-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T2wwDxC1J/f3pldya0atBhyi/4WH/4NRfT09nfLbf1oXo5cK7DfuLO+kvN2+Th81 bjgVvKtUXGcpNCsj1nFk2A== 0001012975-06-000414.txt : 20061020 0001012975-06-000414.hdr.sgml : 20061020 20061020154910 ACCESSION NUMBER: 0001012975-06-000414 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20061020 DATE AS OF CHANGE: 20061020 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: IRVINE SENSORS CORP/DE/ CENTRAL INDEX KEY: 0000357108 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330280334 STATE OF INCORPORATION: DE FISCAL YEAR END: 1002 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-34769 FILM NUMBER: 061155606 BUSINESS ADDRESS: STREET 1: 3001 REDHILL AVE CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145498211 MAIL ADDRESS: STREET 1: 3001 REDHILL AVE STREET 2: BLDG 3 STE 104 CITY: COSTA MESA STATE: CA ZIP: 92626 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PEQUOT CAPITAL MANAGEMENT INC CENTRAL INDEX KEY: 0001071955 IRS NUMBER: 061524885 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 500 NYALA FARM ROAD CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2034292200 MAIL ADDRESS: STREET 1: 500 NYALA FARM ROAD CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: PEQUOT CAPITAL MANAGEMENT INC/CT/ DATE OF NAME CHANGE: 19981118 SC 13D/A 1 e8847697v3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D/A Under the Securities Exchange Act of 1934 (Amendment No. 3)* Irvine Sensors Corporation -------------------------- (Name of Issuer) Common Stock, par value $0.01 per share --------------------------------------- (Title of Class of Securities) 463664-50-8 (CUSIP Number) Aryeh Davis, General Counsel Pequot Capital Management, Inc. 500 Nyala Farm Road, Westport, CT 06880 (203) 429-2200 ---------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 26, 2006 ------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 463664-50-8 1 Names of Reporting Persons. Pequot Capital Management, Inc. I.R.S. Identification Nos. of above persons (entities only) 06-1524885 --------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) |X| - ---------------------------------------------------------------------------- 3 SEC Use Only - ---------------------------------------------------------------------------- 4 Source of Funds (See Instructions) 00 - ---------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] - ---------------------------------------------------------------------------- 6 Citizenship or Place of Organization Connecticut - ---------------------------------------------------------------------------- 7 Sole Voting Power 5,269,317 ---------------------------------------------- Number of 8 Shared Voting Power 0 ---------------------------------------------- Shares Bene- 9 Sole Dispositive Power 5,269,317 ---------------------------------------------- ficially Owned 10 Shared Dispositive Power 0 ---------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 5,269,317 - ---------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - ---------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 20.9% - ---------------------------------------------------------------------------- 14 Type of Reporting Person (See Instructions) IA - ---------------------------------------------------------------------------- 2 This Amendment No. 3 ("Amendment No. 3") is filed by Pequot Capital Management, Inc., a Connecticut corporation (the "Reporting Person"), and amends and restates Items 2, 4, 5, 6 and 7 of the Schedule 13D filed by the Reporting Person on January 10, 2006 (the "Schedule 13D"), as amended by Amendment No. 1 to the Schedule 13D filed by the Reporting Person on January 20, 2006 ("Amendment No. 1") and Amendment No. 2 to the Schedule 13D filed by the Reporting Person on January 27, 2006 ("Amendment No. 2" and together with the Schedule 13D, Amendment No. 1 and this Amendment No. 3, the "Statement"). This Amendment No. 3 relates to the common stock, par value $0.01 per share (the "Common Stock"), of Irvine Sensors Corporation, a Delaware corporation (the "Issuer"). The address of the principal executive offices of the Issuer is 3001 Red Hill Avenue, Costa Mesa, California 92626. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in Amendment No. 2. Item 2. Identity and Background Item 2 is hereby amended and restated in its entirety as set forth below: This Schedule 13D is filed on behalf of Pequot Capital Management, Inc., a Connecticut corporation (the "Reporting Person"). The Reporting Person is an investment adviser registered under the Investment Advisers Act of 1940, and acts as investment adviser to certain managed accounts over which the Reporting Person exercises discretionary authority (the "Accounts"). The address of the principal business and office of the Reporting Person, and of the Executive Officer, Director and Controlling Person (as defined below) is 500 Nyala Farm Road, Westport, CT 06880. The Reporting Person is the investment adviser/manager of, and exercises sole investment discretion over, Pequot Private Equity Fund III, L.P., a Delaware limited partnership ("PPE3"), and Pequot Offshore Private Equity Partners III, L.P., a Cayman Islands limited partnership ("PPE3O," and together with PPE3, the "Funds"), each of which are Accounts. Mr. Arthur J. Samberg is the executive officer, director and the controlling shareholder of the Reporting Person (collectively, the "Executive Officer, Director and Controlling Person"). Mr. Samberg is a citizen of the United States. Neither the Reporting Person nor Mr. Samberg has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Neither the Reporting Person nor Mr. Samberg has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. Item 4. Purpose of Transaction Item 4 is hereby amended and restated in its entirety as set forth below: Pursuant to the terms of the Purchase Agreement, the Reporting Person acquired the Notes that are convertible into Common Stock and the Warrants to purchase Common Stock. The Reporting Person considers the shares of Common Stock that it beneficially owns an investment made in the ordinary course of its business. The Reporting Person intends to review on a continuing basis its investment in the Issuer, including the Issuer's business, financial condition and operating results and general market and industry conditions and, based upon such review, may acquire additional Notes, Warrants, Common Stock or other securities of the Issuer, or dispose of Notes, Warrants, Common Stock or other securities of the Issuer, in each case, in the open market, in privately negotiated transactions or in any other lawful manner. Purchase Agreement On December 30, 2005 (the "Closing Date"), pursuant to a Purchase Agreement, dated as of December 30, 2005 (the "Purchase Agreement"), by and among the Funds and the Issuer, the Issuer issued and 3 sold to the Funds: (i) $7,445,493 in aggregate principal amount of its Series 1 senior subordinated secured convertible notes due 2009 (the "Series 1 Notes"), which are convertible into an aggregate of 2,863,651 shares of Common Stock (the "Series 1 Common Stock") (subject to certain adjustments in accordance with the terms of the Purchase Agreement and the Notes); (ii) warrants to purchase up to 1,002,278 shares (subject to certain adjustments in accordance with the terms thereof) of Common Stock (the "Series 1 Warrants"); (iii) $2,554,507 in aggregate principal amount of its Series 2 senior subordinated secured convertible notes due 2007 (the "Series 2 Notes," and together with the Series 1 Notes, the "Notes"), which are convertible upon certain events set forth in the Purchase Agreement into an aggregate of 982,503 shares of Common Stock (the "Series 2 Common Stock") (subject to certain adjustments in accordance with the terms of the Purchase Agreement and the Notes); and (iv) warrants to purchase up to 343,876 shares (subject to certain adjustments in accordance with the terms thereof) of Common Stock (the "Series 2 Warrants," and together with the Series 1 Warrants, the "Warrants"). Pursuant to the Purchase Agreement and subject to certain exceptions, from the Effective Date (as defined below), for so long as the Notes are outstanding, the Issuer agreed not to offer, sell, grant any option to purchase or otherwise dispose of any equity or equity equivalent securities of its or its subsidiaries (a "Subsequent Placement"), unless the Issuer offers to issue and sell to or exchange with each Fund (A) a pro rata portion of the securities offered in such Subsequent Placement (the "Basic Amount") or (B) with respect to each Fund that elects to purchase its Basic Amount, any portion of the other Fund's Basic Amount that is not subscribed for by such other Fund. In addition, if at any time while any Note is outstanding, the Issuer proposes to directly or indirectly effect a Subsequent Placement (other than the issuance of certain excluded stock), the Issuer agreed to offer to repurchase such Note for an aggregate price equal to the lesser of (x) the aggregate amount of the Subsequent Placement and (y) the aggregate amount required to repurchase all of the Notes pursuant to the terms of the Purchase Agreement and the Notes. The Purchase Agreement also includes negative covenants that prohibit a variety of actions without the approval of the holders of a majority of the outstanding principal amount of the Notes, including covenants that limit the Issuer's ability to (a) merge, consolidate, dissolve or liquidate, (b) repurchase or redeem shares of its capital stock, (c) declare or pay dividends or make similar distributions, (d) sell assets, (e) materially change its accounting or tax methods, (f) fail to maintain its corporate existence, (g) incur certain types of indebtedness, or (h) make certain fundamental changes to its principal business. In connection with the transactions contemplated by the Purchase Agreement, the Issuer prepared and filed a shelf registration statement covering the resale of the Common Stock issuable upon conversion of the Notes and exercise of the Warrants and any other shares of Common Stock that may be issuable in accordance with the terms of the transactions contemplated by the Purchase Agreement and the Notes and securities exchangeable therefor and any securities issued or issuable upon a stock split, dividend or other distribution, recapitalization or similar event (the "Registrable Securities"). The Issuer will be required to keep such registration statement effective until the earlier of: (i) the fifth anniversary of the date that such registration statement is first declared effective by the Securities and Exchange Commission (the "Effective Date"); (ii) such time as all Registrable Securities covered by such registration statement have been sold publicly; or (iii) such time as all of the Registrable Securities covered by such registration statement may be sold pursuant to Rule 144(k). The Purchase Agreement also provides the Funds with piggyback registration rights with respect to certain offerings of the Issuer's Common Stock. Letter Agreement Pursuant to a letter agreement, dated December 30, 2005 (the "Letter Agreement"), the Issuer agreed, among other things, to: (i) cause an individual designated by PPE3 and reasonably acceptable to the Issuer's nominating and corporate governance committee, who was initially Martin Hale to serve on the Issuer's board of directors (the "Pequot Director"); (ii) nominate the Pequot Director for re-election at each annual meeting of the Issuer's stockholders; (iii) to appoint the Pequot Director to all committees of the Issuer's board of directors, provided that the Pequot Director meets certain eligibility requirements; and (iv) enter into an indemnification agreement with the Pequot Director. The obligations of the Issuer pursuant to the Letter Agreement terminate if the Funds and their respective affiliates own or have the right to acquire, in the aggregate, less than 500,000 shares of Common Stock (subject to adjustments for stock dividends, combinations, stock splits and the like) issued or issuable upon conversion of the Notes. Martin Hale, an 4 employee of the Reporting Person, was named as a director of the Issuer on January 20, 2006. On September 26, 2006, Mr. Hale resigned as a director of the Issuer. Event Notice On September 26, 2006, in accordance with the terms of the Notes, the Funds delivered to the Issuer an event notice (the "Notice") notifying the Issuer of certain defaults under the Notes that the Funds believe occurred and requiring that the Issuer repurchase no later than the third trading day following the date of delivery of the Notice (i) the outstanding $10.0 million principal amount of the Notes at a repurchase price equal to the greater of (A) 125% of such outstanding principal amount, plus all accrued but unpaid interest thereon through the date of payment, or (B) the Equity Event Value (as defined below) of the Common Stock issuable upon conversion of such principal amount and all such accrued but unpaid interest thereon, and (ii) any shares issued upon any conversion of Notes and then owned by the Funds at a price per share equal to the Equity Event Value of such issuable and issued shares of Common Stock. "Equity Event Value" means 125% of the average of the closing prices of the Common Stock for the five trading days preceding the date of delivery of the Notice, provided, that if the Issuer does not make such required payment (together with such other payments, expenses and liquidated damages then due and payable) when due or, in the event the Issuer disputes in good faith the occurrence of the event pursuant to which the Notice relates, does not instead deposit such required payment (together with such other payments, expenses and liquidated damages then due) in escrow with an independent third-party escrow agent within five trading days of the date such payment is due, then the Event Equity Value payable shall be 125% of the greater of (a) the average of the closing prices of the Common Stock for the five trading days preceding the date of delivery of the Notice and (b) the average of the closing prices of the Common Stock for the five trading days preceding the date on which such required payment (together with such other payments, expenses and liquidated damages) is paid in full. In accordance with the terms of the Notes, if the Issuer fails to pay such amounts, interest accrues on such amounts for the period from and including the due date of such payment to but excluding the date the same is paid in full, at a rate of 18% per annum (but in no event in excess of the maximum rate permitted under applicable law). The Notes are subordinated to the Issuer's indebtedness to Square 1 Bank (the "Senior Debt"). On September 27, 2006, Square 1 Bank delivered a payment blockage notice to the Funds, requiring the Funds not to exercise any remedy with respect to the Issuer or receive any payment from the Issuer other than as permitted by the Subordination Agreement dated December 30, 2005, between the Funds and Square 1 Bank (the "Subordination Agreement") until the earlier of (i) the cure of any defaults with respect to the Senior Debt or waiver thereof by Square 1 Bank, (ii) 120 days from the date of the payment blockage notice, unless certain proceedings are commenced by Square 1 Bank, or (iii) the repayment of the Senior Debt. After the expiration of such period, the Funds may exercise their remedies and receive payments due by the Issuer, subject to the terms of the Subordination Agreement. The Reporting Person and the Issuer are in discussions with respect to the Notice, and based upon such discussions, may dispose of the Notes, Warrants, Common Stock or other securities of the Issuer (through the repurchase of the Notes by the Issuer or in any other lawful manner) or amend the Notes or acquire additional Notes, Warrants, Common Stock or other securities of the Issuer. Copies of the Purchase Agreement and the Letter Agreement are incorporated herein by reference as Exhibits 1 and 2, respectively, to Amendment No. 1. Copies of the Notice, Mr. Hale's resignation letter and the payment blockage notice are filed as Exhibits 9, 10 and 11, respectively to this Amendment No. 3, and are incorporated herein by reference. The descriptions herein of such agreements are qualified in their entirety by reference to such agreements. Item 5. Interest in Securities of the Issuer Item 5 is hereby amended and restated in its entirety as set forth below: (a) The Reporting Person beneficially owns 5,269,317 shares of Common Stock, representing 20.9% of the Issuer's Common Stock outstanding as of August 15, 2006 (after giving effect to the conversion of the Notes and the exercise of the Warrants. (b) The Reporting Person has the sole power to vote, direct the vote, dispose and direct the disposition of 5,269,317 shares of Common Stock. 5 (c) Except for the information set forth, or incorporated by reference, in Item 4, which is incorporated herein by reference, the Reporting Person has not effected any transaction relating to the Common Stock during the past 60 days. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with respect to Securities of the Issuer Item 6 is hereby amended and restated in its entirety as set forth below: Reference is made to the Purchase Agreement described in Items 3 and 4, which is incorporated herein by reference as Exhibit 1. Reference is made to the Letter Agreement and the Notice described in Item 4, which is incorporated herein by reference as Exhibits 2 and 9, respectively. Senior Subordinated Secured Convertible Notes On December 30, 2005, in connection with the transactions contemplated by the Purchase Agreement, the Issuer issued to the Funds: (i) the Series 1 Notes, in an aggregate principal amount of $7,445,493; and (ii) the Series 2 Notes, in an aggregate principal amount of $2,554,507. The Series 1 Notes bear interest at an annual rate of 3.5%, payable quarterly, subject to potential reduction in accordance with the terms of the Series 1 Notes. The outstanding principal of the Series 1 Notes is payable in 24 equal monthly installments commencing on December 30, 2007, which shall be paid in shares of Common Stock, if certain conditions are satisfied, or otherwise, in cash. At any time, at the option of the holder, all or any portion of outstanding principal and accrued but unpaid interest on the Series 1 Notes are convertible into shares of Common Stock at an initial conversion price of $2.60. The conversion price of the Series 1 Notes is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. In lieu of cash, the Funds elected to receive an aggregate of 24,831 shares of Common Stock in satisfaction of $65,148.07 of accrued interest payable on March 31, 2006 on the Series 1 Notes. In lieu of cash, the Funds elected to receive an aggregate of 32,505 shares of Common Stock in satisfaction of $65,148.07 of accrued interest payable on June 30, 2006 on the Series 1 Notes. The Series 2 Notes bear interest at an annual rate of 3.5%, payable quarterly, subject to potential reduction in accordance with the terms of the Series 2 Notes. The outstanding principal amount of the Series 2 Notes, plus accrued and unpaid interest thereon is payable in cash on December 30, 2007 or such later date as the holders of the Series 2 Notes may determine. The Issuer may make payments on the Series 2 Notes in shares of Common Stock, if certain conditions are satisfied. At the option of the holder, all or any portion of outstanding principal and accrued but unpaid interest on the Series 2 Notes are convertible into shares of Common Stock at an initial conversion price of $2.60. The conversion price of the Series 2 Notes is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. In lieu of cash, the Funds elected to receive an aggregate of 8,520 shares of Common Stock in satisfaction of $22,351.94 of accrued interest payable on March 31, 2006 on the Series 2 Notes. The Funds elected to defer receipt of such shares of Common Stock until the Maturity Date (as defined in the Notes) or such earlier date as specified by such holder in writing. In lieu of cash, the Funds elected to receive an aggregate of 11,153 shares of Common Stock in satisfaction of $22,351.94 of accrued interest payable on June 30, 2006 on the Series 2 Notes. The Notes are subject to certain redemption and repurchase rights in favor of the Funds upon the occurrence of certain events of default, the incurrence of certain debt, the consummation of certain issuances of capital stock or a change of control. Upon the occurrence of certain bankruptcy-related events, all amounts payable under the Notes are accelerated. The Notes include default provisions based upon (i) a failure to pay by the Issuer to pay its obligations under the Notes when due, (ii) an uncured default by the Issuer and/or certain of 6 its subsidiaries (the "Companies") under certain third-party agreements, (iii) the entry of certain judgments against the Companies, (iv) debarment or suspension of the Companies from government contracting, (v) a breach of the representations and warranties made by the Companies to the Funds, (vi) the Companies' uncured failure to perform material obligations to the Funds, (vii) a material adverse change to the Companies as a whole and (viii) certain bankruptcy-related events. Certain of the Company's majority-owned subsidiaries have guaranteed the repayment of the Notes and provided a senior subordinated security interest in all or substantially all of their assets as collateral to secure such guarantees. The Issuer has provided a senior subordinated security interest in all or substantially all of its assets, including the pledge of its shares of capital stock in certain of its subsidiaries. The Notes and the liens securing the Notes are subordinated to the Issuer's indebtedness to Square 1 Bank. Warrants In connection with the transactions contemplated by the Purchase Agreement, the Issuer issued the Series 1 Warrants to the Funds on December 30, 2005. The Series 1 Warrants are exercisable at any time on or prior to December 30, 2009 at an initial exercise price of $3.10 per share to purchase an aggregate of up to 1,002,278 shares of Common Stock. The Issuer issued the Series 2 Warrants to the Funds on December 30, 2005. The Series 2 Warrants are exercisable at any time on or prior to December 30, 2009 at an initial exercise price of $3.10 per share to purchase an aggregate of up to 343,876 shares of Common Stock. The exercise price of the Warrants is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. Cashless exercise is permitted. Fee Confirmation Letter Pursuant to a fee confirmation letter, dated December 30, 2005 (the "Fee Letter"), the Funds paid a fee of approximately $127,500 to CTC Aero, LLC ("CTC") for services provided by CTC in connection with an investment in the Issuer. At the time of such payment, Toffales, was a member of the board of directors of the Issuer, is the manager of CTC. 2003 Stock Incentive Plan On January 20, 2006, upon appointment to the Issuer's board of directors, Martin Hale, an employee of the Reporting Person, was named as a director of the Issuer and received options to purchase 25,000 shares of Common Stock (the "Director's Options") pursuant to the terms of the Issuer's 2003 Stock Incentive Plan, as amended (the "Plan"). Upon Mr. Hale's resignation from the Issuer's board of directors, the Director's Options were cancelled in accordance with the terms of the Plan. In addition, Mr. Hale owns 10,000 shares of Common Stock in a personal account. Pequot expressly disclaims beneficial ownership of such shares and such shares are not included in the amount specified by the Reporting Person in Item 5. The Series 1 Notes have substantially similar terms, a form of which is incorporated herein by reference as Exhibit 3. The Series 2 Notes have substantially similar terms, a form of which is incorporated herein by reference as Exhibit 4. The Series 1 Warrants have substantially similar terms, a form of which is incorporated herein by reference as Exhibit 5. The Series 2 Warrants have substantially similar terms, a form of which is incorporated herein by reference as Exhibit 6. The Fee Confirmation Letter is incorporated herein by reference as Exhibit 7. The descriptions of such agreements do not purport to be complete and are qualified in their entirety by reference to such agreements. The description of the Plan does not purport to be complete and is qualified in its entirety by reference to the Plan itself, included as Exhibit 8 hereto and is incorporated herein by reference. Item 7. Material to be Filed as Exhibits. Item 7 is hereby amended and restated in its entirety as set forth below: Exhibit 1 Purchase Agreement, by and among the Funds and the Issuer (incorporated by reference to Exhibit 10.6 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). 7 Exhibit 2 Letter Agreement, dated December 30, 2005, by and between the Issuer and PPE3 (incorporated by reference to Exhibit 3 of the Reporting Person's Schedule 13D (filed on January 10, 2006)). Exhibit 3 Form of Series 1 Notes (incorporated by reference to Exhibit 10.7 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 4 Form of Series 2 Notes (incorporated by reference to Exhibit 10.8 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 5 Form of Series 1 Warrants (incorporated by reference to Exhibit 10.9 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 6 Form of Series 2 Warrants (incorporated by reference to Exhibit 10.10 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 7 Fee Confirmation Letter, dated December 30, 2005, by and among the Funds and CTC (incorporated by reference to Exhibit 9 of the Reporting Person's Schedule 13D (filed on January 10, 2006)). Exhibit 8 Issuer's 2003 Stock Incentive Plan as amended (incorporated by reference to Exhibit 99 filed with the Issuer's Registration Statement on Form S-8 (File No. 333-124868), filed May 12, 2005). Exhibit 9 Notice, dated September 26, 2006, delivered by the Funds to the Issuer. Exhibit 10 Resignation Letter, dated September 26, 2006 from Martin Hale, Jr. (incorporated by reference to Exhibit 17.1 of the Issuer's Form 8-K, dated September 26, 2006 (filed October 2, 2006)). Exhibit 11 Notice, dated September 27, 2006, from Square 1 Bank to the Funds. 8 S I G N A T U R E After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D is true, complete, and correct. Date: October 20, 2006 Pequot Capital Management, Inc. /s/ Aryeh Davis -------------------------------------- Aryeh Davis, Chief Operating Officer, General Counsel and Secretary 9 EXHIBIT INDEX Exhibit 1 Purchase Agreement, by and among the Funds and the Issuer (incorporated by reference to Exhibit 10.6 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 2 Letter Agreement, dated December 30, 2005, by and between the Issuer and PPE3 (incorporated by reference to Exhibit 3 of the Reporting Person's Schedule 13D (filed on January 10, 2006)). Exhibit 3 Form of Series 1 Notes (incorporated by reference to Exhibit 10.7 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 4 Form of Series 2 Notes (incorporated by reference to Exhibit 10.8 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 5 Form of Series 1 Warrants (incorporated by reference to Exhibit 10.9 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 6 Form of Series 2 Warrants (incorporated by reference to Exhibit 10.10 to the Issuer's Form 8-K, dated December 30, 2005 (filed January 5, 2006). Exhibit 7 Fee Confirmation Letter, dated December 30, 2005, by and among the Funds and CTC (incorporated by reference to Exhibit 9 of the Reporting Person's Schedule 13D (filed on January 10, 2006)). Exhibit 8 Issuer's 2003 Stock Incentive Plan as amended (incorporated by reference to Exhibit 99 filed with the Issuer's Registration Statement on Form S-8 (File No. 333-124868), filed May 12, 2005). Exhibit 9 Notice, dated September 26, 2006, delivered by the Funds to the Issuer. Exhibit 10 Resignation Letter, dated September 26, 2006 from Martin Hale, Jr. (incorporated by reference to Exhibit 17.1 of the Issuer's Form 8-K, dated September 26, 2006 (filed October 2, 2006)). Exhibit 11 Notice, dated September 27, 2006, from Square 1 Bank to the Funds. 10 EX-9 2 e8859006v1.txt Exhibit 9 [PEQUOT VENTURES] September 26, 2006 VIA FACSIMILE AND OVERNIGHT COURIER Irvine Sensors Corporation 3001 Red Hill Avenue Costa Mesa, California 92626 Attn: John J. Stuart, Jr. Re: Event Notice/Event of Default Ladies and Gentlemen: Reference is made to (i) the Securities Purchase Agreement, dated as of December 30, 2005 (the "Agreement"), by and among Irvine Sensors Corporation (the "Company") the purchasers listed on the signature pages thereto (including the undersigned), (ii) the Senior Subordinated Secured Convertible Notes dated of even date therewith (the "Notes") in the aggregate principal amount of $10,000,000 issued pursuant thereto, and (iii) the notice of Event of Default delivered to the Company on August 2, 2006 by the undersigned (the "Default Notice"). Any capitalized term used herein and not defined herein shall have the meaning assigned to it in the Agreement and the Notes. In addition to the Events of Default referred to in the Default Notice, there have been other and further defaults by the Company, including, but not limited to, (i) the Company's failure to comply with its obligations to (x) engage an independent compensation consultant pursuant to Section 4.21 of the Agreement and (y) use commercially reasonable efforts to resolve the material weakness identified in the Company's Form 10-K filed with the Commission on December 12, 2005 pursuant to Section 4.23 of the Agreement, (ii) the termination of Joe Carleone's employment with the Company, and (iii) the Notices of Default referred to in the letter from Square 1 Bank to the Company dated September 18, 2006 and the other matters referenced therein. Pursuant to Section 8(b) of the Notes, this letter shall constitute an Event Notice to the Company. Unless this Event Notice is earlier revoked in writing by the undersigned, please make arrangement for the payment of the Event Price as provided in the Notes. If you wish to review the exact amount of the Event Price, please contact us at your earliest convenience. We fully reserve all of our respective rights and remedies under the Agreement, the Notes and otherwise. This Event Notice neither constitutes, nor shall it be deemed to constitute, either a waiver of any default not specified herein which may exist on the date hereof, or an election of any right or remedy by the undersigned. The undersigned reserve the right to pursue any right or remedy they may have against the Company, the Subsidiaries, or other obligors with respect to the subject obligation, subsequent to, or contemporaneously with, the pursuit of any other right or remedy. Partial payment of the Event Price may, at the option of the undersigned, be accepted and applied on account of the due and unpaid balance. If so accepted, however, such partial payment shall be without waiver of or prejudice to any rights or remedies available to the undersigned on account of unpaid amounts and shall not constitute a defense in any collection proceedings. Nothing contained herein shall entitle the Company or any other party to further notice or demand. [Signature Page Follows] Very truly yours, Pequot Private Equity Fund III, L.P. By: Pequot Capital Management, Inc., its Investment Manager By: /s/ Carlos Rodrigues Name: Carlos Rodrigues Title: CFO, Pequot Ventures Pequot Offshore Private Equity Partners III, L.P. By: Pequot Capital Management, Inc., its Investment Manager By: /s/ Carlos Rodrigues Name: Carlos Rodrigues Title: CFO, Pequot Ventures cc: Dorsey & Whitney LLP 38 Technology Drive Irvine, California 92618-5310 Attn: Ellen Bancroft, Esq. cc: Proskauer Rose LLP 1585 Broadway New York, New York 10036 Attn: Adam J. Kansler, Esq. EX-11 3 e8862839v1.txt EXHIBIT 11 September 27, 2006 By Facsimile and Overnight Courier ---------------------------------- Pequot Offshore Private Equity Partners III, L.P. c/o Pequot Capital Management, Inc. 500 Nyala Farm Road Westport, CT 06880 Attn: Aryeh Davis, Carlos Rodrigues Re: Subordination Agreement dated as of December 30, 2005 between Pequot Offshore Private Equity Partners III, L.P., and Square 1 Bank (the "Agreement") Dear Messrs. Davis and Rodrigues: This letter constitutes a Payment Blockage Notice as defined in the Agreement. Pursuant to the terms of the Agreement, Pequot may not exercise any remedy with respect to Borrower nor receive any payment, other than as specifically set forth in the Agreement, from the date of this notice through the period specified in the Agreement. The attached September 15, 2006 Notice of Default to Irvine Sensors Corporation (the "Borrower") formally notified the Borrower of its default under section 6.7(b) of the Loan and Security Agreement between the Borrower and Square 1 Bank. Please contact the undersigned if you have any questions. Very truly yours, /s/ Michael Berrier Michael Berrier Senior Vice President Regional Manager cc: Proskauer Rose LLP 1585 Broadway New York, NY 10036-8299 Attn: Adam J. Kansler, Esq. Square 1 Bank 406 Blackwell St. Ste. 240 Durham, NC 27701 Office (919)-314-3040 Fax (919)-314-3080 September 15, 2006 John Stuart Chief Financial Officer Irvine Sensors Corporation 3001 Red Hill Avenue, Building 3, Suite 108 Costa Mesa, CA 92626-4526 Re: Square 1 Bank Loan and Security Agreement Violation Dear John: With reference to the Loan and Security Agreement between Irvine Sensors Corporation ("Borrower") and Square 1 Bank ("Bank") dated December 30th, 2005 (as amended, the "Agreement"), the Borrower is in violation of the Debt Service Coverage Ratio financial covenant, as more particularly described in Section 6.7(b) of the Agreement, for the period ending July 31, 2006. Under the terms of the Agreement, Borrower is required to meet a Debt Service Coverage Ratio of 1.2 to 1.00. For the period ending July 31, 2006 the Debt Service Coverage Ratio was (0.94):1.00. Borrower is also in default under Section 8.6 of the Agreement as a result of Borrower's default under the Pequot Notes referenced in Borrower's Form 10-Q filed with the Securities and Exchange Commission on August 21, 2006. This letter constitutes a notice of default and does not modify the Agreement or constitute a waiver of any current or future violation of the terms and conditions of the Agreement, including, without limitation, those referenced in that certain letter sent by the Bank on August 2, 2006. Please be advised that the Bank will not advance to Borrower any additional funds under the Agreement during the continuance of the default described in this letter, Bank reserves the right to exercise its rights and remedies against Borrower in connection with this breach or any other breach. Very truly yours, /s/ Michael Berrier Michael Berrier Senior Vice President Regional Manager Square 1 Bank 406 Blackwell St. Ste. 240 Durham, NC 27701 Office (919)-314-3040 Fax (919)-314-3080 September 27, 2006 Pequot Private Equity Fund III, L.P. c/o Pequot Capital Management, Inc. 500 Nyala Farm Road Westport, CT 06880 Attn: Aryeh Davis; Carlos Rodrigues Re: Subordination Agreement dated as of December 30, 2005 between Pequot Private Equity Fund III, L.P., and Square 1 Bank (the "Agreement") Dear Messrs. Davis and Rodrigues: This letter constitutes a Payment Blockage Notice as defined in the Agreement. Pursuant to the terms of the Agreement, Pequot may not exercise any remedy with respect to Borrower nor receive any payment, other than as specifically set forth in the Agreement, from the date of this notice through the period specified in the Agreement. The attached September 15, 2006 Notice of Default to Irvine Sensors Corporation (the "Borrower") formally notified the Borrower of its default under section 6.7(b) of the Loan and Security Agreement between the Borrower and Square 1 Bank. Please contact the undersigned if you have any questions. Very truly yours, /s/ Michael Berrier Michael Berrier Senior Vice President Regional Manager cc: Proskauer Rose LLP 1585 Broadway New York, NY 10036-8299 Attn: Adam J. Kansler, Esq. Square 1 Bank 406 Blackwell St. Ste. 240 Durham, NC 27701 Office (919)-314-3040 Fax (919)-314-3080 September 15, 2006 John Stuart Chief Financial Officer Irvine Sensors Corporation 3001 Red Hill Avenue, Building 3, Suite 108 Costa Mesa, CA 92626-4526 Re: Square 1 Bank Loan and Security Agreement Violation Dear John: With reference to the Loan and Security Agreement between Irvine Sensors Corporation ("Borrower") and Square 1 Bank ("Bank") dated December 30th, 2005 (as amended, the "Agreement"), the Borrower is in violation of the Debt Service Coverage Ratio financial covenant, as more particularly described in Section 6.7(b) of the Agreement, for the period ending July 31, 2006. Under the terms of the Agreement, Borrower is required to meet a Debt Service Coverage Ratio of 1.2 to 1.00. For the period ending July 31, 2006 the Debt Service Coverage Ratio was (0.94):1.00. Borrower is also in default under Section 8.6 of the Agreement as a result of Borrower's default under the Pequot Notes referenced in Borrower's Form 10-Q filed with the Securities and Exchange Commission on August 21, 2006. This letter constitutes a notice of default and does not modify the Agreement or constitute a waiver of any current or future violation of the terms and conditions of the Agreement, including, without limitation, those referenced in that certain letter sent by the Bank on August 2, 2006. Please be advised that the Bank will not advance to Borrower any additional funds under the Agreement during the continuance of the default described in this letter. Bank reserves the right to exercise its rights and remedies against Borrower in connection with this breach or any other breach. Very truly yours, /s/ Michael Berrier Michael Berrier Senior Vice President Regional Manager Square 1 Bank 406 Blackwell St. Ste. 240 Durham, NC 27701 Office (919)-314-3040 Fax (919)-314-3080 -----END PRIVACY-ENHANCED MESSAGE-----