Document:

exv10w17

EXHIBIT 10.17

IRVINE SENSORS CORPORATION

STOCK APPRECIATION RIGHTS AGREEMENT

(STOCK SETTLED)

     This
STOCK APPRECIATION RIGHTS AGREEMENT (this “Agreement”), dated as of 
                
               
                
             ,
               
      (the “Effective Date”), is between Irvine Sensors Corporation, a Delaware corporation (the
“Company”) and            
               
              , an
individual resident of             
               
              (“Participant”). This
Agreement is granted under the Irvine Sensors Corporation 2006 Omnibus Incentive Plan (the “Plan”)
and is subject to the terms of that Plan. This Agreement represents the Company’s unfunded and
unsecured promise to issue common stock of the Company, $0.01 par value (“Shares”) at a future date
based on appreciation in the market value of such Shares from the date of this Agreement, subject
to the terms of this Agreement and the Plan.

     1. Award. The Company hereby grants Participant stock appreciation rights (the “SAR”)
with respect to                      shares of Common Stock (the “Award”). The initial value of the SAR is $                    
per share (the “Grant Price”). The Award represents the right to receive the Shares only when, and
with respect to the number of Shares to which, the Award has vested (the “Vested Shares”). The
Award is subject to the terms and conditions set forth in this Agreement and in the Plan. A copy
of the Plan will be furnished upon request of Participant. The SAR shall terminate at the close of
business ten (10) years from the Effective Date.

     2. Vesting. Subject to the terms and conditions of this Agreement and the Plan,
the SAR awarded to Participant pursuant to this Agreement shall vest and may be exercised by
Participant with respect to the number of Vested Shares set forth in the following schedule:

	 	 	 
	On or after Each of the Following Dates
	 	Percentage of Shares with

Respect to Which

the SAR Is Exercisable
	 
	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

     Notwithstanding the provisions set forth above in this Section 2, (i) in the event of
termination of Participant’s employment with or Service to the Company as a result of Participant’s
death or Permanent Disability while in the employ or Service of the Company, the next vesting date
for the SAR, as set out above, shall accelerate by twelve (12) months as of such date of
termination; and (ii) if, after the initial vesting date set forth above, Participant ceases to be
an employee or provide Service by reason of Ordinary Retirement prior to the vesting of the SAR
under Sections 2 or 6 hereof, then the vesting of the SAR, as set out above, shall accelerate in
full as of such date of Ordinary Retirement. For purposes of this Agreement, “ Ordinary Retirement
” shall mean the retirement of the Participant on a date upon which, if the Participant is an
employee, the sum of the Participant’s age and number of years of employment with the Company
equals or exceeds eighty-five (85) years or, if the Participant is a non-employee director, the
number of years of Service to the Company exceeds five (5) years.

 

 

     3. Exercise of SAR after Death or Termination of Employment or Service. The SAR shall
terminate and may no longer be exercised if Participant ceases to be employed by or provide Service
to the Company or its Affiliates, except that:

     (a) If Participant’s employment or Service shall be terminated for any reason,
voluntary or involuntary, other than for “Misconduct” (as defined in Section 3(f)), Ordinary
Retirement (as defined in Section 2) or Participant’s death or Permanent Disability,
Participant may at any time within a period of three (3) months after such termination
exercise the SAR to the extent the SAR was exercisable by Participant on the date of the
termination of Participant’s employment or Service.

     (b) If Participant’s employment is terminated for Misconduct, the SAR shall be
terminated as of the date of the act giving rise to such termination.

     (c) If Participant shall die while the SAR is still exercisable according to its terms,
or if employment or Service is terminated because of Participant’s Permanent Disability
while in the employ or Service of the Company and Participant shall not have fully exercised
the SAR, such SAR may be exercised at any time within twelve (12) months after Participant’s
death or date of termination of employment or Service for such Permanent Disability by
Participant, personal representatives, administrators or guardians of Participant, as
applicable, or by any person or persons to whom the SAR is transferred by will or the
applicable laws of descent and distribution, to the extent of the full number of Vested
Shares Participant was entitled to purchase under the SAR on (i) the earlier of the date of
death or termination of employment or Service or (ii) the date of termination for such
Permanent Disability, as applicable.

     (d) If Participant’s employment or Service is terminated for Ordinary Retirement, the
SAR shall not be terminated and shall remain exercisable for its full term.

     (e) Notwithstanding the above, in no case may the SAR be exercised to any extent by
anyone after the termination date of the SAR.

     (f) “Misconduct” shall mean (i) the commission of any act of fraud, embezzlement or
dishonesty by Participant, (ii) any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Company (or of any Affiliate), or (iii) any
other intentional misconduct by such person adversely affecting the business or affairs of
the Company (or any Affiliate) in a material manner. However, if the term or concept has
been defined in an employment agreement between the Company and Participant, then Misconduct
shall have the definition set forth in such employment agreement. The foregoing definition
shall not in any way preclude or restrict the right of the Company (or any Affiliate) to
discharge or dismiss any Participant or other person in the Service of the Company (or any
Affiliate) for any other acts or omissions but such other acts or omissions shall not be
deemed, for purposes of the Agreement, to constitute grounds for termination for Misconduct.

     4. Method of Exercise of SAR.

     (a) SARs may be exercised with respect to Vested Shares by delivery to the Company of a
written notice which shall state that Participant elects to exercise the SAR as to the
number of Vested Shares specified in the notice as of the date specified in the notice.

     (b) Subject to deduction as described in Section 4(c) for withholding, upon exercise of
the SAR, the Participant shall be entitled to receive a number of Shares (“Issued Shares”)
for each Vested Share with respect to which the SAR is exercised that is equal to (i) the
excess of the Fair Market Value of one Share on the date of exercise, over the Grant Price,
divided by (ii) the Fair Market Value of one Share on the date of exercise. The
distribution to the Participant, or in the case of the Participant’s death, to the
Participant’s legal representative, of Issued Shares shall be

 

 

evidenced by a stock
certificate, appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company, or other appropriate means as determined by the Company. This SAR may
be exercised only with respect to full shares and no fractional share of stock shall be
issued.

     (c) By signing this Agreement, Participant agrees that the Company may withhold from
Issued Shares due upon exercise of the SAR, or at its election from the Participant’s wages
or other cash compensation, all income tax (including federal, state and local taxes),
social insurance, payroll tax or other tax-related withholding (“Tax Related Items”) due
from the Company or the subsidiary that is the Participant’s actual employer. To the extent
that the Company determines that it is not feasible, or not permissible under applicable
law, to withhold in Shares, then prior to the issuance of Issued Shares as provided in
Section 4(b) above, Participant shall pay, or make adequate arrangements satisfactory to the
Company or to the Participant’s actual employer (in their sole discretion) to satisfy all
withholding obligations of the Company and/or the Participant’s actual employer. In this
regard, Participant authorizes the Company or the Participant’s actual employer to withhold
all applicable Tax Related Items legally payable by Participant from Participant’s wages or
other cash compensation payable to Participant by the Company or the Participant’s actual
employer. Participant shall pay to the Company or to the Participant’s actual employer any
amount of Tax Related Items that the Company or the Participant’s actual employer may be
required to withhold as a result of Participant’s receipt of the Award, the vesting of the
Award, or exercise of the Award that cannot be satisfied by the means previously described.
The Company may refuse to deliver Issued Shares to Participant if Participant fails to
comply with Participant’s obligation in connection with the Tax Related Items as described
herein.

     Regardless of any action the Company or the subsidiary of the Company that is
Participant’s actual employer takes with respect to any or all Tax Related Items,
Participant acknowledges that the ultimate liability for all Tax Related Items legally due
by Participant is and remains Participant’s responsibility and that the Company and/or the
Participant’s actual employer (i) make no representations or undertakings regarding the
treatment of any Tax Related Items in connection with any aspect of the Award, including the
grant of the Award, the vesting of Award, or the exercise of the Award; and (ii) do not
commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate
the Participant’s liability for Tax Related Items.

     5. Additional Restrictions on Transfer of SAR. During the lifetime of
Participant, the SAR shall be exercisable only by Participant and shall not be sold, assigned,
transferred, gifted, pledged, hypothecated, or in any manner encumbered or disposed of at any time
prior to delivery of the Issued Shares in accordance with Section 4, other than by will or the laws
of descent and distribution.

     6. Change in Control.

     (a) Immediately prior to the effective date of a “Change in Control” (as defined in
Section 6(e)), this SAR shall vest and become exercisable for all of the Shares subject to
the Award and may be exercised for any or all of those Shares subject to the Award.
However, this SAR shall not vest and become exercisable on an accelerated basis if and to
the extent: (i) this SAR is to be assumed by the successor corporation (or parent thereof)
or is otherwise to be continued in full force and effect pursuant to the terms of the Change
in Control transaction or (ii) this SAR is to be replaced with a cash incentive program of
the successor corporation which preserves the economic value existing at the time of the
Change in Control of the Shares subject to the Award for which this SAR is not otherwise at
that time exercisable and provides for subsequent payout of that economic value no later
than the time this SAR would have vested and become exercisable for those Shares subject to
the Award.

 

 

     (b) Immediately following the consummation of the Change in Control, this SAR shall
terminate, except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in effect pursuant to the terms of the Change in Control transaction.

     (c) If this SAR is assumed or otherwise continued in effect in connection with a Change
in Control, then this SAR shall be appropriately adjusted, upon such Change in Control, to
apply to the number and class of securities which would have been issuable to Participant in
consummation of such Change in Control had this SAR been exercised immediately prior to such
Change in Control, and appropriate adjustments shall also be made to the Grant Price,
provided the aggregate Grant Price shall remain the same. To the extent that the holders of
Common Stock receive cash consideration for their Common Stock in consummation of the Change
in Control, the successor corporation (or its parent) may, in connection with the assumption
of this SAR, substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such Change in
Control.

     (d) This Agreement shall not in any way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its business or
assets.

     (e) For purposes of this Agreement, “Change in Control” shall mean a change in
ownership or control of the Company effected through any of the following transactions: (i)
a merger, consolidation or other reorganization unless securities representing more than 50%
of the total combined voting power of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company’s outstanding voting
securities immediately prior to such transaction; (ii) the sale, transfer or other
disposition of all or substantially all of the Company’s assets; or (iii) the acquisition,
directly or indirectly by any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under common control
with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than 50% of the total combined voting power of
the Company’s outstanding securities pursuant to a tender or exchange offer made directly to
the Company’s stockholders.

     7. Capital Adjustments and Reorganization. Should any change be made to the Common Stock by reason of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the Company’s receipt of
consideration, appropriate adjustments shall be made to (a) the number and/or class of securities
subject to this SAR and (b) the Grant Price in order to reflect such change and thereby preclude a
dilution or enlargement of benefits hereunder.

     8. Miscellaneous

     (a) Entire Agreement; Plan Provisions Control. This Agreement (and any
addendum hereto) and the Plan constitute the entire agreement between the parties hereto
with regard to the subject matter hereof. In the event that any provision of the Agreement
conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of
the Plan shall control. All decisions of the Committee with respect to any question or
issue arising under the Plan or this Agreement shall be and binding on all persons having an
interest in this SAR. All capitalized terms used in this Agreement and not otherwise
defined in this Agreement shall have the meaning assigned to them in the Plan.

 

 

     (b) Rights of Stockholders. Prior to the exercise of the SAR and prior to
receipt by the Participant, Participant’s legal representative, or a permissible assignee,
of Issued Shares as provided in this Agreement, neither Participant, Participant’s legal
representative nor a permissible assignee shall be or have any of the rights and privileges
of a stockholder of the Company with respect to this Agreement or the Shares subject to the
Award referenced in this Agreement.

     (c) No Right to Employment. The grant of the SAR shall not be construed as
giving Participant the right to be retained in the employ of, or if Participant is a
director of the Company or an Affiliate as giving the Participant the right to continue as a
director of, the Company or an Affiliate, nor will it affect in any way the right of the
Company or an Affiliate to terminate such employment or position at any time, with or
without cause. In addition, the Company or an Affiliate may at any time dismiss Participant
from employment, or terminate the term of a director of the Company or an Affiliate, free
from any liability or any claim under the Plan or this Agreement. Nothing in this Agreement
shall confer on any person any legal or equitable right against the Company or any
Affiliate, directly or indirectly, or give rise to any cause of action at law or in equity
against the Company or an Affiliate. The SAR granted under this Agreement shall not form
any part of the wages or salary of Participant for purposes of severance pay or termination
indemnities, irrespective of the reason for termination of employment. Under no
circumstances shall any person ceasing to be an employee of the Company or any Affiliate be
entitled to any compensation for any loss of any right or benefit under this Agreement or
the Plan which such employee might otherwise have enjoyed but for termination of employment,
whether such compensation is claimed by way of damages for wrongful or unfair dismissal,
breach of contract or otherwise. By participating in the Plan, Participant shall be deemed
to have accepted all the terms and conditions of the Plan and this Agreement and the terms
and conditions of any rules and regulations adopted by the Committee and shall be fully
bound thereby.

     (d) Governing Law. The validity, construction and effect of the Plan and this
Agreement, and any rules and regulations relating to the Plan and this Agreement, shall be
determined in accordance with the internal laws, and not the law of conflicts, of the State
of Delaware.

     (e) Severability. If any provision of the Agreement is or becomes or is deemed
to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the
Agreement under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Committee, materially altering the
purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such
jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force
and effect.

     (f) No Trust or Fund Created. Neither the Plan nor this Agreement shall create
or be construed to create a trust or separate fund of any kind or a fiduciary relationship
between the Company or any Affiliate and Participant or any other person. To the extent
that any Person acquires a right to receive payments from the Company or any Affiliate
pursuant to an Award, such right shall be no greater than the right of any unsecured
creditor of the Company or any Affiliate.

     (g) Headings. Headings are given to the Sections and subsections of the
Agreement solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of the
Agreement or any provision thereof.

 

 

     (h) Notices. Any notice required to be given or delivered to the Company under
the terms of this Agreement shall be addressed to the Company at its principal corporate
offices. Any notice required to be given or delivered to Participant shall be addressed to
Participant at the address indicated below Participant’s signature line at the end of this
Agreement or at such other address as Participant may designate by ten (10) days’ advance
written notice to the Company. Any notice required to be given under this Agreement shall
be in writing and shall be deemed effective upon personal delivery or upon the third (3rd)
day following deposit in the U.S. mail, registered or certified, postage prepaid and
properly addressed to the party entitled to such notice.

     (i) Conditions Precedent to Issuance of Issued Shares. Issued Shares shall not
be issued pursuant to the exercise of the SAR unless such exercise and the issuance and
delivery of the applicable Issued Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder,
state blue sky laws, the requirements of any applicable Stock Exchange or the Nasdaq Stock
Market and the Delaware General Corporation Law. As a condition to the exercise of the
purchase price relating to the SAR, the Company may require that the person exercising or
paying the purchase price represent and warrant that the Issued Shares are being purchased
only for investment and without any present intention to sell or distribute such Issued
Shares if, in the opinion of counsel for the Company, such a representation and warranty is
required by law.

     (j) Withholding. In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it in connection with the
Award, and in order to comply with all applicable federal or state tax laws or regulations,
the Company may take such action as it deems appropriate to insure that, if necessary, all
applicable federal or state payroll, withholding, income or other taxes are withheld or
collected from Participant.

     (k) Consultation With Professional Tax and Investment Advisors. Participant
acknowledges that the grant, exercise and vesting with respect to this SAR, and the sale or
other taxable disposition of the Issued Shares, may have tax consequences pursuant to the
Internal Revenue Code of 1986, as amended, or under local, state or international tax laws.
Participant further acknowledges that Participant is relying solely and exclusively on
Participant’s own professional tax and investment advisors with respect to any and all such matters (and
is not relying, in any manner, on the Company or any of its employees or representatives).
Participant understands and agrees that any and all tax consequences resulting from the SAR
and its grant, exercise and vesting, and the sale or other taxable disposition of the Issued
Shares, is solely and exclusively the responsibility of Participant without any expectation
or understanding that the Company or any of its employees or representatives will pay or
reimburse Participant for such taxes or other items.

 

 

     IN WITNESS WHEREOF, the Company and Participant have executed this Agreement on the date set
forth in the first paragraph.

	 	 	 	 	 
	 	IRVINE SENSORS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	PARTICIPANT:

 	 
	 	 	 
	 
	 	 	Name:  	 	 
	 	 	Address: 	 	 
	 	 	 	 
	 
	 	 	Facsimile:exv10w18

EXHIBIT 10.18

IRVINE SENSORS CORPORATION

DEFERRED COMPENSATION PLAN

(Amended and Restated June 6, 2008, Effective as of January 1, 2005)

PREAMBLE

Effective September 27, 2002, Irvine Sensors Corporation (the “Corporation”), a corporation formed
under the laws of the State of Delaware, established a deferred compensation plan for the exclusive
benefit of a select group of management and highly compensated employees, which is called “The
Irvine Sensors Deferred Compensation Plan” (the “Plan”).

The Corporation intends that any Participant or Beneficiary under the Plan shall have the status of
an unsecured general creditor with respect to the Plan.

The Plan is hereby amended and restated effective January 1, 2005, to comply with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”) and any regulations issued thereunder.

The terms of this Restatement shall apply to: (i) deferred compensation that relates to all or in
part to services performed on or after January 1, 2005 (i.e., deferred compensation which is
subject to Code Section 409A), and (ii) deferred compensation that relates entirely to services
performed on or before December 31, 2004 (i.e., deferred compensation which is not subject to Code
Section 409A) if such deferred amounts were not yet paid from the Plan as of the adoption of this
Restatement.

ARTICLE I

DEFINITIONS

I.1 “Account” shall mean the record maintained by the Committee showing the number of shares of
common stock deemed allocated to the account of each Participant or Beneficiary as well as the
amount of any cash contributions, dividends or income or loss thereon deemed allocated to the
Participant or Beneficiary. The term “Account” shall refer only to a bookkeeping entry and shall
not be construed to require the segregation of assets or shares on behalf of any Participant or
Beneficiary.

I.2 “Beneficiary” shall mean the Beneficiary designated by each Participant under the Irvine
Sensors Corporation Deferred Compensation Plan; provided, however, that a Participant may designate
a different Beneficiary hereunder by delivering to the Committee a written beneficiary designation
in the form provided by the Committee, and executed specifically with respect to this Plan. No
beneficiary designation shall be effective until received and accepted by the Committee.

I.3 “Board” shall mean the Board of Directors of the Corporation.

I.4 “Change in Control” shall mean the occurrence of any one or more of the following events:

	 	(a)	 	any Person (as defined below) becomes the Beneficial Owner (as defined
below) of securities of the Corporation having fifty percent (50%) or more of the
total number of votes that may be cast for the election of directors of the
Corporation; or

 

 

	 	(b)	 	the stockholders of the Corporation approve the sale or other disposal of
all or substantially all of the assets of the Corporation (including a plan of
liquidation or dissolution) or the merger or consolidation of the Corporation with
or into another corporation, in accordance with the requirements of the Certificate
of Incorporation of the Corporation and applicable law; or
	 
	 	(c)	 	as a result of or in connection with any tender offer, exchange offer,
merger or other business combination, sale of assets or contested election of
directors, or any combination of the foregoing, the individuals who are directors of
the Corporation just prior to such event shall cease to constitute the majority of
the Board.

For purposes of this Section I.4, a “Person” means any individual, firm, corporation partnership,
trust or other entity. Two or more Persons who agree to ant together for the purpose of acquiring,
holding, voting, or disposing of securities of the Corporation shall be deemed a “Person.”
Excluded from the definition of “Person” are the Corporation and any subsidiaries of the
Corporation, whether individually or in any combination.

For purposes of this Section I.4, a person is a “Beneficial Owner” of securities of the Corporation
if such Person is any of such Person’s Affiliates (as defined below) or Associates (as defined
below) has or shares, directly or indirectly through any contract, arrangement understanding or
otherwise, the power to vote or direct the voting of securities of the Corporation or the power to
dispose or direct the disposition of securities of the Corporation. A Person shall be the
Beneficial Owner of those securities of the Corporation that such person or any of such Person’s
Affiliates or Associates has the right to become the Beneficial Owner of (whether such right is
execrable immediately or only after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights, warrants, options or
otherwise.

For purposes of Section I.4 only, an “Affiliate” of a specified Person is a Person that directly,
or indirectly through one or more intermediaries, controls, or is controlled by, or is under common
control with, the Person specified.

For purposes of this Section I.4, an “Associate” of a specified Person is (i) any corporation or
organization (other than the Corporation or any subsidiary of the Corporation) of which such Person
is an officer or partner or is, directly or indirectly, the Beneficial Owner of ten percent (10%)
or more of any class of equity securities, (ii) any trust or other estate in which such Person has
substantial beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, or (iii) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person or who is a director or officer of the Corporation or any
subsidiary of the Corporation.

I.5 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time,
and the rules and regulations promulgated hereunder.

I.6 “Committee” shall mean the Committee appointed by the Board of Directors of the Corporation to
administer this Plan, or if none is appointed, the Board of Directors.

I.7 “Corporation” shall mean Irvine Sensors, Inc. or its successors.

I.8 “Disability” shall mean a medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months and renders the Participant unable to engage in any substantial gainful activity. The
determination

 

 

hereunder as to whether and when a Participant has a Disability shall be made by the
Committee, and for purposes of assisting the Committee in making any such determination, the
Committee may require the Participant to submit to an examination by a competent physician or
medical clinic selected by the Committee. In lieu of such an examination, a Participant shall be
considered to have a Disability if, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, the Participant is receiving income replacement benefits for a
period of not less than three months under an accident and health plan covering employees of the
Corporation.

I.9 “Effective Date” shall mean September 27, 2002. This plan is amended and restated herein,
effective as of January 1, 2005.

I.10 “Normal Retirement Age” shall mean the age of sixty-five (65) years.

I.11 “Participant” shall mean an individual who has been designated by the Committee as being
eligible to participate in the Plan.

I.12 “Plan” shall mean the Irvine Sensors Corporation Deferred Compensation Plan, as amended from
time to time.

I.13 “Plan Year” shall mean the annual period beginning January 1 and ending December 31, both
dates inclusive of each year.

I.14 “Separation from Service” shall mean a complete severance of an employee’s employment
relationship with the Employers and all Affiliates, if any, for any reason other than the
employee’s death.

	 	(a)	 	Whether a Separation from Service has occurred is determined under Section
409A of the Code and Treasury Regulation 1.409A-1(h) (i.e., whether the facts and
circumstances indicate that the Corporation and the employee reasonably anticipated
that no further services would be performed after a certain date or that the level of
bona fide services the employee would perform after such date (whether as an employee
or independent contractor) would permanently decrease to no more than 20% of the
average level of bona fide services performed (whether as an employee or an
independent contractor) over the immediately preceding 36 month period (or the full
period of services to the employer if the employee has been providing services to the
employer less than 36 months)).
	 
	 	(b)	 	A transfer from employment with the Corporation to employment with an
affiliate of the Corporation shall not constitute a Separation from Service.

I.15 “Treasury Regulations” shall mean the regulations promulgated by the United States Treasury
Department under the Code. Any reference to a Section of the Treasury Regulations shall be
considered also to include any subsequent amendment or replacement of that Section.

I.16 “Valuation Date” shall mean each business day on which the financial markets are open for
trading activity.

 

 

ARTICLE II

PARTICIPATION

II.1 Participation in the Plan shall be made available to a select group of individuals, as
determined by the Committee, in its sole discretion, who are providing services to the Corporation
in key positions of management and responsibility or who are highly compensated employees of the
Corporation. The determination as to the eligibility of any individual to participate in the Plan
shall be in the sole and absolute discretion of the Committee, whose decision in that regard shall
be conclusive and binding for all purposes hereunder.

II.2 Eligible individuals may elect to participate hereunder by executing a participation agreement
in such form as the Committee shall require. Such election must be made and provided to the
Committee prior to the first day of the Plan Year. In the case of the first year in which the
Participant becomes eligible, the Participant must elect to participate by submitting the
designated participation agreement to the Committee within thirty (30) days of the date on which he
or she is notified by the Committee of his/her eligibility to participate in the Plan. The
election to participate in the Plan shall become irrevocable on the date that the Plan Year
commences.

II.3 In connection with the Participant’s election to participate in the Plan, the Participant
shall elect the form of payment to be received upon the Participant’s Separation from Service,
Disability, or attainment of Normal Retirement Age. The Participant may elect to receive such
amount in the form of either a lump sum or payments in annual installments over a period not to
exceed 5 years. Such election, once made and accepted by the Committee, shall be irrevocable.

ARTICLE III

CREDITING OF CONTRIBUTIONS AND INCOME

III.1 As of each Valuation Date, the Committee shall credit to each Participant’s Account the
deemed income or losses attributable thereto, determined pursuant to the provisions of Section
III.2 below, as well as any other applicable deemed credits to or charges against such Account, on
account of deemed Company Contributions or distributions to Participants or similar deemed
transactions or adjustments to such Account.

III.2 The Corporation may, in its sole discretion, make one or more deemed “Company Contributions”
to the Plan in such dollar amounts or shares of common stock of the Corporation as the Corporation,
in its sole discretion determines. Deemed Company Contributions shall be allocated among the
Accounts of Participants as specified by the Corporation in its sole discretion, as of the
Valuation Date immediately following the date of the Company Contribution, or as provided in a
Participant’s participation agreement

III.3 Each Participant’s Account shall be deemed to be invested in common stock of the Employer,
plus any cash contributions or cash dividends which would have been paid on such shares had such
shares been owned by the Participant. The Account of each Participant shall be deemed to be
credited with the amount of dividends, income, gains and losses attributable thereto, as if the
amounts credited to such Account had been invested in common stock of the Corporation, except to
the extent that the Company specifies that deemed contributions shall be in cash.

 

 

ARTICLE IV

BENEFITS

IV.1 The vested portion of a Participant’s account shall become distributable as of the earliest
date that one of the following events occurs:

	 	(a)	 	the Participant’s death;
	 
	 	(b)	 	the later of the Participant’s Separation from Service or attainment of
Normal Retirement Age; and
	 
	 	(c)	 	the Participant incurs a Disability.

IV.2 As soon as practicable following one of the events in Section IV.1, the Participant or
Beneficiary shall commence to be paid the number of shares of common stock deemed credited to such
Participant’s Account. In addition, the Participant or Beneficiary shall be paid the amount of
deemed cash contributions and deemed cash dividends, if any, which were allocated to the
Participant’s Account, plus any earnings or losses thereon in the form of cash. The amount of any
such deemed cash contributions and deemed cash dividends shall be determined as of the Valuation
Date coincident with or next preceding the date such amount is distributed.

IV.3 Each Participant’s Account shall be fully vested and nonforfeitable.

ARTICLE V

FORM AND METHOD OF PAYMENT OF BENEFITS

V.1 Payment of a Participant’s benefit as determined in accordance with Article IV on account of
death shall be made (i) in the method of a lump sum, and (ii) in the form of common stock of the
Company to the extent that the Participant’s Account is deemed to be invested in common stock of
the Company and in cash to the extent that the Participant’s Account is deemed to be invested in
cash or other property. Payment of a Participant’s death benefit shall be made to his Beneficiary
as soon as practicable following the Committee’s receipt of proper notice of such Participant’s
death.

V.2 Payment of a Participant’s benefit as determined in accordance with Article IV on account of
Disability, attainment of Normal Retirement Age or Separation from Service shall be made (i) in the
form of common stock of the Company to the extent that the Participant’s Account is deemed to be
invested in common stock of the Company and in cash to the extent that the Participant’s Account is
deemed to be invested in cash or other property and (ii) in the method of either a lump sum or in
annual installments over a period not to exceed 5 years, as elected by
the participant upon commencement of participation in the Plan (See Section II.3). Payment shall
commence as soon as practicable following the later of the date of Participant’s Separation from
Service or attainment of Normal Retirement Age. In the case of payment on account of a
Participant’s Disability, payment shall commence as soon as practicable after the Committee’s
determination of such Disability.

V.3 If cash installment payments are made, such payments shall be charged pro rata to the
individual investment options in which amounts credited to the Participant’s Account are deemed to
be invested, pursuant to the provisions of Section III.3 hereof. Furthermore, the Committee shall
continue to credit the unpaid balance of the Participant’s Account with the deemed income and
losses attributable thereto, determined pursuant to the provisions of Section III.3 hereof, as well
as with any other credits to or charges against the unpaid balance of such Account, during the
period for which installment payments are made.

 

 

V.4 Nothwithstanding the foregoing, where payment is made under this Section V to a “specified
employee,” as defined under Section 409A of the Code, due to Separation from Service, such payment
shall commence as of the date which is 6 months and 1 day after the date of Separation from Service
(or upon the death of the employee, if earlier).

V.5 Notwithstanding the provisions of Sections V.1 or V.2, the benefits payable hereunder may be
even if they are not otherwise payable if, based on a change in the federal or applicable state tax
or revenue laws, a published ruling or similar announcement issued by the Internal Revenue Service,
a regulation issued by the Secretary of the Treasury, a decision by a court of competent
jurisdiction involving a Participant or a Beneficiary, or a closing agreement made under section
7121 of the Code that is approved by the Internal Revenue Service and involves a Participant, the
Committee determines that a Participant has or will recognize income for federal state income tax
purposes with respect to amounts that are or will be payable under the Plan before they otherwise
would be paid. The amount of any payments pursuant to this Section 5.5 shall not exceed the lesser
of (a) the amount in the Participant’s Account or (b) the amount of taxable income with respect to
which the tax liability is assessed or determined.

ARTICLE VI

ADMINISTRATION OF THE PLAN

VI.1 The Corporation shall set aside in a grantor trust funds or shares of common stock for payment
of all or a portion of the benefits payable pursuant to the Plan. The set aside funds shall be
subject to the claims of general creditors of the Corporation in the event the Corporation becomes
insolvent.

VI2. The Plan shall be administered by the Committee who shall be appointed by the Board of
Directors of the Corporation. The members of the Committee shall not receive compensation with
respect to their services for the Committee. The members of the Committee shall serve without bond
or security for the performance of their duties hereunder unless applicable law makes the
furnishing of such bond or security mandatory or unless required by the Corporation. Any member of
the Committee may resign by delivering his written resignation to the Corporation and to the other
members of the Committee.

VI.3 The Committee shall perform any act which the Plan authorizes expressed by a vote at a meeting
or in a writing signed by a majority of its members without a meeting. The Committee may, by a
writing signed by a majority of its members, appoint any member of the Committee to
act on behalf of the Committee. Any person who is a member of the Committee shall not vote or
decide upon any matter relating solely to himself or vote in any case in which his individual right
or claim to any benefit under the Plan is particularly involved. If, in any matter or case in
which a person is so disqualified to act, the remaining persons constituting the Committee cannot
resolve such matter or case, the Board will appoint a temporary substitute to exercise all the
powers of the disqualified person concerning the matter or case in which he is disqualified.

VI.4 The Committee may designate in writing other persons to carry out its responsibilities under
the Plan, and may remove any person designated to carry out its responsibilities under the Plan by
notice in writing to that person. The Committee may employ persons to render advice with regard to
any of its

 

 

responsibilities. All of the usual and reasonable expenses of the Committee shall be
paid by the Corporation. The Corporation shall indemnify and hold harmless each member of the
Committee from ‘and against any and all claims and expenses (including, without limitation
attorney’s fees and related costs), in connection with the performance by such member of his duties
in that capacity, other than any of the foregoing arising in connection with the willful neglect or
willful misconduct of the person so acting.

VI.5 The Committee shall establish rules, not contrary to the provisions of the plan, the
administration of the Plan and the transaction of its business. The Committee shall determine the
eligibility of any individual to participate in the Plan, shall interpret the Plan in its sole and
absolute discretion, and shall determine all questions arising in the administration interpretation
and application of the Plan. All determinations of the Committee shall be final, conclusive and
binding on all employees, participants and Beneficiaries.

VI.6 Any action to be taken hereunder by the Corporation shall be taken by resolution adopted by
the Board or an executive committee thereof; provided, however, that by resolution, the Board or an
executive committee thereof may delegate to any officer of the Corporation the authority to take
any actions hereunder, other than the power to amend or terminate the Plan.

VI.7 Each Participant will be issued a participation agreement under the Plan which will specify,
as to that Participant; the amount of Company contributions to be made to the Plan on behalf of the
Participant, the Participant’s vesting schedule, and any other conditions or benefits the Committee
deems in its sole and absolute discretion to be appropriate.

ARTICLE VII

CLAIM REVIEW PROCEDURE

VII.1 In the event that a Participant or Beneficiary is denied a claim for benefits under this Plan
(the “Claimant”), the Committee shall provide to the Claimant written notice of the denial which
shall set forth:

	 	1.	 	the specific reason or reasons for the denial;
	 
	 	2.	 	specific references to pertinent Plan provisions on which the Committee
based its denial;
	 
	 	3.	 	a description of any additional material or information needed for the
Claimant to perfect the claim and an explanation of why the material or information
is needed;
	 
	 	4.	 	a statement that the Claimant may:

	 	(i)	 	request a review upon written application
to the Committee;
	 
	 	(ii)	 	review pertinent Plan Documents; and
	 
	 	(iii)	 	submit issues and comments in writing; and

 

 

That any appeal the Claimant wishes to make of the adverse determination must be in writing to the
Committee within sixty (60) days after receipt of the Committee’s notice of denial of benefits.
The Committee’s notice must further advise the Claimant that his failure to appeal the action to
the Committee in writing within the sixty (60) day period will render the Committee’s determination
final, binding, and conclusive.

VII.2 If the Claimant should appeal to the Committee, he, or his duly authorized representative,
may submit, in writing, whatever issues and comments he, or his duly authorized representative,
feels are pertinent The Committee shall re-examine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the circumstances. The
Committee shall advise the Claimant in writing of its decision on his appeal, the specific reasons
for the decision, and the specific Plan provisions on which the decision is based. The notice of
the decision shall be given within sixty (60) days of the Claimant’s written request for review,
unless special circumstances (such as hearing) would make the rendering of a decision within sixty
(60) day period infeasible, but in no event shall the Committee render a decision regarding the
denial of a claim later than 120 days after its receipt of a request for review. If an extension
of time for review is required because of special circumstances, written notice of the extension
shall be furnished to the Claimant prior to the date the extension period commences. The
Committee’s notice of denial of benefits shall identify the address to which the Claimant may
forward his appeal.

ARTICLE VIII

LIMITATION OF RIGHTS

The establishment of this Plan shall not be construed as giving to any Participant, employee of the
Corporation or any person whomsoever, any legal, equitable or other rights against the Corporation,
or its officers, directors, agents or stockholders, or as giving to any Participant or Beneficiary
any equity or other interest in the assets or business or shares of Corporation stock or as giving
any employee the right to be retained in the employment of the Corporation. All employees of the
Corporation and Participants shall be subject to discharge to the same extent they would have been
if this Plan had never been adopted. The rights of a Participant hereunder shall be solely those
of an unsecured general creditor of the Corporation.

ARTICLE IX

LIMITATION OF ASSIGNMENT AND PAYMENTS TO LEGALLY INCOMPETENT
DISTRIBUTEE

IX.1 No benefits which shall be payable under the Plan to any person shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge and
any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise
dispose of the same shall be void.

IX.2 No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or
torts of any person, nor shall it be subject to attachment or legal process for or against any
person, except to the extent required by law.

 

 

IX.3 Whenever any benefit which shall be payable under the Plan it to be paid to or for the benefit
of any person who is then a minor or determined by the Committee, on the basis of qualified medical
advice, to be incompetent, the Committee need not require the appointment of a guardian or
custodian, but shall be authorized to cause the same to be paid over to the person having custody
of the minor or incompetent, or to cause the same to be paid to the minor or incompetent without
the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or
custodian of the minor or incompetent, if one has been appointed, or to cause the same to be used
for the benefit of the minor or incompetent.

ARTICLE X

AMENDMENT TO OR TERMINATION OF THE PLAN

X.1 The Corporation reserves the right at any time to amend or terminate the Plan in whole or in
part by resolution of the Board. No amendment or termination shall have the effect of
retroactively changing or depriving Participants or Beneficiaries of rights already accrued under
the Plan. Upon termination of the Plan, the Corporation may, in its discretion, amend the Plan to
accelerate the time and form of payments, to the extent permissible under Section 409A of the Code
and Treasury Regulations issued thereunder.

X.2 In the event that the Corporation shall change its name, the Plan shall be deemed to be amended
to reflect the name change without further action of the Corporation, and the language of the Plan
shall be changed accordingly.

ARTICLE XI

STATUS OF PARTICIPANT AS UNSECURED CREDITOR

All benefits under the Plan shall be the unsecured obligations of the Corporation and no assets
will be placed in trust or otherwise segregated from the general assets of the Corporation for the
payment of obligations hereunder. To the extent that any person acquires a right to receive
payments hereunder, such right shall be no greater than the right of any unsecured general creditor
of the Corporation.

ARTICLE XII

GENERAL AND MISCELLANEOUS

XII.1 In the event that any provision of this Plan shall be declared illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but
shall be fully severable and this Plan shall be construed and enforced as if said illegal or
invalid provision had never been inserted herein.

XII.2 The section headings and numbers are included only for convenience of reference and are not
to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan.
Whenever appropriate, words used in the singular shall include the plural or the plural may be read
as the singular. When used herein, the masculine gender includes the feminine gender.

 

 

XII.3 The Plan is intended to comply with the requirements imposed under Section 409A of the Code,
and the provisions of the Plan shall be construed in a manner consistent with the requirements of
such section of the Code.

XII.4 The validity and effect of this plan and the rights and obligations of all persons affected
hereby shall be construed and determined in accordance with the laws of the State of California
unless preempted by federal law.

XII.5 The Corporation is not required to set aside any assets for payment of the benefits provided
under this Plan. A Participant shall have no security interest in any such amounts. This Plan is
intended to be and shall be construed to be a plan which is funded and maintained primarily for the
purpose of providing deferred compensation for a select group of management or highly compensated
employees.

XII.6 All amounts payable hereunder shall be reduced by any and all federal, state and local taxes
imposed upon the Participant or his Beneficiary which are required to be paid or withheld by the
Corporation.

Irvine Sensors Corporation has caused its corporate seal to be affixed hereto and these presents to
be duly executed in its name and behalf by its proper officers thereunto duly authorized this 6th day of June 2008.

	 	 	 	 	 
	 	Irvine Sensors Corporation

 	 
	 	By:  	/s/ John J. Stuart 	 
	 	 	John J. Stuart 	 
	 	 	Sr. Vice President, CFO, Corporate
Secretary, Treasurer 	 
	 
	 	 	ATTEST: 	 
	 
	 
	 
	 	 	[CORPORATE SEAL]

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