X0202 3 2005-12-30 0 0000357108 IRVINE SENSORS CORP/DE/ IRSN 0001071955 PEQUOT CAPITAL MANAGEMENT INC 500 NYALA FARM ROAD WESTPORT CT 06880 0 0 0 1 See Footnote 1 Series 1 Senior Subordinated Convertible Note 2.6 2009-12-30 Common Stock 7445493 I Investment Advisor Series 2 Senior Subordinated Convertible Note 2.6 2007-12-30 Common Stock 2554507 I Investment Advisor Common Stock Series 1 Warrant (Right-to-buy) 3.10 2009-12-30 Common Stock 1002278 I Investment Advisor Common Stock Series 2 Warrant (Right-to-buy) 3.10 2009-12-30 Common Stock 343876 I Investment Advisor Pequot Capital Management, Inc. ('Pequot') is an investment advisor registered under Section 203 of the Investment Advisers Act of 1940 and has voting and investment power with respect to securities in its clients' accounts. Pequot disclaims any obligation to file this report, and this report shall not be deemed an admission that Pequot is subject to Section 16 with respect to the Issuer of such securities. Pequot disclaims beneficial ownership of these securities, and this report shall not be deemed an admission that Pequot is, for the purposes of Section 16 of the Exchange Act or otherwise, the beneficial owner of such securities. The Series 1 Senior Subordinated Convertible Notes (the "Senior 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 is payable in shares of the Issuer's Common Stock, par value $0.01 per share (the "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; #3 continued: provided, that the conversion of the Series 1 Notes and the exercise of the Series 1 Warrants (as defined below) does not exceed 19.99% of the Common Stock outstanding prior to December 30, 2005 (the "Closing Date") unless the Issuer obtains the approval of the stockholders of the issuance of the shares of Common Stock issuable upon conversion of the Series 1 Notes and the Series 2 Notes (as defined below) and exercise of the Series 1 Warrants and the Series 2 Warrants (each, as defined below) (the "Stockholder Approval"). The conversion price of the Series 1 Notes is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. The Series 2 Senior Subordinated Convertible Notes (the "Senior 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, plus accrued and unpaid interest on, the Series 2 Notes 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 any time after the Issuer obtains the Stockholder Approval, 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. #5 continued: Unless the Stockholder Approval is obtained, the Series 2 Notes are payable only in cash in accordance with the terms of the Series 2 Notes and are not convertible into Common Stock. The conversion price of the Series 2 Notes is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. 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; provided, that the aggregate number of shares of Common Stock issuable upon the conversion of the Series 1 Notes and the exercise of the Series 1 Warrants shall not exceed 19.99% of the Issuer's Common Stock outstanding prior to Closing Date unless the Issuer obtains the Stockholder Approval. The exercise price of the Series 1 Warrants is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. Cashless exercise is permitted. The Series 2 Warrants are exercisable at any time after the Issuer obtains the Stockholder Approval and 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 Series 2 Warrants is subject to adjustment for stock splits, stock dividends and certain other distributions and equity sales. Cashless exercise is permitted. Aryeh Davis, GC & COO, Pequot Capital Management, Inc. 2006-01-09