This Subordinated Guaranty Agreement is subject to the terms and provisions of
the Intercreditor and Subordination Agreement by and between GRANITE CREEK
PARTNERS AGENT, LLC, as Junior Agent on behalf of itself and the Junior Lenders,
and TD BANK, N.A. dated as of July 29, 2010 (as amended, restated, supplemented
or otherwise modified from time to time, the "Subordination Agreement") and each
holder of the Loans, by its acceptance hereof, shall be bound by the provisions
of the Subordination Agreement.
 
SUBORDINATED GUARANTY AGREEMENT
 
THIS SUBORDINATED GUARANTY AGREEMENT (this "Agreement") is made as of this 29th
day of July, 2010, by CYALUME TECHNOLOGIES HOLDINGS, INC., a Delaware
corporation ("Guarantor"), to GRANITE CREEK PARTNERS AGENT, LLC, as agent (the
"Agent") under the Subordinated Loan Agreement dated as of the date hereof (as
amended, restated, modified, supplemented and in effect from time to time, the
"Loan Agreement").  Capitalized terms used in this Agreement and not otherwise
defined shall have the same meanings herein as in the Loan Agreement.
 
WITNESSETH:
 
WHEREAS, Guarantor owns one hundred percent (100%) of the outstanding capital
stock of CYALUME TECHNOLOGIES, INC., a Delaware corporation (the "Borrower");
and
 
WHEREAS, Guarantor, the Borrower, the Agent and the other Lenders from time to
time party thereto have entered into the Loan Agreement, pursuant to which the
Lenders have agreed, subject to the terms and conditions set forth therein, to
make Loans to the Borrower (collectively, the "Loans"); and
 
WHEREAS, the making of the Loans to the Borrower pursuant to the Loan Agreement
will be beneficial to Guarantor because of its direct ownership interest in the
Borrower; and
 
WHEREAS, the obligations of the Agent and the Lenders to enter into the Loan
Agreement, and the obligations of the Lenders to make the Loans, are subject to
the condition, among others, that Guarantor execute and deliver this Agreement.
 
NOW, THEREFORE, in consideration of the willingness of the Agent and Lenders to
enter into the Loan Agreement and of the Lenders to make the Loans to the
Borrower thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by Guarantor, Guarantor hereby
agrees as follows:
 
 
 

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1.            Guaranteed Obligations; Limitation.
 
(a)          Guarantor does hereby irrevocably, unconditionally guarantee, as if
a primary obligor and not merely as surety, the due and punctual payment and
performance by the Borrower of the following obligations to the Lenders
(individually, a "Guaranteed Obligation" and collectively the "Guaranteed
Obligations"):
 
(i)           principal of and premium, if any, and interest on the Loans
(including, without limitation, the payment of interest, and other amounts that
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of Title 11 of the
United States Code, as amended (the "Bankruptcy Code")); and
 
(ii)          any and all other Obligations, and any and all other obligations
of the Borrower to the Agent and the Lenders under the Loan Agreement or the
other Loan Documents including, without limitation, under the Term Loan Notes
and the Delayed Draw Notes, all as amended from time to time and whether
executed on or after the date hereof, whether for principal, interest, fees,
premiums, expenses, indemnification or otherwise.
 
2.            Payment Under Guaranty.  Upon failure by the Borrower punctually
to pay or perform any Guaranteed Obligation when due (whether at maturity, at a
date fixed for any payment or prepayment thereof or upon acceleration or
otherwise), after the expiration of any applicable grace period, the Agent may
make written demand upon Guarantor for the full payment and/or performance of
the Guaranteed Obligations, and Guarantor binds and obliges itself to make such
payment or performance forthwith upon such demand.
 
GUARANTOR ACKNOWLEDGES THAT ALL GUARANTEED OBLIGATIONS SHALL, TO THE FULLEST
EXTENT PERMISSIBLE UNDER ANY LAW NOW OR HEREAFTER APPLICABLE HERETO, BE
CONCLUSIVELY PRESUMED TO HAVE BEEN CREATED IN RELIANCE ON THIS AGREEMENT.
 
3.            Waiver of Demands, Notices, Diligence, etc.  Guarantor hereby
assents to all of the terms and conditions of the Guaranteed Obligations and
waives, to the extent permitted by applicable law:
 
(a)          each of:
 
(i)           demand for the payment of the principal of any Guaranteed
Obligation or of any claim for interest or any part thereof (other than the
demand provided for in Section 2 hereof);
 
(ii)           notice of (A) the occurrence of a default or an event of default
under any Loan Document, and (B) any forbearance or waiver by the Lenders of any
Guaranteed Obligation;
 
 
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(iii)         protest of the nonpayment of the principal of any Guaranteed
Obligation or of any claim for interest or any part thereof;
 
(iv)         notice of presentment, demand (other than the demand provided for
in Section 2 hereof) and protest;
 
(v)          notice of any indulgences or extensions granted to the Borrower or
any successor to the Borrower or any person or party which shall have assumed
the obligations of the Borrower;
 
(vi)        any requirement of diligence or promptness on the part of the Agent
or Lenders in the enforcement of any of its or their rights under the provisions
of any Guaranteed Obligation or any Loan Document or this Agreement;
 
(vii)        any enforcement of any Guaranteed Obligation;
 
(viii)      any right which Guarantor might have to require the Agent or the
Lenders to marshal or proceed against any other guarantor of the Guaranteed
Obligations or to realize on any Collateral therefor; and
 
(ix)         any and all notices of every kind and description which may be
required to be given by any statute or rule of law in any jurisdiction.
 
(b)          all rights and benefits under any applicable law purporting to
reduce a guarantor's obligations in proportion to the obligation of the
principal or providing that the obligation of a surety or guarantor must neither
be larger nor in any other respect more burdensome than that of the principal;
provided, however, that nothing contained herein shall operate as a waiver of
any defense that the Borrower may assert on the underlying debt directly;
 
(c)          the benefit of any statute of limitations affecting the Guaranteed
Obligations or Guarantor's liabilities hereunder or under any other law now or
hereafter applicable hereto;
 
(d)          any rights, defenses and other benefits that Guarantor may have by
reason of (i) any failure of the Agent to hold a commercially reasonable public
or private foreclosure sale or to otherwise comply with applicable law in
connection with a disposition of any Collateral for the Guaranteed Obligations;
(ii) any election of remedies made by the Agent under the Uniform Commercial
Code, as adopted in the State of Illinois or in another State in which
Collateral may be located or whose laws are otherwise deemed to govern the terms
of this Agreement; or (iii) any protection afforded pursuant to the anti
deficiency or similar other laws of the State of Illinois, any other State in
which Collateral may be located or any other state limiting or discharging the
Borrower's indebtedness or purporting to limit the amount of any deficiency
judgment; and
 
(e)          any rights, defenses, claims or benefits waived in Section 4
hereof.  The waivers and other provisions set forth in this Section 3 and in
Section 4 shall be effective notwithstanding the fact that the Borrower ceases
to exist by reason of its liquidation, merger, consolidation, voluntary or
involuntary dissolution or otherwise.
 
 
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4.            Obligations of Guarantor Unconditional; Continuing and Irrevocable
Guaranty.
 
(a)          All payments hereunder shall be made free and clear of any and all
deductions, withholdings or setoffs, including any and all deductions,
withholdings or setoffs on account of taxes.  The liability of Guarantor
hereunder is independent of and not in consideration of or contingent upon the
liability of the Borrower to the Lenders and a separate action or actions may be
brought and prosecuted against Guarantor, whether or not any action is brought
or prosecuted against the Borrower and regardless of whether the Borrower is
joined in any such action or actions.  This Agreement shall be construed as a
continuing, absolute and unconditional guaranty of payment (and not merely of
collection) without regard, to the extent permitted by applicable law, to:
 
(i)           the legality, validity or enforceability of the Loan Agreement or
any other Loan Document or any of the other Guaranteed Obligations, any lien of
the Agent on any item of Collateral or any other guaranty;
 
(ii)          any defense (other than payment), deduction (including deductions
for taxes), withholding, setoff or counterclaim that may now or at any time
hereafter be available to the Borrower, Guarantor or other obligor against, and
any right of setoff at any time held by, the Agent or the Lenders;
 
(iii)         any claim arising out of or relating to any amendment (including
amendments which increase the amount of Loans made or available to the Borrower
thereunder), extension or other modification of the Loan Agreement or any other
Loan Document consented to by the Agent or Lenders, and Guarantor acknowledges
and agrees that the Agent and Lenders shall be entitled to amend, extend,
forbear under, waive any Default or Event of Default or take any other action
deemed advisable in the sole discretion of the Agent and Lenders with respect to
the Loan Agreement and the other Loan Documents; or
 
(iv)        any other circumstance whatsoever, legal or equitable, (with or
without notice to or knowledge of Guarantor), whether or not similar to any of
the foregoing, that constitutes, or might be construed to constitute, an
equitable or legal discharge of or defense to payment available to the Borrower,
Guarantor or other obligor under the Loan Agreement or other Loan Documents or
under applicable law, including the Bankruptcy Code, or in any other instance.
 
Any payment or other circumstance that operates to toll any statute of
limitations applicable to any Guaranteed Obligations shall also operate to toll
the statute of limitations applicable to Guarantor.  The obligations of
Guarantor under this Agreement shall not be affected by any action taken under
any Guaranteed Obligation in the exercise of any right or remedy therein
conferred, or by any failure or omission on the part of the Agent to enforce any
right given thereunder or hereunder or any remedy conferred thereby or hereby,
or by any release of any security or any other guaranty at any time existing for
the benefit of any Guaranteed Obligation, or by the merger or consolidation of
the Borrower, or by the sale, lease or transfer by the Borrower to any Person of
any or all of its respective properties.
 
 
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(b)          This is a continuing guaranty of the Guaranteed Obligations and may
not be revoked and shall not otherwise terminate until the date on which the
Guaranteed Obligations have been paid and performed in full in cash, and the
obligations of the Lenders to make Loans under the Loan Agreement shall have
terminated.
 
5.            Subordination of Claims of Guarantor; Waiver of Subrogation and
Certain Other Rights.  Any claims against the Borrower or any other guarantor
under the Loan Agreement or any other Person from time to time party to the Loan
Agreement as "Borrower" or "Guarantor" (collectively, the "Loan Parties" and
each a "Loan Party") to which Guarantor may be or become entitled (including,
without limitation, claims by subrogation or otherwise by reason of any payment
or performance by Guarantor in satisfaction and discharge, in whole or in part,
of its obligations under this Agreement) shall be and hereby are made subject
and subordinate to the prior payment in full in cash and performance in full of
the Guaranteed Obligations. WITHOUT LIMITING THE FOREGOING, GUARANTOR WAIVES ANY
AND ALL RIGHTS OF SUBROGATION, INDEMNITY, CONTRIBUTION OR REIMBURSEMENT, AND ANY
AND ALL BENEFITS OF AND RIGHT TO ENFORCE ANY POWER, RIGHT OR REMEDY THAT THE
LENDER MAY NOW OR HEREAFTER HAVE IN RESPECT OF THE GUARANTEED OBLIGATIONS
AGAINST THE BORROWER, GUARANTOR OR ANY OTHER OBLIGOR, ANY AND ALL BENEFITS OF
AND RIGHTS TO PARTICIPATE IN ANY COLLATERAL, NOW OR HEREAFTER HELD BY THE AGENT
OR THE LENDERS, AND ANY AND ALL OTHER RIGHTS AND CLAIMS (AS DEFINED IN THE
BANKRUPTCY CODE) GUARANTOR MAY HAVE AGAINST THE AGENT, THE LENDERS, THE
BORROWER, ANY OTHER LOAN PARTY OR ANY OTHER OBLIGOR, UNDER APPLICABLE LAW OR
OTHERWISE, AT LAW OR IN EQUITY, BY REASON OF ANY PAYMENT HEREUNDER OR OTHERWISE,
UNLESS AND UNTIL THE GUARANTEED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN
FULL IN CASH.  If, notwithstanding the foregoing, any amount shall be paid to
Guarantor on account of any such rights at any time, such amount shall be held
in trust for the benefit of the Agent and Lenders and shall forthwith be paid to
the Agent to be credited and applied in reduction of the Guaranteed Obligations
in accordance with the terms of the Loan Agreement.
 
6.            Representations and Warranties of Guarantor.  In order to induce
the Agent and Lenders to enter into the Loan Agreement and to induce the Lenders
to make the Loans to the Borrower thereunder, Guarantor represents and warrants
that:
 
(a)          This Agreement constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of creditors' rights
generally.
 
 
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(b)          Guarantor hereby acknowledges that it has reviewed and caused its
counsel to review copies of, and is fully familiar with, this Agreement, the
Loan Agreement, the other Security Documents and each of the other Loan
Documents executed and delivered by the Borrower and the other Loan
Parties.  Guarantor warrants and agrees that each representation, warranty and
waiver set forth in this Agreement is made with Guarantor having full knowledge
of its significance and consequences and after having consulted with counsel of
its own choosing and that, under the circumstances, each such waiver is in the
best interest of Guarantor in furtherance of its business plan, is reasonable
and should not be found contrary to public policy or law.
 
Guarantor acknowledges and agrees that any breach of any representation,
warranty or covenant of Guarantor in this Agreement may constitute an Event of
Default under the Loan Agreement and under each of the other Loan Documents.
 
7.            Set-off.  In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of an Event of Default, the Agent is
hereby authorized, to the extent not prohibited by applicable law, without prior
notice to Guarantor or to any other Person, any such notice being expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by the Lender to
or for the credit or the account of Guarantor, against and on account of the
obligations and liabilities of Guarantor to the Agent under this Agreement then
due and payable, irrespective of whether the Lender shall have made any demand
hereunder.  The Agent agrees to promptly notify Guarantor after any such set off
and application, provided, however, that the failure to give such notice shall
not affect the validity of such set off and application.
 
8.            Reinstatement.  This Agreement shall continue to be effective, or
be reinstated, as the case may be, if at any time any amount received by the
Lenders in respect of the Guaranteed Obligations is rescinded or must otherwise
be restored or returned by the Lenders upon the insolvency, bankruptcy,
dissolution (voluntary or involuntary), liquidation or reorganization of the
Borrower, Guarantor or any other Loan Party, or upon the appointment of an
intervenor or conservator of, or trustee or similar official for, the Borrower,
Guarantor or any other Loan Party or any substantial part of any of their
respective properties, or otherwise, all as though said payments had not been
made.
 
9.           Notices.  All notices and other communications to Guarantor or the
Agent hereunder shall be in writing and shall be personally delivered or mailed
by telegraphic, telex or facsimile transmission, reputable overnight courier or
first class mail, postage prepaid, as follows:
 
If to the Agent:
Granite Creek Partners Agent, LLC
222 W. Adams St., Suite 1980
Chicago, Illinois  60606
Attention:        Brian Boorstein

 
 
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with a copy to:
Goldberg Kohn Ltd.
55 East Monroe Street
Suite 3300
Chicago, Illinois  60603
Attention:        Denise Caplan
Telephone:      (312) 201-4000
Telecopy:        (312) 332-2196
   
If to Guarantor:
Cyalume Technologies Holdings, Inc.
65 Challenger Road
Ridgefield Park, New Jersey 07660
Attention:        Yaron Eitan
   
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York  10154
Attention:        Mitch Nussbaum, Esq.
Telephone:      212-407-4159
Facsimile:       212-407-4990

 
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other parties hereto.  A notice
shall be deemed to have been duly given and made and to have become effective
(i) if delivered by hand, overnight courier or facsimile to a responsible
officer of the party to which it is directed, at the time of the receipt thereof
by such officer or the sending of such facsimile and (ii) if sent by registered
or certified first-class mail, postage prepaid, on the third Business Day
following the mailing thereof.
 
10.           Miscellaneous; Successors; Counterparts; Severability.
 
(a)           This Agreement shall inure to the benefit of and be binding upon
the Agent, the Lenders and Guarantor and their respective successors and
assigns, and the term "Lender" shall be deemed to include any other holder or
holders of any of the Guaranteed Obligations.  In case any provision in this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.  This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
shall be an original, but all of which together shall constitute one
instrument.  References herein to this "Agreement" shall be deemed references to
this Agreement as amended, modified and/or supplemented from time to time.
 
(b)           All covenants under this Agreement shall be given independent
effect so that if a particular action or condition is not permitted by any such
covenant, the fact that it would be permitted by another covenant, by any
exception thereto, or otherwise within the limitations thereof, shall not avoid
the occurrence of a Default or Event of Default if such action is taken or such
condition exists.
 
 
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(c)           None of the parties to this Agreement shall be deemed to be the
drafter of this Agreement, and this Agreement shall not be interpreted in favor
of or against any party hereto on such basis.
 
(d)           No claim shall be made by Guarantor against the Agent, any Lender
or their respective Affiliates, directors, officers, employees or agents for any
special, indirect, consequential or punitive damages in respect of any claim for
breach of contract or under any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act, omission
or event occurring in connection therewith; and Guarantor waives, releases and
agrees not to sue upon any claim for any such damages.
 
11.           Governing Law; Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT,
INCLUDING THE VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF ILLINOIS. GUARANTOR, TO THE EXTENT THAT IT MAY LAWFULLY DO SO, HEREBY
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND THE
UNITED STATES DISTRICT COURT FOR THE STATE OF ILLINOIS, AS WELL AS TO THE
JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF ITS
OBLIGATIONS HEREUNDER OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY,
AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY SUCH
COURTS. GUARANTOR FURTHER AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN
ACTION OR PROCEEDING IN ANY OF SUCH COURTS SHALL BE PROPERLY SERVED AND SHALL
CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO IT AT
ITS ADDRESS AS PROVIDED IN SECTION 9 HEREOF OR AS OTHERWISE PROVIDED UNDER THE
LAWS OF THE STATE OF ILLINOIS. GUARANTOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST IT IN
RESPECT OF ITS OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
12.           Subordination Agreement.  Notwithstanding any provision to the
contrary in this Agreement, this Agreement, the Liens and security interests
granted to the Agent and Lenders, at law or equity, pursuant to this Agreement
and the other Loan Documents, and the exercise of any right or remedy by the
Agent or any Lender hereunder are subject to the provisions of the Subordination
Agreement.  Agent and Lenders acknowledge and agree to be bound by the
Subordination Agreement.  In the event of any conflict between the terms of the
Subordination Agreement and this Agreement or the other Loan Documents, the
terms of the Subordination Agreement shall govern.
 
 
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Guarantor acknowledges that the Subordination Agreement and the rights and
benefits thereof (as specific references thereto herein) inure only to the
benefit of the holders of the Senior Debt and that no other Person, including
the Borrower and Guarantor, shall have or be entitled to assert any rights or
benefits hereunder arising under the Subordination Agreement or by virtue of the
existence of the specific references thereto herein.
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 

 
CYALUME TECHNOLOGIES HOLDINGS, INC.
     
By:
/s/ Derek Dunaway
 
Name:
  Derek Dunaway
 
Title
  Chief Executive Officer

 
Signature Page to Subordinated Guaranty Agreement
 
 

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The foregoing Agreement is hereby accepted:
     
GRANITE CREEK PARTNERS AGENT, LLC, as Agent
     
By:
/s/ Brian B. Boorstein
 
Name:
Brian B. Boorstein
 
Title:
Managing Member
 

 
Signature Page to Subordinated Guaranty Agreement
 
 

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