Form Of Note And Warrant Issued By The Company

EXHIBIT 10.4


PROMISSORY NOTE AND
SECURITY AGREEMENT


1. Note. For value received, Irvine Sensors Corp. unconditionally promises to pay to the order of _______________, ("holder") the principal sum of Fifty Thousand dollars and no/00 ($50,000.00) on or before May 30, 2002. This Note is a non-interest bearing note.


2. Security Interest. To secure payment of this Note, and of any other liability of Irvine Sensors Corp. to the holder hereof, due or to become due, or that may be hereafter contracted or existing regardless of how acquired by the holder, Irvine Sensors Corp. agrees to grant a security interest in the collateral set forth in Paragraph 4 herein.


3. Attachment and Obligation Secured. The security interest hereby created shall attach immediately on execution of and shall secure the payment, according to the terms of this Note.


4. Description of Collateral. The Collateral covered by this Agreement and in which a security interest is hereby granted and transferred to the holder is as follows:


Receipts due Irvine Sensors Corp. pursuant to
U.S. Army CECOM Contract #DAAB07-02-C-P608.


5. Release of Security Interest. Upon full payment of principal due on this
Note, the holder releases any security interest it may have in the
Collateral.


6. Governing Law. This Note shall be construed under the Laws of the State of
California, including the Uniform Commercial Code as in force in the State
of California.


Date: March 16, 2002


IRVINE SENSORS CORPORATION


____________________________ John J. Stuart Chief Financial Officer


THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED OR EXERCISED UNLESS AND UNTIL SUCH WARRANT AND/OR SHARES OF COMMON STOCK IS REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTIONS 4 AND 10 OF THIS WARRANT.


Warrant No. PN0202 Number of Shares: 25,000


Date of Issuance: March 16, 2002


IRVINE SENSORS CORPORATION
Common Stock Purchase Warrant
(Void after Eighteen Months)


Irvine Sensors Corporation, a Delaware corporation (the "Company"), for value received, hereby certifies that _______________ or his registered assigns (the "Registered Holder"), is entitled, subject to the terms and conditions set forth below, to purchase from the Company, at any time or from time to time commencing on or after nine months from the date of issuance (the "Original Issuance Date") and on or before 5:00 p.m. (Pacific time) on September 16, 2003 (the "Termination Date") shares of Common Stock of the Company, at a purchase price of $1.20 per share. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively.


1. Exercise.


(a) This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by the Registered Holder or by the Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise.


(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above accompanied by payment in full of the Purchase Price (the "Exercise Date"). At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates.


(c) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 5 business days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:


(i) a certificate or certificates for the number of full
Warrant Shares to which the Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which the
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 3 hereof; and


(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of remaining
Warrant Shares.


(d) In the event that the Company's common stock has traded on the Nasdaq SmallCap Market, or comparable exchange, at a price of $2.00 per share or greater, as adjusted for any events described in Section 2 hereof, for ten consecutive trading days, the Company, at its sole discretion, may elect to demand call the exercise of this Warrant; provided however, that such call may not be made unless and until the Warrant Shares have previously been registered for resale pursuant to a registration statement declared effective by the Securities and Exchange Commission.


2. Adjustments.


(a) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date on which this Warrant was first issued (the "Original Issue Date") effect a subdivision of the outstanding Common Stock, the Purchase Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Purchase Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.


(b) Adjustment for Certain Dividends and Distributions. In the event the Company at any time, or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Purchase Price then in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Purchase Price then in effect by a fraction:


(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and


2


(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;


provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Purchase Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Purchase Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.


(c) Adjustment in Number of Warrant Shares. When any adjustment is required to be made in the Purchase Price pursuant to subsections 2(a) or 2(b), the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.


(d) Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company (other than shares of Common Stock) or in cash or other property (other than cash out of earnings or earned surplus, determined in accordance with generally accepted accounting principles), then and in each such event provision shall be made so that the Registered Holder shall receive upon exercise hereof, in addition to the number of shares of Common Stock issuable hereunder, the kind and amount of securities of the Company and/or cash and other property which the Registered Holder would have been entitled to receive had this Warrant been exercised into Common Stock on the date of such event and had the Registered Holder thereafter, during the pe ...