its rights with respect to the Issuance. The Company shall thereafter be free to
issue Subject Securities in the Issuance to any Participating Investor or
Prospective Subscriber, upon the same terms as set forth in the Participation
Notice, without any further obligation to such non-accepting Investor. If, prior to
consummation, the terms of such proposed Issuance shall change, it shall be
necessary for a separate Participation Notice to be furnished, and the terms and
provisions of this Section 2.1 separately complied with, in order to consummate such
Issuance pursuant to this Section 2.1 provided, however, that in the
case of such a separate Participation Notice, the applicable period to which
reference is made in the first sentence of this Section 2.1.2.1 shall be five
business days.

 

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2.1.2.2. Irrevocable Acceptance. The acceptance of each Participating
Investor shall be irrevocable except as provided herein, and each such Participating
Investor shall be bound and obligated to acquire in the Issuance on the same terms
and conditions, with respect to each unit of Subject Securities issued, as the other
Prospective Subscribers, such amount of Subject Securities as such Participating
Investor shall have specified in such Participating Investor’s written commitment.

2.1.2.3. Time Limitation. If at the end of the 180th day following the
date of the effectiveness of the Participation Notice the Company has not completed
the Issuance, each Participating Investor shall be released from its obligations
under the written commitment, the Participation Notice shall be null and void, and
it shall be necessary for a separate Participation Notice to be furnished, and the
terms and provisions of this Section 2.1 separately complied with, in order to
consummate such Issuance pursuant to this Section 2.1.

2.1.3. Certain Legal Requirements. In the event that the participation in the
Issuance by a holder of Shares as a Participating Investor would require under applicable
law the registration or qualification of any Subject Securities or any other securities
contemplated to be issued in such Issuance or of any Person as a broker or dealer or agent
with respect to such securities, such Investor shall not have the right to participate in
the Issuance. Without limiting the generality of the foregoing, it is understood and agreed
that the Company shall not be under any obligation to effect a registration of such
securities under the Securities Act or similar state statutes.

2.1.4. Further Assurances. Each Participating Investor shall take or cause to
be taken all such reasonable actions as may be necessary or reasonably desirable in order
expeditiously to consummate each Issuance pursuant to this Section 2.1 and any related
transactions, including executing, acknowledging and delivering consents, assignments,
waivers and other documents or instruments; filing applications, reports, returns, filings
and other documents or instruments with governmental authorities; and otherwise cooperating
with the Company and the other Prospective Subscribers. Without limiting the generality of
the foregoing, each such Participating Investor agrees to execute and deliver such
subscription and other agreements specified by the Company to which the other Prospective
Subscribers will be party.

2.1.5. Expenses. All reasonable costs and expenses incurred by the Investors
in connection with any proposed Issuance of Subject Securities (whether or not consummated),
including all attorney’s fees and charges, all accounting fees and charges and all finders,
brokerage or investment banking fees, charges or commissions, shall be paid by the Company.
The reasonable fees and expenses of a single legal counsel representing the Investors in
connection with such proposed Issuance of Subject Securities (whether or not consummated)
shall be paid by the Company.

 

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2.1.6. Issuance Process. The Company shall, in its sole discretion, decide
whether or not to pursue, consummate, postpone or abandon any proposed Issuance of
Subject Securities. The Company shall not have any liability to any Investor arising
from, relating to or in connection with the pursuit, consummation, postponement, abandonment
or terms and conditions of any proposed Issuance of Subject Securities except to the extent
the Company shall have failed to comply with the provisions of this Section 2. The rights
of each Participating Investor under this Section 2 are subject to any similar existing
rights held by any other Persons.

2.1.7. Closing. The closing of an Issuance pursuant to Section 2.1 shall take
place at such time and place as the Company shall specify by notice to each Participating
Investor. At the Closing of any Issuance under this Section 2.1.7, each Participating
Investor shall be delivered the notes, certificates or other instruments evidencing the
Subject Securities to be issued to such Participating Investor registered in the name of
such Participating Investor or his designated nominee, free and clear of any liens or
encumbrances (other than restrictions under applicable securities laws), with any transfer
tax stamps affixed, against delivery by such Participating Investor of the applicable
consideration.

2.2. Excluded Transactions. Notwithstanding the foregoing, the preceding provisions
of this Section 2 shall not apply to:

(a) Any Issuance of shares of Common Stock or Options to purchase Common Stock to
officers, employees, directors or consultants of the Company or its subsidiaries, in
connection with the recipient’s employment, consulting or similar arrangements with the
Company or any of its subsidiaries; provided, however, that such Issuance is
pursuant to an employee incentive plan of the Company or has otherwise been approved by the
Board of Directors;

(b) Any Issuance of shares of Common Stock, Options or other Convertible Securities in
connection with any business combination or acquisition transaction by the Company or any of
its subsidiaries; provided, however, that such Issuance has been approved by
the Board of Directors;

(c) Any Issuance of shares of Common Stock upon the exercise, exchange or conversion of
any Options or other Convertible Securities outstanding on the date hereof;

(d) Any Issuance of Common Stock pursuant to any Public Offering;

(e) Any Issuance of Common Stock to strategic partners, lenders, equipment lessors or
other similar sources; provided, however, that such Issuance has been
approved by the Board of Directors; and

(f) The Issuance of Common Stock and Notes at the Initial Closing and the Issuance of
Milestone Notes at the Milestone Closing pursuant to the Purchase Agreement (and the
Issuance of Common Stock upon conversion of such Notes and Milestone Notes.)

 

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3. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of its subsidiaries
to perform and comply, with such of the following provisions as are applicable to it. Each
Investor will perform and comply with such of the following provisions as are applicable to each
Investor.

3.1. Demand Registration Rights for Investors.

3.1.1. General. One or more Investors holding Shares representing at least
25% of the total amount of Shares then outstanding (the “Initiating Investors”), by
notice to the Company specifying the intended method or methods of disposition, may request
that the Company effect the registration under the Securities Act for a Public Offering
(including by means of a shelf registration pursuant to Rule 415 under the Securities Act if
so requested by the Initiating Investors and the Company is so eligible) of all or a
specified part of the Registrable Securities held by such Initiating Investors (for purposes
of this Agreement “Registrable Investor Securities” shall mean Registrable
Securities held by the Investors) unless limited to a lesser amount pursuant to SEC rules
and regulations. The Company will then use its best efforts to (i) effect the registration
under the Securities Act of the Registrable Securities which the Company has been requested
to register by such Initiating Investors (and is permitted to register pursuant to SEC rules
and regulations) together with all other Registrable Securities which the Company has been
requested to register (and is permitted to register pursuant to SEC rules and regulations)
pursuant to Section 3.2 or by other holders of Registrable Investor Securities by notice
delivered to the Company within 20 days after the Company has given the notice required by
Section 3.2.1 (which request shall specify the intended method of disposition of such
Registrable Securities), all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable Securities
which the Company has been so requested to register (and is permitted to register pursuant
to SEC rules and regulations, and (ii) if requested by the Initiating Investors, obtain
acceleration of the effective date of the registration statement relating to such
registration; provided, however, that the Company shall not be obligated to
take any action to effect any such registration pursuant to this Section 3.1.1:

(a) Within 180 days immediately following the effective date of any
registration statement pertaining to an underwritten public offering of
securities of the Company for its own account (other than a Rule 145
Transaction, or a registration relating solely to employee benefit plans);

(b) On any form other than Form S-3 (or any successor form) if the
Company has previously effected three or more registrations of Registrable
Securities under this Section 3.1.1 on any form other than Form S-3 (or any
successor form); provided, however, that no registrations of
Registrable Securities which shall not have become and remained effective
for at least 90 days or such longer period as specified in such request (or
such shorter period in which all Registrable Securities included in such
registration were sold thereunder) in accordance with the
provisions of this Section 3 shall be included in the calculation of
numbers of registrations contemplated by this clause (b).

 

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3.1.2. Form. Except as otherwise provided above, each registration requested
pursuant to Section 3.1.1 shall be effected by the filing of a registration statement on
Form S-1 (or any other form which includes substantially the same information as would be
required to be included in a registration statement on such form as currently constituted),
unless the use of a different form has been agreed to in writing by holders of at least a
majority of the Registrable Investor Securities to be included in the proposed registration
statement in question (the “Majority Registration Investors”); provided that
if any registration requested pursuant to this Section 3.1 is proposed to be effected on
Form S-3 (or any successor or similar short-form registration statement) and is in
connection with an underwritten offering, and if the managing underwriter shall advise the
Company in writing that, in its opinion, it is of material importance to the success of such
proposed offering to include in such registration statement information not required to be
included pursuant to such form, then the Company will supplement such registration statement
as reasonably requested by such managing underwriter; provided, further,
that in such event such registration shall be deemed not to be pursuant to Form S-3 for
purposes of Section 3.1.1(b).

3.1.3. Payment of Expenses. The Company shall pay all reasonable expenses of
any Investor incurred in connection with each registration of Registrable Securities
requested pursuant to this Section 3.1, other than underwriting discount and commission, if
any, and applicable transfer taxes, if any; provided, however, that the Company shall only
be required to pay the reasonable attorneys’ fees and expenses of a single legal counsel to
all the Investors incurred in connection with each registration of Registerable Securities
requested pursuant to this Section 3.1.

3.1.4. Additional Procedures. In the case of a registration pursuant to
Section 3.1 hereof, whenever the Majority Registration Investors shall request that such
registration shall be effected pursuant to an underwritten offering, the Company shall
include such information in the written notices to holders of Registrable Securities
referred to in Section 3.2. In such event, the right of any holder of Registrable
Securities to have securities owned by such holder included in such registration pursuant to
Section 3.1 shall be conditioned upon such holder’s participation in such underwriting and
the inclusion of such holder’s Registrable Securities in the underwriting (unless otherwise
mutually agreed upon by the Majority Registration Investors and such holder). If requested
by such underwriters, the Company together with the holders of Registrable Securities
proposing to distribute their securities through such underwriting will enter into an
underwriting agreement with such underwriters for such offering containing such
representations and warranties by the Company and such holders and such other terms and
provisions as are customarily contained in underwriting agreements with respect to secondary
distributions, including customary indemnity and contribution provisions (subject, in each
case, to the limitations on such liabilities set forth in this Agreement).

 

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3.2. Piggyback Registration Rights.

3.2.1. Piggyback Registration.

3.2.1.1. General. Each time the Company proposes to register any
 shares of Common Stock under the Securities Act on a form which would permit
registration of Registrable Securities for sale to the public, for its own account
and/or for the account of an Investor (pursuant to Section 3.1 or otherwise) for
sale in a Public Offering, the Company will give notice to all holders of
Registrable Securities of its intention to do so. Any such holder may, by written
response delivered to the Company within 20 days after the effectiveness of such
notice, request that all or a specified part of the Registrable Securities held by
such holder be included in such registration. The Company thereupon will use its
reasonable efforts to cause to be included in such registration under the Securities
Act all shares of Registrable Securities which the Company has been so requested to
register by such holders (and is permitted to register pursuant to SEC rules and
regulations), to the extent required to permit the disposition (in accordance with
the methods to be used by the Company or, pursuant to Section 3.1, other holders of
 shares of Common Stock in such Public Offering) of the Registrable Securities to be
so registered; provided that (i) if, at any time after giving written notice
of its intention to register any securities, the Company shall determine for any
reason not to proceed with the proposed registration of the securities to be sold by
it, the Company may, at its election, give written notice of such determination to
each holder of Registrable Securities requesting to be included in the Company’s
registration and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the reasonable expenses of a single legal counsel pursuant to
Section 3.2.2), and (ii) if such registration involves an underwritten offering, all
holders requesting to be included in the Company’s registration must sell their
Registrable Securities to the underwriters selected by the Company on the same terms
and conditions as apply to the Company (with such differences as may be customary or
appropriate in combined primary and secondary offerings) or, in the case of a
registration initiated pursuant to Section 3.1.1, the Initiating Investors. No
registration of Registrable Securities effected under this Section 3.2 shall relieve
the Company of any of its obligations to effect registrations of Registrable
Securities pursuant to Section 3.1 hereof.

3.2.1.2. Excluded Transactions. The Company shall not be obligated to
effect any registration of Registrable Securities under this Section 3.2 incidental
to the registration of any of its securities in connection with:

(a) Any Public Offering relating to employee benefit plans or dividend
reinvestment plans; or

(b) Any Public Offering relating to the acquisition or merger after the
date hereof by the Company or any of its subsidiaries of or with any other
businesses.

 

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3.2.2. Payment of Expenses. The Company shall pay all reasonable expenses of
a single legal counsel representing any and all holders of Registrable Securities requesting
registration under Section 3.2 incurred in connection with each registration of Registrable
Securities requested pursuant to this Section 3.2.

3.2.3. Additional Procedures. Holders of Registrable Securities participating
in any Public Offering pursuant to this Section 3.2 shall take all such actions and execute
all such documents and instruments that are reasonably requested by the Company to effect
the sale of their Registrable Securities in such Public Offering, including being parties to
the underwriting agreement entered into by the Company and any other selling shareholders in
connection therewith and being liable in respect of the representations and warranties and
the other agreements (including customary selling stockholder representations, warranties,
indemnifications and “lock-up” agreements) for the benefit of the underwriters;
provided, however, that (a) with respect to individual representations,
warranties, indemnities and agreements of sellers of Registrable Securities in such Public
Offering, the aggregate amount of such liability shall not exceed such holder’s net proceeds
from such offering and (b) to the extent selling stockholders give further representations,
warranties and indemnities, then with respect to all other representations, warranties and
indemnities of sellers of shares in such Public Offering, the aggregate amount of such
liability shall not exceed the lesser of (i) such holder’s pro rata portion of any such
liability, in accordance with such holder’s portion of the total number of Registrable
Securities included in the offering or (ii) such holder’s net proceeds from such offering.

3.2.4. Registration Statement Form. The Company shall select the registration
statement form for any registration pursuant to this Section 3.2 (other than a registration
that is also pursuant to Section 3.1); provided that if any registration requested
pursuant to this Section 3.2 is proposed to be effected on Form S-3 (or any successor form)
and is in connection with an underwritten offering, and if the managing underwriter shall
advise the Company in writing that, in its opinion, it is of material importance to the
success of such proposed offering to include in such registration statement information not
required to be included pursuant to such form, then the Company will supplement such
registration statement as reasonably requested by such managing underwriter.

3.3. Certain Other Provisions.

3.3.1. Underwriter’s Cutback.

3.3.1.1. In connection with any registration of shares, the underwriter may
determine that marketing factors (including an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten.
Notwithstanding any contrary provision of this Section 3 and subject to the terms of
this Section 3.3.1, the underwriter may limit the number of shares which would
otherwise be included in such registration by excluding any or all Registrable
Securities from such registration (it being understood that, if the registration in
question involves a registration for sale of

 

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 securities for the Company’s own account, the number of shares which the Company seeks to have registered in
such registration shall not be subject to exclusion, in whole or in part, under this
Section 3.3.1). Upon receipt of notice from the underwriter of the need to reduce
the number of shares to be included in the registration, the Company shall advise
all holders of the Company’s securities that would otherwise be registered and
underwritten pursuant hereto, and the number of shares of such securities, including
Registrable Securities, that may be included in the registration shall be allocated
in the following manner, unless the underwriter shall determine that marketing
factors require a different allocation: shares, other than Registrable Securities,
requested to be included in such registration by shareholders shall be excluded;
and, if a limitation on the number of shares is still required, the number of
Registrable Securities that may be included in such registration shall be allocated
among the holders thereof in proportion, as nearly as practicable, as follows:

(a) There shall be first allocated to each such holder requesting that
its Registrable Securities be registered in such registration a number of
such shares to be included in such registration equal to the lesser of (A)
the number of such shares of Registrable Securities requested to be
registered by such holder, and (B) a number of such shares equal to such
holder’s Pro Rata Portion;

(b) The balance, if any, not allocated pursuant to clause (a) above
shall be allocated to those holders requesting that their Registrable
Securities be registered in such registration which requested to register a
number of such shares in excess of such holder’s Pro Rata Portion pro rata
to each such holder based upon the number of Registrable Securities held by
such holder; and

(c) The balance, if any, not allocated pursuant to clause (b) above
shall be allocated to shares, other than Registrable Securities, requested
to be included in such registration by other stockholders.

For purposes of any underwriter cutback, all Common Stock held by any holder of
Registrable Securities shall also include any Common Stock held by the partners,
retired partners, shareholders or Affiliates of such holder, or the estates and
family members of any such holder or such partners and retired partners, any trusts
for the benefit of any of the foregoing Persons and, at the election of such holder
or such partners, retired partners, trusts or Affiliates, any Charitable
Organization to which any of the foregoing shall have contributed Common Stock
prior to the execution of the underwriting agreement in connection with such
underwritten offering, and such holder and other Persons shall be deemed to be a
single selling holder, and any pro rata reduction with respect to such selling
holder shall be based upon the aggregate amount of Common Stock owned by all
entities and individuals included in such selling holder, as defined in this
sentence. No securities

 

- 9 -

 

 excluded from the underwriting by reason of the underwriter’s marketing limitation shall be included in such registration. Upon
delivery of a written request that Registrable Securities be included in the
underwriting pursuant to Section 3.1.1 or 3.2.1.1, the holder thereof may not
thereafter elect to withdraw therefrom without the written consent the Company;
provided that, if the managing underwriter of any underwritten offering
shall advise the holders participating in a registration pursuant to Section 3.1
that the Registrable Securities covered by the registration statement cannot be
sold in such offering within a price range acceptable to the Initiating Investors,
then the Initiating Investors shall have the right to notify the Company that they
have determined that the registration statement be abandoned or withdrawn, in which
event the Company shall abandon or withdraw such registration statement.

3.3.1.2. Notwithstanding Section 3.3.1.1, if the registration was initiated by
the Initiating Investors, the Registrable Securities that may be included in the
registration shall be allocated in the following manner: (1) first, to the
Investors, and if limitation is still required, the number of Registrable Securities
requested to be included by each Investor shall be allocated among the Investors
requesting to include Registrable Securities pro rata based on the Registrable
Securities held by each such holder of Registrable Securities, (2) second to all
other holders of Registrable Securities requesting to include Registrable Securities
in such registration statement based on the pro rata percentage of Registrable
Securities held by such Stockholders and (3) third, to the Company.

3.3.2. Other Actions. If and in each case when the Company is required to use
its best efforts to effect a registration of any Registrable Securities as provided in this
Section 3, the Company shall take appropriate and customary actions in furtherance thereof,
including: (a) promptly filing with the Commission a registration statement and using
reasonable efforts to cause such registration statement to become effective, (b) preparing
and filing with the Commission such amendments and supplements to such registration
statements and the prospectus used in connection therewith as may be required to comply with
the Securities Act and to keep such registration statement effective for a period not to
exceed 90 days from the date of effectiveness or such earlier time as the Registrable
Securities covered by such registration statement shall have been disposed of in accordance
with the intended method of distribution therefor or the expiration of the time when a
prospectus relating to such registration is required to be delivered under the Securities
Act, (c) use its best efforts to register or qualify such Registrable Securities under the
state securities or “blue sky” laws of such jurisdictions as the sellers shall reasonably
request; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it would not otherwise be so subject; and (d)
otherwise cooperate reasonably with, and take such customary actions as may reasonably be
requested by the holders of Registrable Securities in connection with, such registration.

 

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3.3.3. Selection of Underwriters and Counsel. The underwriters and legal
counsel to be retained in connection with any Public Offering shall be selected by the Board
of Directors or, in the case of an offering following a request therefor under Section 3.1,
the Initiating Investors.

3.3.4. Lock-Up. Without the prior written consent of the underwriters
managing any Public Offering, for a period beginning seven days immediately preceding and
ending on the 90th day following the effective date of the registration statement used in
connection with such offering, no holder of Shares (whether or not a selling shareholder
pursuant to such registration statement) shall (a) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise Transfer, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or exchangeable
for such Common Stock or (b) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (a) or (b) above is to be settled by
delivery of such Common Stock or such other securities, in cash or otherwise;
provided, however, that the foregoing restrictions shall not apply to (i)
transactions relating to shares of Common Stock or other securities acquired in open market
transactions, or (ii) Transfers to Permitted Transferees of such holder in accordance with
the terms of this Agreement.

3.3.5. Other Agreements. The Company covenants and agrees that, so long as
any Person holds any Registrable Securities in respect of which any registration rights
provided for in Section 3.1 of this Agreement remain in effect, the Company will not,
directly or indirectly, grant to any Person or agree to or otherwise become obligated in
respect of (i) rights of registration in the nature or substantially in the nature of those
set forth in Section 3.1 of this Agreement that would have priority over the Registrable
Securities with respect to the inclusion of such securities in any registration or (ii)
demand registration rights exercisable prior to such time as the Investors can first
exercise their rights under Section 3.1.

3.3.6. Other Registration-Related Matters.

(a) The Company may require any holder that is registering Registrable
Securities pursuant to Section 3.1 or 3.2 to furnish to the Company in
writing such information regarding such Person and its Affiliates and
pertinent to the disclosure requirements relating to the registration and
the distribution of the Registrable Securities which are included in such
Public Offering as the Company may from time to time reasonably request in
writing.

 

- 11 -

 

(b) Each holder of Registrable Securities agrees that, upon receipt of
any notice from the Company that the prospectus included in the registration
statement pertaining to the sale of such holder’s Registrable Securities, as
then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, such holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until its receipt of copies of the
amended or supplemented prospectus from the Company. If so directed by the
Company, each holder of Registrable Securities will, subject to applicable
law, deliver to the Company or destroy all copies, other than permanent file
copies then in their possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company gives any such notice, the period for which the Company will be
required to keep the registration statement effective will be extended by
the number of days during the period from and including the date of the
giving of such notice to and including the date when each seller of
Registrable Securities covered by such registration statement has received
the copies of the supplemented or amended prospectus.

(c) Each holder of Registrable Securities agrees that, upon receipt of
any notice from the Company of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or of any
order preventing or suspending the use of any preliminary prospectus, or of
the suspension of the qualification of the registration statement for
offering or sale in any jurisdiction, or of the institution or threatening
of any proceedings for any of such purposes, such holder will forthwith
discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until the
lifting of such stop order, other order or suspension or the termination of
such proceedings and, if so directed by the Company, each holder of
Registrable Securities will, subject to applicable law, deliver to the
Company or destroy all copies, other than permanent file copies then in its
possession, of the prospectus covering such Registrable Securities current
at the time of receipt of such notice. In the event the Company gives any
such notice, the period for which the Company will be required to keep the
registration statement effective will be extended by the number of days
during the period from and including the date of the giving of such notice
to and including the date when such stop order, other order or suspension is
lifted or such proceedings are terminated.

3.4. Indemnification and Contribution.

3.4.1. Indemnities of the Company. In the event of any registration of any
Registrable Securities or other debt or equity securities of the Company or any of its
subsidiaries under the Securities Act pursuant to this Section 3 or otherwise, and in
connection with any registration statement or any other disclosure document produced by or
on behalf of the Company or any of its subsidiaries including reports required and other
documents filed under the Exchange Act, and other documents pursuant to

 

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 which any debt or equity securities of the Company or any of its subsidiaries are sold
(whether or not for the account of the Company or its subsidiaries), the Company will, and
hereby does, and will cause each of its subsidiaries, jointly and severally, to indemnify
and hold harmless each holder of Registrable Securities, any Person who is or might be
deemed to be a controlling Person of the Company or any of its subsidiaries within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, their
respective direct and indirect general and limited partners, advisory board members,
directors, officers, trustees, managers, members and shareholders, and each other Person, if
any, who controls any such holder or any controlling Person within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (each such Person being referred to
herein as a “Covered Person”), against any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof), joint or several, to which such Covered
Person may be or become subject under the Securities Act, the Exchange Act, any other
securities or other law of any jurisdiction, the common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained or incorporated by reference in any registration statement under the
Securities Act, any preliminary prospectus or final prospectus included therein, or any
related summary prospectus, or any amendment or supplement thereto, or any document
incorporated by reference therein, or any other such disclosure document (including reports
and other documents filed under the Exchange Act and any document incorporated by reference
therein) or other document or report, (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any violation or alleged violation by the Company or any of its
subsidiaries of any federal, state, foreign or common law rule or regulation applicable to
the Company or any of its subsidiaries and relating to action or inaction in connection with
any such registration, disclosure document or other document or report, and will reimburse
such Covered Person for any legal or any other expenses incurred by it in connection with
investigating or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that neither the Company nor any of its subsidiaries
shall be liable to any Covered Person in any such case to the extent that any such loss,
claim, damage, liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, incorporated document or other such disclosure document
or other document or report, in reliance upon and in conformity with written information
furnished to the Company or to any of its subsidiaries through an instrument duly executed
by such Covered Person specifically stating that it is for use in the preparation thereof.
The indemnities of the Company and of its subsidiaries contained in this Section 3.4.1 shall
remain in full force and effect regardless of any investigation made by or on behalf of such
Covered Person and shall survive any transfer of securities and any termination of this
Agreement.

 

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3.4.2. Indemnities to the Company. Subject to Section 3.4.4, the Company and
any of its subsidiaries may require, as a condition to including any securities in any
registration statement filed pursuant to this Section 3, that the Company and any of
its subsidiaries shall have received an undertaking satisfactory to it from the prospective
seller of such securities, to indemnify and hold harmless the Company and any of its
subsidiaries, each director of the Company or any of its subsidiaries, each officer of the
Company or any of its subsidiaries who shall sign such registration statement and each other
Person (other than such seller), if any, who controls the Company and any of its
subsidiaries within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each other prospective seller of such securities and prospective
underwriter with respect to any statement in or omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or any other disclosure document (including reports and
other documents filed under the Exchange Act or any document incorporated therein) or other
document or report, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or any of its subsidiaries
through an instrument executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, incorporated document or other document or
report. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company, any of its subsidiaries or any such
director, officer or controlling Person and shall survive any transfer of securities and any
termination of this Agreement.

3.4.3. Contribution. If the indemnification provided for in Sections 3.4.1 or
4.4.2 hereof is unavailable to a party that would have been entitled to indemnification
pursuant to the foregoing provisions of this Section 3.4 for reasons other than described in
the proviso to Section 3.4.1 (an “Indemnitee”) in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred to therein,
then each party that would have been an indemnifying party thereunder shall, subject to
Section 3.4.4 and in lieu of indemnifying such Indemnitee, contribute to the amount paid or
payable by such Indemnitee as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative fault of such indemnifying party on the one hand and such Indemnitee on the
other in connection with the statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof). The relative fault
shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material
fact relates to information supplied by such indemnifying party or such Indemnitee and the
parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just or
equitable if contribution pursuant to this Section 3.4.3 were determined by pro rata
allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence. The amount paid or payable by a
contributing party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 3.4.3 shall include any
reasonable legal or other expenses reasonably incurred by
such Indemnitee in connection with investigating or defending any such action or claim.
No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.

 

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3.4.4. Limitation on Liability of Holders of Registrable Securities. The
liability of each holder of Registrable Securities in respect of any indemnification or
contribution obligation of such holder arising under this Section 3.4 shall not in any event
exceed an amount equal to the net proceeds to such holder (after deduction of all
underwriters’ discounts and commissions) from the relevant disposition of the Registrable
Securities.

3.4.5. Indemnification Procedures. Promptly after receipt by an Indemnitee of
written notice of the commencement of any action or proceeding with respect to which a claim
for indemnification may be made pursuant to this Section 3.4, such Indemnitee will, if a
claim in respect thereof is to be made against an indemnifying party, give written notice to
the latter of the commencement of such action or proceeding; provided that the
failure of the Indemnitee to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 3.4, except to the extent that the
indemnifying party is materially prejudiced by such failure to give notice. In case any
such action or proceeding is brought against an Indemnitee, the indemnifying party will be
entitled to participate in and to assume the defense thereof (at its expense), jointly with
any other indemnifying party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such Indemnitee, and after notice from the indemnifying party to
such Indemnitee of its election so to assume the defense thereof, the indemnifying party
will not be liable to such Indemnitee for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof other than reasonable costs of
investigation and shall have no liability for any settlement made by the Indemnitee without
the consent of the indemnifying party, such consent not to be unreasonably withheld.
Notwithstanding the foregoing, if an Indemnitee reasonably objects to such assumption of
defense on the grounds that a conflict of interest between such Indemnitee and the
indemnifying parties may exist in respect of such action or proceeding or the indemnifying
party does not assume the defense of any such action or proceeding within a reasonable time
after notice of commencement, or does not vigorously defend, the Indemnitee shall have the
right to assume or continue its own defense and the indemnifying party shall, subject to
Section 3.4.4, be liable for any reasonable expenses therefor, but in no event will bear the
expenses for more than one firm of counsel for all Indemnitees in each jurisdiction who
shall be approved by the Board of Directors in the disposition in respect of which such
indemnification is sought. No indemnifying party will settle any action or proceeding or
consent to the entry of any judgment without the prior written consent of the Indemnitee,
unless such settlement or judgment (i) includes as an unconditional term thereof the giving
by the claimant or plaintiff of a release to such Indemnitee from all liability in respect
of such action or proceeding and (ii) does not involve the imposition of equitable remedies
or the imposition of any obligations on such Indemnitee and does not otherwise adversely
affect
such Indemnitee, other than as a result of the imposition of financial obligations for
which such Indemnitee will be indemnified hereunder.

3.4.6. Non-Exclusivity. The obligations of the parties under this Section 3.4
will be in addition to any liability, without duplication, which any party may otherwise
have to any other party.

 

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4. COVENANTS.

4.1. Reporting Requirements; Access to Records. As long as an Investor holds Common
Stock representing at least five percent (5%) of the issued and outstanding shares of Common Stock
on a fully diluted basis, and the Company remains subject to the requirements of the Exchange Act,
the Company covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) with the Commission all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. The Company further agrees to make available to an
Investor as long as such Investor holds Common Stock representing at least five percent (5%) of the
issued and outstanding shares of Common Stock on a fully diluted basis, (i) such information as the
Company is required to file or furnish to the Commission, within the time periods required by
applicable law and regulations for filing or furnishing such information with the Commission, (ii)
such information as it furnishes to its other stockholders as a class, and (iii) reasonable access
during normal business hours, upon reasonable advance notice, to all of the books, records and
properties of the Company and its Subsidiaries, if any, and to all officers and employees of the
Company and its Subsidiaries (which access shall be given to such Investor’s respective officers,
employees, advisors, counsel and other authorized representatives); provided, in all cases, that
such Investor signs a non-disclosure agreement satisfactory to the Company prior to receiving such
information or access and provided further that no such information or access is required to be
given if it would (a) cause a waiver under the attorney-client privilege or attorney work product
doctrines, (b) breach any government security clearances or (c) cause disclosure of any trade
secrets or similar confidential proprietary information of the Company.

4.2. Integration. The Company shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Common Stock in a manner that would
require the registration under the Securities Act of the sale of the Common Stock to the Purchasers
or that would be integrated with the offer or sale of the Common Stock for purposes of the rules
and regulations of any Trading Market on which any securities of the Company are listed or
designated such that it would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such subsequent
transaction.

4.3. Securities Laws Disclosure; Publicity. The Company shall, no later than the
fourth business day following the date of the Initial Closing and the Milestone Closing, file with
the Commission a Current Report on Form 8-K, disclosing the material terms of the transactions
contemplated by the Purchase Agreement and, at the Initial Closing, file the Transaction Documents
as exhibits thereto. The Company and the Investors shall consult with each other in
issuing any other press releases with respect to the

 

- 16 -

 

 transactions contemplated thereby, and
neither the Company nor each Investor shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any press release of any
Investor or without the prior consent of the Investors with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication.

4.4. Reservation of Common Stock. Immediately upon stockholder approval of the
Amendment to the Certificate of Incorporation contemplated by Section 6.2(a) of the Purchase
Agreement, the Company shall reserve and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue shares of Common Stock upon conversion of the Notes sold
in the Initial Closing. As of the Milestone Closing Date, the Company shall have reserved and the
Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue shares
of Common Stock upon conversion of the Milestone Notes sold in the Milestone Closing.

4.5. Relisting of Common Stock. At the request of the Purchasers, the Company
hereby agrees to use commercially reasonable efforts to relist its Common Stock on a Trading Market
other than the OTC Bulletin Board provided that the Company then meets the listing standards
required by such Trading Market. The Company will take all commercially reasonable action
necessary to regain the listing and trading of its Common Stock on a Trading Market other than the
OTC Bulletin Board and, once the Common Stock has been relisted, will comply in all material
respects with the Company’s reporting, filing and other obligations under the bylaws or rules of
such Trading Market.

4.6. Filings. The Company shall make all filings with the Commission and its Trading
Markets on which any securities of the Company are listed or designated as required by the
transactions contemplated by the Purchase Agreement. If at any time an Investor determines that a
filing under the Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended, is desirable or
necessary and makes such a request of the Company, the Company will cooperate in making such filing
and will pay for any and all filing fees and out-of-pocket expenses incurred by such Investor in
connection with any such filing.

4.7. Financings of the Company. Subject to existing rights held by other parties,
each Investor may participate in any financings completed on a private placement basis by the
Company on a pro rata basis with their investment at the Initial Closing for the first three years
following the Initial Closing (the “Right of Participation in Financings”). During such
period, the Investors shall have the right to purchase up to 80% of any subsequent financings on a
pro rata basis with their initial investment at the Initial Closing. Bank loans and Excluded
Securities are excluded from the Right of Participation in Financings.

 

- 17 -

 

4.8. Stockholders Meeting. As promptly as possible after the Initial Closing, the
Company shall take, in accordance with applicable law and the Charter Documents, all action
necessary to: (i) convene a meeting of the Company’s stockholders to consider and vote upon
the adoption of the Amendment to the Certificate of Incorporation and the approval of the 2010
Omnibus Incentive Plan; and (ii) obtain the approval of holders of a majority of the outstanding
shares entitled to vote on such matter at the stockholders’ meeting, duly called and held for such
purpose.

4.9. Expenses for Board Meetings. The Company shall reimburse the Costa Brava
Directors and the Griffin Directors for costs and expenses for attending board meetings.

4.10. Key Man Insurance. The Company shall obtain key man life insurance in the
amount of $2,000,000 for John Carson, on terms reasonably acceptable to the Investors, and shall
maintain such insurance at all times.

4.11. Information. The Company will deliver to each Investor, as long as the
Investor owns at least twenty percent (20%) of the issued and outstanding shares of Common Stock on
a fully diluted basis, the following:

(a) Monthly Reports. As soon as available and in any event within 30 days
after the end of each fiscal month of the Company, a consolidated balance sheet of the
Company as at the end of such period and the related consolidated statements of operation
and cash flows for such period and for the portion of the Company’s fiscal year ended on the
last day of such month, in each case setting forth in comparative form the corresponding
figures for the same period and portion of the next preceding fiscal year and of the current
Budget, all in reasonable detail and certified by the Company’s chief executive officer or
chief financial officer to have been prepared in accordance with generally accepted
accounting principles, except for the omission of footnotes and subject to year-end and
audit adjustments.

(b) Annual Reports. As soon as available and in any event within 90 days after
the end of each fiscal year of the Company, consolidated and consolidating balance sheets of
the Company as at the end of such year and the related consolidated and consolidating
statements of income, stockholders’ equity and cash flows for such year, in each case
setting forth in comparative form the corresponding figures for the next preceding fiscal
year and of the current Budget, all in reasonable detail and accompanied by the report on
such consolidated financial statements of an independent registered public accountant
selected by the Board of Directors.

(c) Audit Reports. As promptly as practicable and in any event within five
days after receipt thereof, copies of all reports (including, without limitation, audit
reports and so-called management letters) or written comments submitted to the Company by
independent certified public accountants or other management consultants in connection with
each annual, interim or special audit in respect of the financial statements or the accounts
or the financial or accounting systems or controls of the Company made by any such
accountants or other management consultants.

 

- 18 -

 

4.12. Budget. At least 30 days prior to the beginning of each fiscal year of the
Company, the Company will prepare and submit to the Board of Directors for approval a reasonably
detailed budget and operating plan with accompanying financial projections, including monthly and
annual balance sheet projections, covenant compliance calculations for all outstanding and
projected indebtedness, cash flow projections, profit and loss projections for the Company, and
capital expenditure projections, by general category, all in reasonable detail (collectively, as so
approved, the “Budget”).

4.13. Confidentiality. Each Stockholder agrees that it will keep confidential and
will not disclose, divulge or use for any purpose, other than to monitor its investment in the
Company and its subsidiaries, any confidential information obtained from the Company, unless such
confidential information (a) is known or becomes known to the public in general (other than as a
result of a breach of this Section 4.14 by such Stockholder or its Affiliates), (b) is or has been
independently developed or conceived by such Stockholder without use of the Company’s confidential
information or (c) is or has been made known or disclosed to such Stockholder by a third party
(other than an Affiliate of such Stockholder) without a breach of any obligation of confidentiality
such third party may have to the Company that is known to such Stockholder; provided,
however, that a Stockholder may disclose confidential information (v) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to obtain their services
in connection with monitoring its investment in the Company provided that such Stockholder informs
such person that such information is confidential and directs such person to maintain the
confidentiality of such information, (w) to any prospective purchaser of any Shares from such
Stockholder as long as such prospective purchaser agrees to be bound by the provisions of this
Section 4.14 as if a Stockholder, (x) to any Affiliate, partner, member or related investment fund
of such Stockholder and their respective directors, employees and consultants, in each case in the
ordinary course of business provided that such Stockholder informs such person that such
information is confidential and directs such person to maintain the confidentiality of such
information, (y) as may be reasonably determined by such Stockholder to be necessary in connection
with such Stockholder’s enforcement of its rights in connection with this Agreement or its
investment in the Company and its subsidiaries provided that such Stockholder informs such person
that such information is confidential and directs such person to maintain the confidentiality of
such information or (z) as may otherwise be required by law or legal, judicial or regulatory
process, provided that such Stockholder takes reasonable steps to minimize the extent of
any required disclosure described in this clause (z); and provided, further,
however, that the acts and omissions of any Person to whom such Stockholder may disclose
confidential information pursuant to clauses (v) through (x) of the preceding proviso shall be
attributable to such Stockholder for purposes of determining such Stockholder’s compliance with
this Section 4.14. Each of the parties hereto acknowledge that the Investors or any of their
Affiliates may review the business plans and related proprietary information of many enterprises,
including enterprises which may have products or services which compete directly or indirectly with
those of the Company, and may trade in the securities of such enterprises. Nothing in this Section
4.14 shall preclude or in any way restrict the Investors or their Affiliates from investing or
participating in any particular enterprise, or trading in the securities thereof, whether or not
such enterprise has products or services that compete with those of the Company.

 

- 19 -

 

4.14. Other Business Opportunities. To the fullest extent permitted by law, the
doctrine of corporate opportunity and any analogous doctrine shall not apply to any Investor, any
member of the Board of Directors, any officer of the Company or any other Indemnitee in each case
who is not a full-time employee of the Company or any of its operating subsidiaries. The Company
renounces any interest or expectancy of the Company in, or in being offered an opportunity to
participate in, business opportunities that are from time to time presented to any Investor, any
member of the Board of Directors, any officer of the Company or any other Indemnitee in each case
who is not a full-time employee of the Company or any of its operating subsidiaries. Each
Investor, member of the Board of Directors, officer of the Company or other Indemnitee in each case
who is not a full-time employee of the Company or any of its operating subsidiaries who acquires
knowledge of a potential transaction, agreement, arrangement or other matter that may be an
opportunity for the Company shall not (i) have any duty to communicate or offer such opportunity to
the Company and (ii) shall not be liable to the Company or any of its subsidiaries or to the
shareholders of the Company or any of its subsidiaries because such Investor, member of the Board
of Directors, officer of the Company or other Indemnitee in each case who is not a full-time
employee of the Company or any of its operating subsidiaries pursues or acquires for, or directs
such opportunity to, itself or another Person or does not communicate such opportunity or
information to the Company.

5. REMEDIES.

5.1. Generally. The Company and each Stockholder shall have all remedies available
at law, in equity or otherwise in the event of any breach or violation of this Agreement or any
default hereunder by the Company or any Stockholder. The parties acknowledge and agree that in the
event of any breach of this Agreement, in addition to any other remedies which may be available,
each of the parties hereto shall be entitled to specific performance of the obligations of the
other parties hereto and, in addition, to such other equitable remedies (including preliminary or
temporary relief) as may be appropriate in the circumstances.

5.2. 1933 Act Legends. Each certificate representing Shares shall have the following
legend endorsed conspicuously thereupon:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT.”

5.3. Stop Transfer Instruction. The Company will instruct any transfer agent not to
register the Transfer of any Shares until the conditions specified in the foregoing legend is
satisfied.

 

- 20 -

 

5.4. Termination of 1933 Act Legend. The requirement imposed by Section 5.2 hereof
shall cease and terminate as to any particular Shares (a) when, in the opinion of counsel
reasonably acceptable to the Company, such legend is no longer required in order to assure
compliance by the Company with the Securities Act or (b) when such Shares have been effectively
registered under the Securities Act or transferred pursuant to Rule 144. Wherever (x) such
requirement shall cease and terminate as to any Shares or (y) such Shares shall be transferable
under paragraph (b)(1) of Rule 144, the holder thereof shall be entitled to receive from the
Company, without expense, new certificates not bearing the legend set forth in Section 5.2 hereof.

6. AMENDMENT, TERMINATION, ETC.

6.1. Oral Modifications. This Agreement may not be orally amended, modified,
extended or terminated, nor shall any oral waiver of any of its terms be effective.

6.2. Written Modifications. This Agreement may be amended, modified, extended or
terminated, and the provisions hereof may be waived, only by an agreement in writing signed by the
parties to this agreement.

6.3. Effect of Termination. No termination under this Agreement shall relieve any
Person of liability for breach prior to termination.

7. DEFINITIONS. For purposes of this Agreement:

7.1. Certain Matters of Construction. In addition to the definitions referred to or
set forth below in this Section 7:

(a) The words “hereof”, “herein”, “hereunder” and words of similar import shall refer
to this Agreement as a whole and not to any particular section or provision of this
Agreement, and reference to a particular section of this Agreement shall include all
subsections thereof;

(b) The word “including” shall mean including, without limitation;

(c) Definitions shall be equally applicable to both nouns and verbs and the singular
and plural forms of the terms defined; and

(d) The masculine, feminine and neuter genders shall each include the other.

7.2. Definitions. The following terms shall have the following meanings:

“Affiliate” shall mean, with respect to any specified Person, any other Person which
directly or indirectly through one or more intermediaries controls, or is controlled by, or is
under common control with, such specified Person (for the purposes of this definition, “control”
(including, with correlative meanings, the terms “controlling,” “controlled by” and “under common
control with”), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or otherwise).

 

- 21 -

 

“Agreement” shall have the meaning set forth in the Preamble.

“Approved Stock Plan” means any employee benefit plan, contract or arrangement which
has been approved by the Board of Directors, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided to the Company.

“Board of Directors” shall mean the Board of Directors of the Company.

“Budget” shall have the meaning set forth in Section 4.3

“business day” shall mean any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by law to be closed in the City of New York.

“Charitable Organization” shall mean a charitable organization as described by Section
501(c)(3) of the Internal Revenue Code of 1986, as in effect from time to time.

“Closing” shall have the meaning set forth in Section 1.1.

“Commission” shall mean the Securities and Exchange Commission.

“Common Stock” shall mean the common stock of the Company (and any shares of capital
stock of the Company issued or issuable with respect to such common stock by way of a stock
dividend or distribution payable thereon or stock split, reverse stock split, recapitalization,
reclassification, reorganization, exchange, subdivision or combination thereof).

“Company” shall have the meaning set forth in the Preamble.

“Convertible Securities” shall mean any evidence of indebtedness, shares of stock
(other than Common Stock) or other securities (other than Options and Warrants) which are directly
or indirectly convertible into or exchangeable or exercisable for shares of Common Stock.

“Costa Brava” shall have the meaning set forth in the Preamble.

“Covered Person” shall have the meaning set forth in Section 3.4.1.

“Equivalent Shares” shall mean, at any date of determination, (a) as to any
outstanding shares of Common Stock, such number of shares of Common Stock and (b) as to any
outstanding Options, Warrants or Convertible Securities which constitute Shares, the maximum number
of shares of Common Stock for which or into which such Options, Warrants or Convertible Securities
may at the time be exercised, converted or exchanged (or which will become exercisable, convertible
or exchangeable on or prior to, or by reason of, the transaction or circumstance in connection with
which the number of Equivalent Shares is to be determined); but excluding any shares of restricted
stock that are not then vested or will not become vested on
or prior to, or by reason of, the transaction or circumstance in connection with which the
number of Equivalent Shares is to be determined.

 

- 22 -

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as in effect from time
to time.

“Excluded Securities” means any Company Common Stock or other securities or debt
obligations issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon
conversion of the Notes or Milestone Notes; (iii) pursuant to a bona fide firm commitment
underwritten public offering with an institution that regularly underwrites as a principal part of
its business public offerings on a firm commitment basis which generates gross proceeds to the
Company in excess of $15,000,000 (other than an “at-the-market offering” as defined in Rule
415(a)(4) under the 1933 Act and “equity lines”); (iv) in connection with corporate partnering or
licensing transactions or in connection with a strategic merger, acquisition, consolidation or
purchase of substantially all of the securities or assets of a corporation or other entity, on
terms approved by the Board of Directors and the primary purpose of which is not to raise equity
capital; (v) upon exercise or conversion of any options, warrants or convertible securities of the
Company which are outstanding on the day immediately preceding the date herewith, provided that the
terms of such options, warrants or convertible securities are not amended, modified or changed on
or after the date herewith to decrease the price, increase the number of shares issuable thereunder
or extend the term of such options or convertible securities; and (vi) in the Bridge Closings.

“Griffin” shall have the meaning set forth in the Preamble.

“Indemnitee” shall have the meaning set forth in Section 3.4.3.

“Initiating Investors” shall have the meaning set forth in Section 3.1.1.

“Investors” shall have the meaning set forth in the Preamble.

“Issuance” shall have the meaning set forth in Section 2.

“Majority Registration Investors” shall have the meaning set forth in Section 3.1.2.

“No Recourse Persons” shall have the meaning set forth in Section 8.7.

“Options” shall mean any options to subscribe for, purchase or otherwise directly
acquire Common Stock.

“Other Investors” shall have the meaning set forth in the Preamble.

“Participating Investor” shall have the meaning set forth in Section 2.1.2.1.

“Participation Notice” shall have the meaning set forth in Section 2.1.1.

 

- 23 -

 

“Participation Portion” shall have the meaning set forth in Section 2.1.1.

“Person” shall mean any individual, partnership, corporation, company, association,
trust, joint venture, limited liability company, unincorporated organization, entity or division,
or any government, governmental department or agency or political subdivision thereof.

“Price Per Equivalent Share” shall mean the Board’s good faith determination of the
price per Equivalent Share of any Convertible Securities or Options which are the subject of an
Issuance pursuant to Section 2 hereof.

“Pro Rata Portion” shall mean, with respect to each holder of Registrable Securities
requesting that such shares be registered in such registration statement pursuant to Sections 3.1.1
and 3.2.1, a number of such shares equal to the aggregate number of shares of Common Stock to be
registered in such registration (excluding any shares to be registered for the account of the
Company) multiplied by a fraction, the numerator of which is the aggregate number of Registrable
Securities held by such holder, and the denominator of which is the aggregate number of Registrable
Securities held by all holders requesting that their Registrable Securities be registered in such
registration.

“Prospective Subscriber” shall have the meaning set forth in Section 2.1.1.

“Public Offering” shall mean a public offering and sale of Common Stock for cash
pursuant to an effective registration statement under the Securities Act.

“Purchase Agreement” shall have the meaning set forth in the Preamble.

“Registrable Investor Securities” shall have the meaning set forth in Section 3.1.1.

“Registrable Securities” shall mean (a) all shares of Common Stock, (b) all shares of
Common Stock issuable upon exercise, conversion or exchange of any Option, Warrant or Convertible
Security and (c) all shares of Common Stock directly or indirectly issued or issuable with respect
to the securities referred to in clauses (a) or (b) above by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger, consolidation or other
reorganization, in each case constituting Shares. As to any particular Registrable Securities,
such shares shall cease to be Registrable Securities when (w) a registration statement with respect
to the sale of such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration statement, (x) such
securities shall have been Transferred pursuant to Rule 144, (y) subject to the provisions of
Section 5.2 hereof, such securities shall have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration of them under the Securities Act and
such securities may be distributed without volume limitation or other restrictions on transfer
under Rule 144 (including without application of paragraphs (c), (e) (f) and (h) of Rule 144) or
(z) such securities shall have ceased to be outstanding.

“Right of Participation in Financings” shall have the meaning set forth in Section
2.1.8.

 

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“Rule 144” shall mean Rule 144 under the Securities Act (or any successor provision).

“Rule 145 Transaction” shall mean a registration on Form S-4 pursuant to Rule 145 of
the Securities Act (or any successor Form or provision, as applicable).

“Securities Act” shall mean the Securities Act of 1933, as in effect from time to
time.

“Shares” shall mean (a) all shares of Common Stock, including all shares of Common
Stock issued upon the exercise, conversion or exchange of any Options, Warrants or Convertible
Securities and (b) all Options, Warrants and Convertible Securities (treating such Options,
Warrants and Convertible Securities as a number of Shares equal to the number of Equivalent Shares
represented by such Options, Warrants and Convertible Securities for all purposes of this Agreement
except as otherwise specifically set forth herein).

“Stockholders” shall have the meaning set forth in the Preamble.

“Subject Securities” shall have the meaning set forth in Section 2.

“Subsidiary” shall mean any corporation, association trust, limited liability company,
partnership, joint venture or other business association or entity (i) at least 50% of the
outstanding voting securities of which are at the time owned or controlled directly or indirectly
by the Company or (ii) with respect to which the Company possesses, directly or indirectly, the
power to direct or cause the direction of the affairs or management of such Person.

“Trading Market” means the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board.

“Transfer” shall mean any sale, pledge, assignment, encumbrance or other transfer or
disposition of any Shares to any other Person, whether directly, indirectly, voluntarily,
involuntarily, by operation of law, pursuant to judicial process or otherwise, and
“Transferred”, “Transferee”, “Transferability”, and “Transferor”
shall each have a correlative meaning.

“Warrants” shall mean any warrants to subscribe for, purchase or otherwise directly
acquire Common Stock.

8. MISCELLANEOUS. 

8.1. Authority; Effect. Each party hereto represents and warrants to and agrees with
each other party that (a) the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized on behalf of such party and do not
violate any agreement or other instrument applicable to such party or by which its assets are bound
and (b) this Agreement constitutes a legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms, except to the extent that the enforcement of the
rights and remedies created hereby is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors generally and (ii) general principles of equity. This Agreement does
not, and shall not be construed to, give rise to the creation of a partnership among any of the
parties hereto, or to constitute any of such parties members of a joint venture or other
association.

 

- 25 -

 

8.2. Notices. Any notices and other communications required or permitted in this
Agreement shall be effective if in writing and (a) delivered personally or (b) sent (i) by
nationally-known, reputable overnight carrier, (ii) by registered or certified mail, postage
prepaid, or (iii) by facsimile, in each case, addressed as follows:

If to Costa Brava:

Costa Brava Partnership III L.P.

222 Berkeley Street, 17th floor

Boston, MA 02116

Attention: Seth Hamot

Facsimile No.: (617) 267-6785

with a copy to:

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Jeffrey Katz

Facsimile No.: (617) 235-0617

If to Griffin:

The Griffin Fund LP

c/o Griffin Partners, LLC

447 Battery Street, Suite 230

San Francisco, CA 94111

Attention: Chet White

Fax: (415) 986-2214

If to the Company:

Irvine Sensors Corporation

3001 Red hill Avenue

Building 4, Suite 108

Costa Mesa, CA 92626

Attention: John J. Stuart, Jr.

Facsimile No.: (714) 444-8773

with a copy to:

Dorsey & Whitney LLP

38 Technology Drive, Suite 100

Irvine, CA 92618

Attention: Ellen Bancroft, Esq.

Facsimile No: (949) 932-3601

 

- 26 -

 

Unless otherwise specified herein, such notices or other communications shall be deemed
effective (a) on the date received, if personally delivered, (b) one business day after the date
sent by nationally-known, reputable overnight carrier, (c) three business days after the date of
deposit with the U.S. Postal Service, if sent by registered or certified mail, and (d) when receipt
is acknowledged, in the case of facsimile. Each of the parties hereto shall be entitled to specify
a different address by giving notice as aforesaid to each of the other parties hereto.

8.3. Binding Effect, Etc. Except for restrictions on Transfer of Shares set forth in
other agreements, plans or other documents, this Agreement constitutes the entire agreement of the
parties with respect to its subject matter, supersedes all prior or contemporaneous oral or written
agreements or discussions with respect to such subject matter, and shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, representatives, successors and
assigns. Except as otherwise expressly provided herein, no Stockholder party hereto may assign any
of its respective rights or delegate any of its respective obligations under this Agreement without
the prior written consent of the other parties hereto, and any attempted assignment or delegation
in violation of the foregoing shall be null and void.

8.4. Descriptive Headings. The descriptive headings of this Agreement are for
convenience of reference only, are not to be considered a part hereof and shall not be construed to
define or limit any of the terms or provisions hereof.

8.5. Counterparts. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which taken together shall constitute one instrument.
A facsimile or other electronic signature shall be considered due execution and shall be binding
upon the signatory thereto with the same force and effect as if the signature were an original.

8.6. Severability. In the event that any provision hereof would, under applicable
law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible
under, applicable law and the parties shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an acceptable manner to the
fullest extent possible. The provisions hereof are severable, and in the event any provision hereof
should be held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.

 

- 27 -

 

8.7. No Recourse. Notwithstanding anything that may be expressed or implied in this
Agreement, the Company and each Investor covenant, agree and acknowledge that no recourse
under this Agreement or any documents or instruments delivered in connection with this
Agreement shall be had against any former, current or future, direct or indirect director, officer,
employee, agent or Affiliate of an Investor, any former, current or future, direct or indirect
holder of any equity interests or securities of an Investor (whether such holder is a limited or
general partner, member, stockholder or otherwise), any former, current or future assignee of an
Investor or any former, current or future director, officer, employee, agent, general or limited
partner, manager, member, stockholder, Affiliate, controlling person, representative or assignee of
any of the foregoing (collectively, the “No Recourse Persons”), as such, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute,
regulation or other applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by any No Recourse
Person for any obligation of any Investor under this Agreement or any documents or instruments
delivered in connection with this Agreement for any claim based on, in respect of or by reason of
such obligations or their creation.

9. GOVERNING LAW.

9.1. Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic substantive laws of the State of New York without giving effect to any choice or
conflict of laws provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.

9.2. Consent to Jurisdiction. Each party to this Agreement, by its execution hereof,
(a) hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in the State of New York for the purpose of any action, claim, cause of action or suit (in
contract, tort or otherwise), inquiry, proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof, (b) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, and agrees not to allow any of its
subsidiaries to assert, by way of motion, as a defense or otherwise, in any such action, any claim
that it is not subject personally to the jurisdiction of the above-named courts, that its property
is exempt or immune from attachment or execution, that any such proceeding brought in one of the
above-named courts is improper, or that this Agreement or the subject matter hereof or thereof may
not be enforced in or by such court and (c) hereby agrees not to commence or maintain any action,
claim, cause of action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation arising out of or based upon this Agreement or relating to the subject matter hereof
or thereof other than before one of the above-named courts nor to make any motion or take any other
action seeking or intending to cause the transfer or removal of any such action, claim, cause of
action or suit (in contract, tort or otherwise), inquiry, proceeding or investigation to any court
other than one of the above-named courts whether on the grounds of inconvenient forum or otherwise.
Notwithstanding the foregoing, to the extent that any party hereto is or becomes a party in any
litigation in connection with which it may assert indemnification rights set forth in this
agreement, the court in which such litigation is being heard shall be deemed to be included in
clause (a) above. Each party hereto hereby consents to service of process in any such proceeding
in any manner permitted by Delaware law, and agrees that service of process by registered or
certified mail, return receipt requested, at its address specified pursuant to Section 8.2 hereof
is reasonably calculated to give actual notice. Notwithstanding the foregoing in this Section 9.2,
a party may commence any action in a court other than the above-named courts solely for the
purpose of enforcing an order or judgment issued by one of the above-named courts.

 

- 28 -

 

9.3. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH
CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE
OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR
INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN
INFORMED BY THE OTHER PARTIES HERETO THAT THIS SECTION 9.3 CONSTITUTES A MATERIAL INDUCEMENT UPON
WHICH THEY ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.3 WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

9.4. Exercise of Rights and Remedies. No delay of or omission in the exercise of any
right, power or remedy accruing to any party as a result of any breach or default by any other
party under this Agreement shall impair any such right, power or remedy, nor shall it be construed
as a waiver of or acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any such delay, omission nor waiver of any single breach or default be
deemed a waiver of any other breach or default occurring before or after that waiver.

[Signature Pages Follow.]

 

- 29 -

 

IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this
Agreement to be executed on its behalf by its officer or representative thereunto duly authorized)
as of the date first above written.

	 	 	 	 	 
	THE COMPANY:       	IRVINE SENSORS CORPORATION

 	 
	 	By:  	/s/ John C. Carson	 
	 	 	Name:  	John C. Carson	 
	 	 	Title:  	President & CEO	 

Stockholders Agreement

 

 

 

	 	 	 	 	 
	THE INVESTORS:       	COSTA BRAVA PARTNERSHIP III L.P.

 	 
	 	By:  	Roark, Rearden & Hamot, LLC,
 	 
	 	 	its General Partner 	 
	 	 	 
	 	By:  	/s/ Seth W. Hamot	 
	 	 	Name:  	Seth W. Hamot 	 
	 	 	Title:  	President 	 
	 
	 	THE GRIFFIN FUND LP

 	 
	 	By:  	 Griffin Partners, LLC,
 	 
	 	 	its General Partner 	 
	 	 	 
	 	By:  	/s/ Chester White	 
	 	 	Name:  	Chester White	 
	 	 	Title:  	Managing Partner	 

Stockholders Agreement

 

 

 

EXHIBIT A

Counterpart Signature Page

The undersigned hereby agrees to join, become a party to and be bound by, as a “Stockholder”
and a holder of “Registrable Securities”, the Stockholders Agreement of Irvine Sensors Corporation
(the “Company”), entered into as of December 23, 2010, by and among: (i) the Company; (ii)
Costa Brava Partnership III L.P; and (iii) The Griffin Fund LP, and (iv) certain other holders of
the Company’s outstanding securities, as the same may be in effect from time to time.

	 	 	 	 	 
	 	 	 
	Name of Stockholder	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(if applicable)
	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

Dated:                      ___, 20__

Address for notices:

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