COSTA MESA, Calif., Jan. 3, 2006 -- Irvine Sensors Corp. announced today it has purchased 70 percent of the stock of Optex Systems Inc., a Richardson, Texas, maker of optical sighting systems and assemblies primarily for Department of Defense (DOD) applications, for $14 million in cash. Optex makes periscope configurations, rifle and surveillance sights and night-vision optical assemblies for the military services and prime contractors for military land vehicles. Its products are installed on most US military land vehicles, such as the Abrams and Bradley fighting vehicles, light-armored and advanced security vehicles, and were selected for installation on the Future Combat Systems Stryker vehicle. Optex's revenues for calendar 2005 were approximately $19 million. Irvine Sensors, based in Costa Mesa, Calif., is a developer of miniaturized infrared and electro-optical cameras, image processors and stacked chip assemblies, and research and development related to high-density electronics, miniaturized sensors, optical interconnection technology, high-speed network security, image processing and low-power analog and mixed-signal integrated circuits for systems applications. John Carson, CEO and president of Irvine Sensors, said, "The acquisition of Optex not only nearly doubles our revenues, it accelerates our transition toward a product-dominated business with the ability to more aggressively exploit our advanced technology. We also look forward to the prospects of integrating some of our night-vision and laser imaging technologies with Optex's optical sights to expand both of our addressable markets." The purchase price is subject to adjustment upon completion of Optex's 2005 audit, plus a cash earnout of up to $4 million payable over the next three years if certain cash flow milestones are achieved. The purchase was financed by a combination of $4.9 million of senior secured debt from Square 1 Bank under a four-year term loan and $10 million of subordinated secured debt from Pequot Ventures, the private equity arm of Pequot Capital Management Inc. Approximately $7.4 million of the Pequot debt is convertible into common stock of Irvine Sensors at the rate of $2.60 per share, with the balance potentially convertible at the same rate, subject to stockholder approval. In connection with the Pequot financing, the company granted warrants to purchase approximately 1,346,000 shares of Irvine Sensors common stock at an exercise price of $3.10 per share, of which approximately 344,000 shares are subject to stockholder approval. Irvine Sensors also received a $2 million revolving line-of-credit from Square 1 Bank to address its working capital requirements subsequent to the Optex acquisition. Subject to stockholder approval, Irvine Sensors will acquire the remaining 30 percent of Optex's stock in exchange for the issuance of 2,692,308 shares of its common stock. The authority for this subsequent transaction, the conversion of the remaining portion of the Pequot debt and the issuance of shares pursuant to contingent warrants will be sought at the Irvine Sensors annual stockholders meeting, set for March 7. If stockholder approval is not obtained, the balance of the Pequot debt of approximately $2.6 million will remain payable in cash in two years. Martin Hale Jr., managing director of Pequot Ventures, will be nominated for election to Irvine Sensors' board at the annual meeting. For more information, visit: www.irvine-sensors.com