Document:

Exhibit 10.7

Exhibit 10.7

SETTLEMENT AGREEMENT AND RELEASE

THIS SETTLEMENT AGREEMENT AND RELEASE (“Agreement”) is executed as of the dates set forth
below, by and between FirstMark III, L.P., a Delaware limited partnership located at 120 W. 45th
St., 19th Floor, NY, NY 10036 (“FM 3”); FirstMark III Offshore Partners, L.P., a Cayman Islands
entity, with a mailing address of 120 W. 45th St., 19th Floor, NY, NY 10036 (“FM 3O”) (collectively
“FirstMark” or “Plaintiffs”); and Irvine Sensors Corporation, a Delaware corporation located at
3001 Red Hill Avenue, Costa Mesa, California 92526 (“Irvine”) (All three parties to this Agreement
may be referred to collectively as the “Parties” and each of them as a “Party”).

RECITALS

WHEREAS, FirstMark commenced an action against Irvine that is currently pending in the Supreme
Court of the State of New York, County of New York, entitled FirstMark III, L.P. and FirstMark III
Offshore Partners, L.P. v. Irvine Sensors Corporation (Index No. 103687/09) (hereinafter the
(“Action”)); and

WHEREAS, the Parties desire to adjust and settle all claims between them, including those
claims asserted in the Action.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the
Parties do hereby agree as follows:

1. (a) Irvine shall pay to FirstMark the total sum of $1,235,000 (the “Settlement Amount”).
The Settlement Amount shall be paid in monthly installments as follows: (1) $80,000 (including
$15,000 in attorney’s fees) by January 15, 2011; (2) $80,000 (including $15,000 in attorney’s
fees) by February 15, 2011; (3) $70,000 (including $5,000 in attorney’s fees) by March 15, 2011; (4) fourteen payments of $65,000 by the 15th day of each month
commencing April 15, 2011; and (3) a final payment of $95,000.

 

 

 

(b) Each installment of the Settlement Amount shall be paid in the amounts set forth below by
wire transfer of immediately available funds to the following accounts, unless a different account
or manner of payment is requested by FirstMark:

	 	 	 
	Branch: Citibank New York

	 	Branch: Citibank New York
	SWIFT: CITIUS33

	 	SWIFT: CITIUS33
	ABA: 021000089

	 	ABA: 021000089
	Account Number: 30769072

	 	Account Number: 30769005
	Account Name: FirstMark III LP

	 	Account Name: FirstMark III Offshore Partners LP

(c) The above payments will be made as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Date	 	 	 	 	Payment	 	 	FM 3	 	 	FM 3O	 
	1/15/11	 	 	 
	 	 	80,000	 	 	 	70,115.93	 	 	 	9,884.07	 
	2/15/11	 	 	 
	 	 	80,000	 	 	 	70,115.93	 	 	 	9,884.07	 
	3/15/11	 	 	 
	 	 	70,000	 	 	 	61,351.44	 	 	 	8,648.56	 
	4/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	5/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	6/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	7/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	8/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	9/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	10/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	11/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	12/15/11	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	1/15/12	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	2/15/12	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	3/15/12	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	4/15/12	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	5/15/12	 	 	 
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	6/15/12	 	 	 
	 	 	95,000	 	 	 	83,262.66	 	 	 	11,737.34	 
	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	 
	 	 	1,235,000	 	 	 	1,082,414.62	 	 	 	152,585.38	 

 

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2. In the event a monthly installment payment is not paid by Irvine within thirty (30) days
of the date it is due (the “Default”), FirstMark may enter a Confession of Judgment in the form
attached hereto as Exhibit A, in the full Settlement Amount less any payment made by Irvine to
FM 3/FM 3O pursuant to this Settlement Agreement prior to the Default.

3. It is understood and agreed that this Agreement does not constitute an admission by any
Party of any wrongful action or violation of any federal or state statute, local ordinance or
common law rights or of any other possible or claimed violation of law or rights, contractual or
otherwise.

4. Each of the Parties agrees not to, directly or indirectly, make any disparaging statements
regarding any other Party, any of such other Party’s affiliated companies, or any of their
respective successors, officers, directors, shareholders (for shareholders, solely with respect to
the Action), members or employees.

 

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5. Each Party, including each employee, agent, general partner and/or representative of each
Party (including its outside counsel), agrees that this Agreement is confidential and further
agrees that it shall keep the contents of this Agreement, and of any negotiation or communication
related thereto (whether written or preserved in any other form) in strict confidence and shall
not disclose, summarize or characterize any of the contents of this Agreement to any other person,
without the prior written consent of the adverse Party, except (a) as required by law; (b) to any
regulatory body with jurisdiction over such Party, including disclosure and filing of this
Agreement with the SEC; (c) to such Party’s auditors, tax preparers, financial advisors and
current and prospective investors in the Party or its affiliated funds, provided such third
parties agree to maintain the confidentiality of the contents except as required by law. Notwithstanding anything herein to the contrary, a Party may disclose to
any person or entity that “The Action has been dismissed by agreement of the Parties, and the
terms of that agreement are confidential” or words substantially to that effect which do not
disclose any of the other terms of this Agreement. Each of the Parties acknowledges that the
agreement to the terms set forth in this paragraph is a material inducement to each of the Parties
in entering into this Agreement and that none of the Parties would enter into this Agreement if
not for the inclusion of this paragraph.

6. The Parties agree that any violation of paragraph 4 or 5 of this Agreement by a Party to
this Agreement cannot be adequately compensated solely by monetary damages, and the non-violating
Party may seek injunctive relief as well as monetary damages in court.

7. FirstMark agrees to execute and thereafter deliver to counsel for Irvine a Stipulation of
Discontinuance in the form attached hereto as Exhibit B, which counsel for Irvine shall file with
the Court in which the Action is pending. This Agreement shall not be filed with the Court in
which the Action is pending or any other court, tribunal, organization or government entity.

 

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8. FirstMark III, L.P. and FirstMark III Offshore Partners, L.P., on behalf of themselves,
their officers, general partners and their respective representatives, successors and/or assigns
(collectively the “FirstMark Releasing Parties”), hereby irrevocably and fully release and forever
discharge Irvine Sensors Corporation, its past and present officers, directors, managers,
employees, representatives, shareholders (for shareholders, solely with respect to the Action),
subsidiaries, affiliates, attorneys, successors and assigns, in any and all capacities
(collectively the “Irvine Released Parties”) from any and all actions, causes of action, suits, charges, complaints, claims, liabilities, obligations, promises, contracts,
agreements, controversies, damages, demands, costs, losses, debts and expenses (including
attorney’s fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected
or unsuspected, fixed or contingent, that any of the FirstMark Releasing Parties may have, or may
have had, against any of the Irvine Released Parties by reason of any matter whatsoever from the
beginning of time to the date of this Agreement, including, without limitation, any claims related
to the subject matter of the Action.

9. Irvine, on behalf of itself, its officers, directors, and their respective
representatives, successors and/or assigns (collectively the “Irvine Releasing Parties”), hereby
irrevocably and fully releases and forever discharges FirstMark III, L.P. and FirstMark III
Offshore Partners, L.P., their past and present officers, general partners, employees,
representatives, subsidiaries, affiliates, attorneys, successors and assigns, in any and all
capacities (collectively the “FirstMark Released Parties”) from any and all actions, causes of
action, suits, charges, complaints, claims, liabilities, obligations, promises, contracts,
agreements, controversies, damages, demands, costs, losses, debts and expenses (including
attorney’s fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected
or unsuspected, fixed or contingent, that any of the Irvine Releasing Parties may have, or may
have had, against any of the FirstMark Released Parties by reason of any matter whatsoever from
the beginning of time to the date of this Agreement, including, without limitation, any claims
related to the subject matter of the Action.

 

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10. The FirstMark Releasing Parties and the Irvine Releasing Parties expressly waive any and
all rights and benefits conferred upon them by Section 1542 of the California Civil Code, which
states as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR.

Accordingly, the FirstMark Releasing Parties and the Irvine Releasing Parties knowingly,
voluntarily and expressly waives any rights and benefits arising under Section 1542 of the
California Civil Code and any other statute or principle of similar effect.

11. FirstMark and Irvine represent that, other than the Action, they are not aware of any
proceedings, investigations or actions that are threatened, currently pending or ongoing that
relate in any way to (a) claims by FirstMark or any of the FirstMark Releasing Parties against any
of the Irvine Released Parties, or (b) claims by Irvine or any of the Irvine Releasing Parties
against any of the FirstMark Released Parties.

12. Each of the Parties represents and warrants to the other Parties as follows:

(a) Each Party is duly established, validly existing and in good standing under the laws of
the jurisdiction in which it was established, with the requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder.

(b) The execution, delivery and performance of this Agreement by each Party and the
consummation of the transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement. This Agreement has been duly executed and delivered by such Party and constitutes the valid and
binding obligation of such Party, enforceable in accordance with its terms.

 

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(c) Each individual Party has read this Agreement, understands its contents, and agrees to its
terms and conditions.

(d) Each Party’s execution of this Agreement has not been obtained by duress.

(e) Each Party has consulted with legal counsel of its choice prior to executing this
Agreement, the terms of this Agreement and the consequences of this Agreement have been completely
explained by their attorneys, and those terms are fully understood and voluntarily accepted.

(f) Each Party has conducted an independent investigation of the facts and does not rely upon
any statement or representation of another Party or representatives of another Party in entering
into this Agreement, other than as expressly provided for in this Agreement.

(g) Each Party has accepted the terms of this Agreement as a complete compromise of matters
involving disputed issues of law and fact.

13. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and
any of their respective subsidiaries, affiliates, insurers, predecessors, successors, officers,
directors, managers, employees, stockholders, members, agents, attorneys or assigns.

 

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14. This Agreement constitutes the entire agreement among the Parties with respect to the
subject matter hereof and the disposition of all claims between the Parties, including without
limitation the claims asserted in the Action.

15. This Agreement and any questions concerning its validity, construction or performance
shall be governed by the laws of the State of New York without regard to choice of law.

 

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16. This Agreement may be signed in counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same agreement.

	 	 	 	 	 
	 	FIRSTMARK III, L.P.

 	 
	Dated: December 20, 2010 	By:  	/s/ Brian Kempner
 	 
	 	 	Name:  	Brian Kempner 	 
	 	 	Title:  	Chief Operating Officer 	 
	 
	 	FIRSTMARK III OFFSHORE PARTNERS, L.P.

 	 
	Dated: December 20, 2010 	By:  	/s/ Brian Kempner
 	 
	 	 	Name:  	Brian Kempner 	 
	 	 	Title:  	Chief Operating Officer 	 
	 
	 	IRVINE SENSORS CORPORATION

 	 
	Dated: December 20, 2010 	By:  	/s/ John Stuart
 	 
	 	 	Name:  	John Stuart 	 
	 	 	Title:  	Senior Vice President and

Chief Financial Officer 	 

 

9Exhibit 10.8

Exhibit 10.8

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into December 23, 2010 by and between
Irvine Sensors Corporation, a California corporation (the “Company”) and Balraj Joll, an individual
(the “Executive”).

WHEREAS, the parties hereto desire to enter into a written agreement to document the terms of
Executive’s employment with the Company.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and in consideration of the mutual covenants and obligations contained herein,
the parties hereto agree as follows:

1. Term. This Agreement shall be effective (the “Effective Date”) upon the closing
of a private placement in one or more closings with proceeds to the Company of at least $6.0
million from a combination of bridge loans and other fund raising activity (the “Initial Private
Placement”). The Start Date of employment will be as soon as practical following the Effective
Date. The term of this Agreement shall be for a period of five (5) years measured from the
Effective Date (the “Term”) and shall remain in full force and effect for that time or until
termination of Executive’s employment with the Company for any or no reason, whichever is less (the
“Employment Period”). The Agreement shall be automatically renewed for successive Terms of two (2)
years unless either Executive or the Company gives the other written notice of termination not less
than one hundred eighty (180) days prior to the expiration of the initial Term or one hundred
eighty (180) days prior to the expiration of any subsequent Term. If the Initial Private Placement
is not completed within six months of signing of, this Agreement; its terms shall expire, and the
Agreement shall be null and void. The parties agree that the Executive’s employment with the
Company shall be on an “at-will” basis, which means that notwithstanding the provisions of this
Agreement, either the Executive or the Company may terminate the employment relationship and this
Agreement at any time, for any or no reason, with or without Cause.

2. Duties and Responsibilities. Executive shall serve as the Company’s Chief
Executive Officer and President, reporting directly to the Company’s Board of Directors (the
“Board”) and shall be appointed to the Board as soon as reasonably practicable following the
Effective Date of this Agreement. The Executive agrees to devote all of his business time and
efforts to the performance of his duties hereunder. Executive agrees to use his best efforts to
advance the business and welfare of the Company, to render his services under this Agreement
faithfully, diligently and to the best of his ability.

3. Cash Compensation.

(a) Base Salary. Executive’s initial base salary shall be $300,000 per year (the
“Base Salary”), which shall be payable in accordance with the Company’s standard payroll schedule
(but in no event less frequent than on a monthly basis).

(b) Bonus. The Company shall pay to Executive a bonus in the amount of $50,000, as
soon as practicable following the Effective Date, less any withholdings required by Section 3(e).
Executive shall also be eligible to receive discretionary bonuses from time to time. Such bonuses
will be targeted at 50% (the “Target Bonus Percentage”) of Executive’s Base Salary each year (but
pro rated for the Company’s fiscal year ending October 2, 2011), and will be based upon performance
goals tied to the Company’s achievement of revenue and profitability objectives or other metrics
and scales as established from time to time by the Company’s Compensation Committee, which goals,
metrics and scales the Company’s Compensation Committee shall in good faith believe are achievable at the time such
goals, metrics and scales are established. Except as otherwise provided in Section 7 hereof, all
bonuses shall be payable in accordance with the terms of the applicable bonus plan. The terms of
this Agreement relating to Executive’s bonus may from time to time be changed if the Compensation
Committee deems it advisable in connection with any change in the SEC’s or other applicable rules
and regulations relating to executive compensation and disclosure of executive compensation.

 

 

 

(c) Relocation Expenses. The Company shall pay or reimburse the Executive for
Executive’s reasonable relocation costs for moving to California up to an aggregate of $30,000,
which expenses shall include (i) travel costs for two trips to California for house hunting, (ii)
the reasonable travel and moving costs of transporting Executive and Executive’s family to Southern
California in connection with the commencement of Executive’s employment with the Company, (ii)
coverage of duplicate rent associated with the timing of the release of the current lease in
Florida and residence in California and (iii) the reasonable transitional housing expenses for up
to four months related to such move to the extent necessary.

(d) Other Expense Reimbursement. In addition to the compensation specified above,
Executive shall be entitled to receive reimbursement from the Company for all reasonable business
expenses and business travel (and related services) incurred or paid by Executive in the
performance of Executive’s duties hereunder, provided that Executive furnishes the Company with
vouchers, receipts and other details of such expenses in the form reasonably required by the
Company to substantiate a deduction for such business expenses under all applicable rules and
regulations of federal and state taxing authorities. Any reimbursement for expenses that would
constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”)shall be subject to the following additional rules: (i) no
reimbursement of any such expense shall affect the Executive’s right to reimbursement of any such
expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all,
promptly, but not later than the end of the calendar year following the calendar year in which the
expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or
exchange for any other benefit.

(e) Applicable Withholdings. The Company shall deduct and withhold from any amounts
or benefits payable to Executive hereunder any and all applicable federal, state and local income
and employment withholding taxes and any other amounts Employer deems required or advisable to be
deducted or withheld under applicable statutes, regulations, ordinances or orders governing or
requiring the withholding or deduction of amounts otherwise payable as compensation or wages to
employees.

4. Equity Compensation.

(a) Initial Option Grant. As soon as practicable following the Effective Date, the
Company’s Compensation Committee shall grant to Executive an option (the “Initial Option”) to
purchase shares of the Company’s Common Stock equal to the lesser of (i) 5,000,000 shares, (ii)
five percent (5%) of the total of (A) the Company’s Common Stock then outstanding, (B) the Common
Stock issuable upon conversion of all of the Company’s outstanding Preferred Stock and other
convertible securities, and (C) the Common Stock issuable upon exercise of all options and warrants
then outstanding);and (iii) the shares of the Company’s authorized Common Stock then available for
issuance under the Company’s Certificate of Incorporation, as then amended, after giving effect to
the issuance of any securities issued in the Initial Private Placement and expected to be issued in
the Subsequent Private Placement (as defined below), and any securities issuable upon conversion or
exercise of such securities, any shares of Preferred Stock, options, warrants or other convertible
securities then outstanding, and any shares reserved for issuance under the Company’s equity incentive plans. The vesting schedule
for the Initial Option shall be as follows: 2,000,000 of the shares subject to the Initial Option
shall be immediately vested as of the grant date. The balance shall vest in thirty-six (36) equal
monthly installments thereafter. The Initial Option shall have a term of ten years and the
exercise price for such options shall be equal to the fair market value of one share of the
Company’s Common Stock on the date of grant, as determined in good faith by the Compensation
Committee.

 

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(b) Top-off Option Grant. Within sixty days (60) after the next stockholder meeting,
the Company shall issue to Executive an additional option to purchase shares of the Company’s
Common Stock (the “Top-off Option”). The number of shares of Common Stock subject to the Top-off
Grant shall be equal to the greater of (i) 10,000,000 shares or (ii) five percent (5%) of the total
of (A) the Company’s Common Stock then outstanding, (B) the Common Stock issuable upon conversion
of all of the Company’s outstanding Preferred Stock and other convertible securities, and (C) the
Common Stock issuable upon exercise of all options and warrants then outstanding. The Top-off
Option shall have a term of ten years and shall vest as follows: 1,000,000 of the shares subject to
the Top-off Option shall be immediately vested as of the grant date. The balance shall vest in
thirty-six (36) equal monthly installments thereafter. The exercise price for the Top-off Option
shall be equal to the fair market value of one share of the Company’s Common Stock on the date of
grant, as determined in good faith by the Compensation Committee. Both the Initial Option and the
Top-off Option shall be subject to the standard terms and conditions of the Company’s equity
incentive plan then in effect except as modified herein. The Initial Option and the Top-off Option
shall provide that such options shall remain outstanding until the earlier of (i) five years
following Executive’s termination without Cause (as defined herein) or a termination upon
Executive’s death or Permanent Disability, or (ii) the respective termination date of such option
(i.e. the ten year option time frame), provided that no further vesting shall occur after the
termination of Executive’s Service (as defined in the Company’s equity incentive plan then in
effect) with the Company.

(c) Future Awards. Executive shall also be entitled to participate in any equity
incentive plans of the Company. All such options or other equity awards will be made at the
discretion of the Company’s Compensation Committee or the Company’s Board of Directors and shall be
pursuant and subject to the terms and conditions of the applicable equity incentive plan, including
any provisions for repurchase thereof. The option exercise price and value of any equity award
granted to Executive will be established by the Company’s Board of Directors or its Compensation
Committee as of the date such awards are granted but shall not be less than the fair market value
of the class of equity underlying such award.

5. Fringe Benefits.

(a) Vacation. Executive shall be entitled to at least four weeks of paid time off per
calendar year (“Paid Time Off”), subject to the Company’s policies including with respect the
Company’s vacation policy. Such paid time off shall be scheduled at times mutually agreed upon by
Executive and the Company. Paid time off shall accrue in accordance with, and shall be subject to
any applicable caps under, the Company’s benefit policies in effect from time to time.

(b) Group Plans. Executive shall, throughout the Term of this Agreement, be eligible
to participate in all of the Company’s group health, life, long term disability, retirement, profit
sharing, 401(k) and other plans or benefit programs (for which Executive qualifies) that are
available to the executive officers of the Company, subject to the policies of the Company and
terms and conditions with respect to all of such plans or programs then in effect.

 

3

 

6. Proprietary Information. On or prior to the Effective Date, Executive shall
execute and deliver to the Company a manually signed copy of the Company’s standard proprietary
information and assignment of inventions agreement (the “Confidentiality Agreement”), which is
hereby incorporated by this reference as if set forth fully herein. Executive shall comply with
all of the terms and conditions of the Confidentiality Agreement, as such may be amended from time
to time. Executive’s obligations pursuant to the Confidentiality Agreement will survive
termination of Executive’s employment with the Company.

7. Termination of Employment. Upon the termination of Executive’s employment with the
Company for any reason or without reason, Executive (or, in the case of Executive’s death,
Executive’s estate and beneficiaries) shall have no further rights to any other compensation or
benefits from the Company on or after the termination of employment except as follows:

(a) Payment of Accrued Obligation upon Termination of Employment. In the event
Executive’s employment with the Company is terminated for any reason (regardless of whether for
Cause, Disability, Death or other reason) or for no reason, the Company shall pay to Executive (i)
Executive’s unpaid Base Salary that has been earned through the termination date of his employment;
(ii) Executive’s accrued but unused Paid Time Off; (iii) any accrued but unreimbursed business
expenses in accordance with Section 3(d) above, (iv) any other payments as may then be required
under applicable law (collectively, the “Accrued Obligations”).

(b) Termination for Cause. The Company may terminate this Agreement for “Cause”
effective immediately upon the occurrence of any of the following events: (i) Executive has been
convicted of, or entered a plea of nolo contendre to, any felony (other than an offense related to
the operation of an automobile that results only in a fine or other noncustodial penalty) or of any
crime arising out of any material fraud or act of dishonesty; (ii) the Board’s determination that
Executive has had repeated failures to perform material services required under this Agreement;
(iii) willful misconduct or gross negligence in the performance of Executive’s duties; (iv) gross
disregard or willful violation of the legal rights of any employees of the Company or of the
Company’s written policies regarding harassment or discrimination; or (v) the violation or breach
by Executive of his Confidentiality Agreement with the Company; (vi) the material breach of any
provision of this Agreement after 10 days written notice to Executive of such breach and a
reasonable opportunity to cure such breach; or (vii) any material financial dishonesty involving
the Company or its assets, including, without limitation, misappropriation of the Company’s funds
or property. In the event Executive’s employment with the Company is terminated for Cause,
Executive shall only be entitled to the Accrued Obligations.

(c) Termination Upon Death. If Executive dies during the Employment Period of this
Agreement, the Executive’s employment with the Company shall be deemed terminated as of the date of
death, and the obligations of the Company to or with respect to Executive shall terminate in their
entirety upon such date. The Company shall pay the Accrued Obligations to the Executive’s legal
representative(s), within 30 days of his (their) appointment and delivery to the Company of proof
of such appointment, in full and complete satisfaction of all of the Company’s obligations under
this Agreement. The Company shall also pay to Executive’s legal representatives a pro rated bonus
payment, but only to the extent the Company ultimately achieves any corporate goals or milestones
for such payment and provided that such payment shall be pro rated based on the date of Executive’s
date of death relative to the calendar year in which his death occurs, and provided further that
such bonus shall only be paid at such time set forth in the applicable bonus plan and when bonuses
are paid to other executives of the Company. In addition all outstanding stock options including
any Top-Off Options shall become fully vested.

 

4

 

(d) Termination Upon a Disability. If Executive becomes subject to a Disability (as
defined below), then the Company shall have the right, to the extent permitted by law, to terminate
the employment of Executive for such Disability upon 30 days prior written notice to Executive. In
the event of a termination due to a Disability, Executive shall be entitled to receive the
following in addition to the Accrued Obligations: (i) continuation of Executive’s Base Salary
(which shall be payable in accordance with the Company’s standard pay policies) until Executive is
eligible for short-term disability payments under the Company’s group disability policies; provided
however, that in no event shall such period of continued Base Salary exceed 90 days following
Executive’s termination of employment, and (ii) a bonus payment equal to Executive’s target bonus
for the year in which Executive becomes disabled but only to the extent the Company ultimately
achieves any corporate goals or milestones for such payment and provided that such payment shall be
pro rated based on the date of Executive’s termination of employment relative to the calendar year
in which his employment is terminated and such bonus shall only be paid at such time set forth in
the applicable bonus plan and when bonuses are paid to other executives of the Company. In addition
all outstanding stock options including any Top-Off Options shall vest in full immediately
following Executive’s termination of employment. These options will be exercisable for a period of
five (5) years following the Executive’s termination of employment.

For the purposes of this Section, “Disability” shall mean a physical or mental impairment
which, the Board in good faith determines, after consideration and implementation of reasonable
accommodations, precludes the Executive from performing his essential job functions for a period
longer than three consecutive months or a total of one hundred twenty (120) days in any twelve
month period (or such longer period as may be required to comply with the Family Medical Leave Act
or other applicable law.

 

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(e) Termination Without Cause; Resignation for Good Reason.

(i) In the event that the Executive’s employment is terminated by the Company without reason
or for any reason without Cause (other than upon Death or Disability) or due to the Executive’s
resignation for Good Reason (as defined below), provided that within sixty (60) days following the
date of termination, the Executive executes and does not revoke (during any applicable revocation
period) an effective general release of all claims against the Company and its affiliates in a form
reasonably acceptable to the Company, Executive shall also be entitled to receive the following
severance benefits (collectively, the “Severance Benefits”): (1) salary continuation payments for
the twenty-four (24) months, payable in accordance with the Company’s regular pay practices in
effect at that time and provided that Executive is not in violation of his obligations under this
Agreement; and (2) Executive’s target bonus for the year in which Executive’s employment is
terminated but only to the extent the Company ultimately achieves any corporate goals or milestones
for such payment and provided that such payment shall be pro rated based on the date of his
termination of employment relative to the calendar year in which the termination occurs, and such
bonus shall only be paid at such time set forth in the applicable bonus plan and when bonuses are
paid to other executives of the Company; (3) In addition all outstanding stock options including
any Top-Off Options shall vest in full immediately following Executive’s termination of employment.
The options will be exercisable for a period of five (5) years following the Executive’s
termination of employment; and (4) to the extent the Executive elects to continue any existing
healthcare benefits (including medical, dental and vision benefits) pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) under the Company’s group plans,
the Company will pay to the Executive, on an after-tax basis, an amount equal to the cost to
continue coverage under COBRA for the Executive and his immediate family and/or eligible dependents
during the period commencing on the date of the termination of employment and ending twelve months
thereafter.

(ii) Good Reason. For the purposes of this Agreement, “Good Reason” shall mean the
occurrence of one or more of the following events, if applicable, without the Executive’s written
consent: (1) a material reduction in the Executive’s authority, duties or responsibilities (and not
simply a change in title or reporting relationships); (2) a material reduction by the Company in
the Executive’s compensation (for avoidance of doubt, a 5% reduction in the combined level of Base
Salary and annual target bonus opportunity shall constitute a material reduction in Executive’s
compensation); (3) a relocation of the Executive’s principal place of work to a location that would
increase the Participant’s one-way commute from his or her personal residence to the new principal
place of work by more than 50 miles; or (4) a material breach by the Company of its obligations
under Section 10 of this Agreement. Notwithstanding the foregoing, “Good Reason” shall only be
found to exist if the Executive has provided 90 days written notice to the Company prior to his
resignation indicating and describing the event resulting in such Good Reason, and the Company does
not cure such event within 30 days following the receipt of such notice from Executive.

(iii) Additional Conditions to Severance Benefits. Executive acknowledges that so long
as Executive is receiving Severance Benefits hereunder, Executive is bound by Sections 6, 9 and 10
of this Agreement. Executive’s rights to receive any Severance Benefits is expressly subject to
Executive’s continuing compliance with each of Sections 6, 8 and 9 and all Severance Benefits shall
immediately be forfeited upon Executive’s breach of any of Sections 6, 8 and 9 of this Agreement,
and the Company shall have no obligation to make or continue to make any Severance Benefits to
Executive upon such breach of any of Sections 6, 8 and 9.

 

6

 

(iv) Section 409A. Any Severance Benefits under Section 7 of this Agreement are
intended to qualify as an involuntary separation pay arrangement that is exempt from application of Section 409A of the Code because all Severance Benefits are treated as paid on account of an
involuntary separation (including a voluntary separation for Good Reason). If any portion of the
Severance Benefits in this Section 7 is subject to Section 409A of the Code, notwithstanding
anything to the contrary in this Agreement, the payment of such severance shall be delayed until
the first day of the seventh month following Executive’s termination, but only to the extent that
such payment exceeds the applicable dollar limits provided under 409A of the Code or the Treasury
Regulations promulgated thereunder. To the extent any payments or benefits pursuant to this Section
7 (a) are paid from the date of termination of Executive’s employment through March 15 of the
calendar year following such termination, such Severance Benefits are intended to constitute
separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations and thus
payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the
Treasury Regulations; (b) are paid following said March 15, such Severance Benefits are intended to
constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations
made upon an involuntary separation from service and payable pursuant to Section
1.409A-1(b)(9)(iii) of the Treasury Regulations, to the maximum extent permitted by said provision,
and (c) are in excess of the amounts specified in clauses (a) and (b) of this paragraph, shall
(unless otherwise exempt under Treasury Regulations) be considered separate payments subject to the
distribution requirements of Section 409A(a)(2)(A) of the Code, including, without limitation, the
requirement of Section 409A(a)(2)(B)(i) of the Code that payments or benefits be delayed until the
first day of the seventh month after Executive’s separation from service if Executive is a
“specified employee” within the meaning of the aforesaid section of the Code at the time of such
separation from service. In the event that a six month delay of any such Severance Benefits is
required, on the first regularly scheduled pay date following the conclusion of the delay period
Executive shall receive a lump sum payment or benefit in an amount equal to the Severance Benefits
that were so delayed, and any remaining Severance Benefits shall be paid on the same basis and at
the same time as otherwise specified pursuant to this Agreement (subject to applicable tax
withholdings and deductions).

8. Non-Competition. Executive acknowledges and agrees that given the extent and
nature of the confidential and proprietary information he will obtain during the course of his
employment with the Company, it would be inevitable that such confidential information would be
disclosed or utilized by the Executive should he obtain employment from, or otherwise become
associated with, an entity or person that is engaged in a business or enterprise that directly
competes with the Company. Consequently, during any period for which Executive is receiving
payments from the Company, either as wages or as a severance benefit (including all Severance
Benefits hereunder), Executive shall not, without prior written consent of the Company, directly or
indirectly own, manage, operate, control or participate in the ownership, management, operation or
control of, or be employed by or provide advice to, any enterprise that is engaged in any business
directly competitive to that of the Company at the time of the termination of Executive’s
employment with the Company; provided, however, that such restriction shall not apply to any
passive investment representing an interest of less than 1% of an outstanding class of
publicly-traded securities of any company or other enterprise where Executive does not provide any
management, consulting or other services to such company or enterprise. The parties currently
agree that the Company is engaged in the business of (i) thermal imaging for defense and
non-defense applications and (ii) Unmanned sensing platform and systems. Furthermore, the Company
is engaged in using high-density chip stacking technology for (i) LADAR imaging systems, (ii) MEMS
based microsystems, (iii) High speed information security systems and (iv) miniature computing,
processing and communication modules.

 

7

 

9. Non-Solicitation and Non-Disparagement. During the period for which Executive is
receiving Severance Benefits from the Company, Executive agrees that during such period of time
Executive shall not, directly or indirectly, solicit any employee, independent contractor,
consultant or other person or entity in the employment or service of the Company or any of its
respective subsidiaries or affiliates (each of the preceding, a “Group Company”), at the time of such solicitation, in
any case to (i) terminate such employment or service, and/or (ii) accept employment, or enter into
any consulting or other service arrangement, with any person or entity other than a Group Company.
In addition, the two years following the Effective Date, the Executive agrees that (a) he will not
speak to a third party or publicly act in any manner that is intended to, and does in fact, damage
the goodwill or the business of the Company or the business or personal reputations of any of its
current or past directors, officers, agents, employees, clients, attorneys or suppliers, and (b) he
will refrain from making any statement to the public concerning (i) the Company’s business or its
operation or methods of doing business, which is in any way negative or unflattering, or (ii) the
Company, its officers, directors, employees, agents, clients, attorneys or suppliers, which is
intended to, and does in fact, subject them to any public disrespect, scorn or ridicule, or legal
or regulatory action, except in each case as directed or authorized by the Company.

10. Successors and Assigns. This Agreement is personal in its nature and the
Executive shall not assign or transfer his rights under this Agreement. The provisions of this
Agreement shall inure to the benefit of, and shall be binding on, each successor of the Company
whether by merger, consolidation, transfer of all or substantially all assets, or otherwise, and
the heirs and legal representatives of Executive. The Company shall exercise its commercially
reasonable best efforts to obtain the assumption of this Agreement by any successor.

11. Notices. Any notices, demands or other communications required or desired to be
given by any party shall be in writing and shall be validly given to another party if served either
personally or via an overnight delivery service such as Federal Express, postage prepaid, return
receipt requested. If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service. If such notice,
demand or other communication is given by overnight delivery, such notice shall be conclusively
deemed given two business days after the deposit thereof with such service, properly addressed to
the party to whom such notice, demand or other communication is to be given as hereinafter set
forth:

	 	 	 	 	 
	 

	 	To the Company:
	 	Irvine Sensors Corporation
	 

	 	 	 	3000 Red Hill Avenue, Building 4, Suite 108
	 

	 	 	 	Costa Mesa, California 92617
	 

	 	 	 	Attn: Chief Financial Officer
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Dorsey & Whitney LLP
	 

	 	 	 	38 Technology Drive, Suite 100
	 

	 	 	 	Irvine, California 92618

Attn: Ellen S. Bancroft, Esq.
	 
	 	 	 	 
	 

	 	To Executive:
	 	At Executive’s last residence as provided by
	 

	 	 	 	Executive to the Company for payroll records.

Any party may change such party’s address for the purpose of receiving notices, demands and other
communications by providing written notice to the other party in the manner described in this
Section 11.

12. Governing Documents. This Agreement, along with the documents expressly
referenced in this Agreement, constitute the entire agreement and understanding of the Company and
Executive with respect to the terms and conditions of Executive’s employment with the Company and
the payment of severance benefits, and supersedes all prior and contemporaneous written or verbal
agreements and understandings (including any offer letter of employment) between Executive and the
Company relating to such subject matter. This Agreement may only be amended by written instrument
signed by Executive and an authorized officer of the Company. Any and all prior agreements, understandings or
representations relating to the Executive’s employment with the Company are terminated and
cancelled in their entirety and are of no further force or effect.

 

8

 

13. Governing Law. This Agreement, and all disputes arising under or related to it,
shall be governed by the law of the State of California and the parties agree that any suit shall
be brought exclusively in the state or federal courts in Orange County, California.

14. Severability. If any provision of this Agreement as applied to any party or to
any circumstance should be adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision shall in no way affect (to the
maximum extent permissible by law) the application of such provision under circumstances different
from those adjudicated by the court, the application of any other provision of this Agreement, or
the enforceability or invalidity of this Agreement as a whole. Should any provision of this
Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of
the scope, extent or duration of its coverage, then such provision shall be deemed amended to the
extent necessary to conform to applicable law so as to be valid and enforceable or, if such
provision cannot be so amended without materially altering the intention of the parties, then such
provision will be stricken and the remainder of this Agreement shall continue in full force and
effect.

15. Remedies. The parties to this Agreement agree that: (i) Executive’s services are
unique, because of the particular skill, knowledge, experience and reputation of Executive; (ii) if
Executive breaches this Agreement, the damage to the Company will be substantial, and difficult to
ascertain, and, further, that money damages will not afford the Company an adequate remedy.
Consequently, if Executive is in breach of any provision of this Agreement, or threatens a breach
of this Agreement, the Company shall be entitled, in addition to all other rights and remedies as
may be provided by law, to seek specific performance and injunctive and other equitable relief to
prevent or restrain a breach of any provision of this Agreement. All rights and remedies provided
pursuant to this Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other right or remedy.

16. No Waiver. A waiver by either party of any Section, term or condition of this
Agreement in any instance shall not be deemed or construed to be a waiver of such Section, term or
condition for the future or of any subsequent breach thereof, and any such waiver must be in
writing, signed by the party to be charged.

17. Taxes. Except as otherwise provided under Section 8, each party agrees to be
responsible for its own taxes and penalties.

18. Counterparts; Headings. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which together shall constitute
but one and the same instrument. Any executed counterpart returned by facsimile shall be deemed an
original executed counterpart. The headings and titles to the Sections of this Agreement are
inserted for convenience only and shall not be deemed a part of or affect the construction or
interpretation of any provisions of this Agreement.

19. Representation of Executive. Executive represents and warrants to the Company
that Executive read and understands this Agreement, has consulted with independent counsel of his
choice prior to agreeing to the terms of this Agreement and is entering into the agreement,
knowingly, willingly and voluntarily. The parties agree that this Agreement shall not be construed
for or against either party in any interpretation thereof.

 

9

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	IRVINE SENSORS CORPORATION.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ John J. Stuart, Jr.	 	 
	 

	 	 	 	 

John J. Stuart, Jr.,
	 	 
	 

	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Balraj Joll 

BALRAJ JOLL, Executive
	 	 

 

10

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