EMPLOYMENT
AGREEMENT


 


This Employment Agreement
(the “Agreement”) is made and entered into between Cyalume Specialty Products, Inc., a Delaware Corporation (the “Company”),
and James G. (Jamie) Schleck, (the “Employee”).


 


WHEREAS, the Company
desires to employ Employee as President of the Company, and Employee desires to accept such employment upon the terms and conditions
set forth herein.


 


NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:


 


		1.	TERM.



 


This Agreement shall be for
an initial term, beginning on the date of the Acquisition (estimated to be September 1, 2011) and ending December 31, 2013. Thereafter,
the Agreement shall renew for a period of one year unless and until terminated by either party upon thirty days’ written
notice prior to the Agreement’s anniversary/expiration date, or until terminated pursuant to Section 8 of this Agreement.


 


		2.	DUTIES OF EMPLOYEE.



 





(a)           Duties.
  Employee shall be employed as President. Employee’s duties shall be such executive, managerial, administrative,
and professional duties as are commensurate with the position of President, and as assigned by the President of Cyalume Technologies
Holdings, Inc., or the Board of Directors of the Company, or by their authorized designees. The Employee may delegate duties to
other employees of the Company as he reasonably determines is in the best interest of the Company, consistent with the general
authority and power given to him hereunder.


 


(b)          Exclusive
Employment.   Employee shall devote the whole of his business time, attention and abilities to carrying out his
duties hereunder, with the exception of a limited amount of executive’s time devoted to winding down activities at JFC Technologies
and activities of the landlord, Brook Industrial Park and activities listed in Schedule 3.8 of the Asset Purchase Agreement.


 


(c)          Loyal and
Conscientious Performance.   Employee agrees that to the best of his ability and experience, and in compliance with
all applicable laws and the Company’s policies, Certificate of Incorporation and Bylaws, as they may be amended from time
to time, he will at all times loyally and conscientiously perform all the duties and obligations required of him by the terms
of this Agreement. Employee further agrees he shall use his best efforts to promote the interests and reputation of the Company
and its affiliates and not do anything which is to the detriment of the Company or its affiliates.


 


		3.	COMPENSATION AND BENEFITS.



 





(a)          Salary.  
For all the services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee, in equal installments
consistent with the Company’s practices for its employees, salary and compensation as set forth in Schedule 1 attached
to this Agreement and incorporated herein. Upon providing timely notice, the Company shall have the ability to withhold from the
compensation otherwise due to Employee under this Agreement any amounts required to be withheld from compensation from time to
time under applicable law. Tax withholding will occur automatically and benefit costs are withheld according to Employee selections
made during each open enrollment period and/or during amendments made during the year.


 






    	 



    	 	



    
 


		(b)	Severance Benefits.



 


		(i)	In the event Employee’s employment with the Company is terminated by the Company other than
as a result of death, disability (as defined in Section 8(a)(ii)), retirement or for “cause” (as defined in Section
8(a)(iii)), and upon execution by Employee of a separation agreement prepared by the Company, the Company will pay Employee, at
normal payroll intervals for six (6) months, a sum equal to the Employee’s annual Base Salary in effect at the time of termination
hereunder, less applicable deductions and withholdings.



 


		(ii)	In the event that Employee elects to terminate this Agreement for any reason, or in the event that
this Agreement is terminated due to Employee’s death or disability, the Company shall not be obligated to pay to Employee
any severance payments whatsoever and Employee shall be entitled only to that Base Salary and those benefits which he has earned
through the date of such termination.



 





(c)          Fringe
Benefits. So long as Employee remains in the employ of the Company, Employee shall be provided those benefits set forth in
Schedule 1 to this Agreement. Employee shall also receive such additional benefits as may be authorized from time to time
by the Company’s Board of Directors.


 


		4.	NONCOMPETITION BY EMPLOYEE.



 


		(a)	During the term of this Agreement and for a period of two (2) years after Employee has ceased to
be employed by Company for any reason, Employee shall not, without the prior written consent of a duly authorized officer of Company,
directly or indirectly (i) engage in the business of, or (ii) assist or have an interest in (whether as proprietor, partner, investor,
stockholders, officer, director or any type of principal whatsoever), or (iii) enter the employment of or act as an agent, advisor,
or consultant to any person, firm, partnership, association, corporation, business organization, entity or enterprise that is,
or is to become, directly or indirectly, engaged in any business actually or potentially competitive with that of Company in any
area or territory in which Company offers its services or products.



 


		(b)	During the term of this Agreement, and for a period of two (2) years after Employee has ceased
to be employed by Company for any reason, Employee shall not, without the prior written consent of a duly authorized officer of
Company, solicit from any person, company, firm or organization, or any affiliate of the foregoing, which was or is a client or
associated firm of Company or which Company was soliciting as a client or associated firm of Company during any of the twelve (12)
months immediately preceding the termination or expiration of the Agreement, any business substantially similar to that done by
Company, including but not limited to any business Employee was soliciting or on which he worked while employed by Company.



 






    	 



    	 	



    
 


		5.	CONFIDENTIALITY.



 


Employee acknowledges, understands
and agrees that all trade secrets and information relating to the business of the Company and/or its affiliates, including without
limitation, procedures, product information, manufacturing techniques or processes, expertise, records, customer or prospect lists
and information, vendor lists and information, supplier lists and information, internal operating forms, financial information
or accounting methods, systems, books, manuals, employee information, any confidential information concerning the business, the
Company, its affiliates, or the business, policies or operations of the business, the Company or its affiliates which Employee
may have learned, possessed or controlled on or prior to the date hereof or which Employee may learn, possess or control during
the term of Employee’s continued employment by the Company or any of its affiliates (as an employee, consultant, agent or
otherwise) (collectively, “Trade Secrets”) are confidential and shall remain the sole and exclusive property of the
Company and its affiliates. Trade Secrets include both written information and information not reduced to writing. Except as may
be required pursuant to any law or the order of a court, or except as may be public knowledge (which shall not have become public
knowledge as a result of any action of Employee), Employee shall not, at any time, retain, duplicate, remove from the business
premises of Company or any of its affiliates, make use of, other than in the ordinary course of fulfilling his duties as an employee
of the Company, divulge or otherwise disclose, directly or indirectly, any Trade Secrets. Employee shall not publish or disclose,
and shall exercise his best efforts to prevent others from publishing or disclosing, any Trade Secrets and he shall not use or
attempt to use any such knowledge or information which he may have or acquire in any manner which may injure or cause loss, whether
directly or indirectly, to the Company or its affiliates or use his personal knowledge or influence over any customers, clients,
suppliers or contractors of the Company or its affiliates so as to take advantage of the Company’s or its affiliate’s
trade or business connections or utilize information confidentially obtained by him.


 


		6.	non-solicitation.



 


Employee hereby covenants and agrees
that, at all times during his employment with the Company and for a period of two (2) years immediately following his termination
for any reason, Employee shall not employ or seek to employ any person employed at the time by the Company or any of its affiliates,
or otherwise engage or entice, either directly or indirectly, such person to leave such employment.


 


		7.	violation
                                                                                                          of agreement.






 


		(a)	The restrictions set forth in Sections 4, 5 and 6 shall extend to any and all activities of the
Employee, whether alone or together with or on behalf of or through any other person or entity.



 


		(b)	Employee’s obligations under Sections 4, 5 and 6 shall survive termination of this Agreement
and of Employee’s employment with the Company.



 


		(c)	Employee acknowledges that the restrictions contained in Sections 4, 5 and 6, in view of the nature
of the business in which Company is engaged, are reasonable and necessary to protect the legitimate interests of Company. Employee
understands that the remedies at law for his violation of any of the covenants or provisions of Sections 4, 5 and 6 will be inadequate,
that such violations will cause irreparable injury within a short period of time, and that Company shall be entitled to preliminary
injunctive relief and other injunctive relief against such violation. Such injunctive relief shall be in addition to, and in no
way in limitation of, any and all other remedies that Company shall have in law and equity for the enforcement of those covenants
and provisions. Employee further acknowledges that should he violate any of the covenants or provisions of Sections 4, 5 and 6,
he will reimburse Company for its reasonable costs and attorneys’ fees incurred to enforce the terms of this Agreement.



 






    	 



    	 	



    
 


		8.	TERMINATION.



 


		(a)	The Employee’s employment hereunder may be terminated by the Company immediately upon the
occurrence of any of the following events, and the Company shall have no obligations to the Employee for any period after the effective
date of such termination, except vested benefits or as otherwise provided in Section 3 herein:



 


		(i)	The death of Employee.



 


		(ii)	A mental or physical illness or injury that prevents Employee from performing his duties hereunder
for a period of 90 consecutive days or for 120 days in any 360 day period, or the Employee has been declared by a court of competent
jurisdiction to be mentally incompetent or incapable of managing his affairs.



 


		(iii)	For “cause” which, for the purposes of this Section, shall mean:



 


		(A)	Continued neglect or failure to perform his duties and responsibilities; or



 


		(B)	Formally being charged, either criminally or civilly, with committing fraud, misappropriation or
embezzlement, whether or not in the performance of Employee’s duties as an employee of the Company; or



 


		(C)	Violations of any law which violation materially affects the Employee’s performance of his
duties to the Company; or



 


		(D)	The conviction of, or plea of guilty or nolo contendere to, a felony or crime involving moral turpitude;
or



 


		(E)	Willfully engaging in conduct materially injurious to the Company or its affiliates; or



 


		(F)	Diverting any business opportunity of the Company or its affiliates for Employee’s direct
or indirect personal gain; or



 


		(G)	Failure to observe or perform the covenants and agreements contained in this Agreement, including
but not limited to those contained in Sections 4, 5 and 6 of this Agreement.



 






    	 



    	 	



    
 


		(b)	The Employee’s employment hereunder may be terminated at any time upon the mutual written
agreement of the Employee and the Company.



 


		(c)	The Employee’s employment hereunder may be terminated by either party with thirty (30) days
of written notice thereof. Notwithstanding the foregoing, if Employee’s employment hereunder is terminated without “cause”
during the initial term of this Agreement, Employee shall only be paid any applicable severance benefits as set forth in Section
3(b) less applicable deductions and withholdings.



 


		(d)	Except as may otherwise be set forth herein, in the event of termination of the Employee’s
employment by the Company as permitted under clause (a) of this Section, Employee shall be entitled only to his Base Salary and
other compensation and benefits earned through the date of termination.



 


		(e)	Upon the termination of his employment hereunder for any reason whatsoever, Employee shall immediately
deliver to the Company all documents, statistics, accounts, records, programs and other items of whatever nature or description
(the “Documents”) which may be in his possession or under his control which relate in any way to the Trade Secrets
or the business or affairs of the Company or of any of its affiliates, and no copies of any such Documents or any part thereof
shall be retained by him.



 


		(f)	In the event of the termination of Employee’s employment under this Agreement, Employee shall
be deemed to have resigned from all positions held in the Company. Upon request of the Company, Employee shall promptly sign any
and all documents reflecting such resignations as of the date of termination of his employment.



 


		9.	REPRESENTATIONS.



 


Employee hereby represents and
warrants that this Agreement constitutes his valid and binding obligation enforceable in accordance with its terms and the execution,
delivery and performance of this Agreement does not violate any agreement, arrangement or restriction of any kind to which Employee
is a party or by which he is bound.


 


		10.	MISREPRESENTATION.



 


 Neither party hereto shall knowingly
at any time make any untrue statement in relation to the other or any of their affiliates and in particular Employee shall not
after the termination of his employment hereunder wrongfully represent himself as being employed by or connected with the Company
or any affiliate of the Company.


 


		11.	REIMBURSEMENT
                                                                                                           OF EXPENSES.



 


The Company shall reimburse Employee
for all ordinary and necessary out-of-pocket expenses reasonably incurred by Employee on behalf of the business of the Company.
Employee agrees that expense reports must be submitted to obtain reimbursement of expenses as well as presentation of such supporting
documentation as the Company may reasonably require. Employee further agrees to submit with expense reports such records and logs
as may be required by the relevant taxing authorities for the substantiation of each such business expense as a deduction on the
Company’s income tax returns.


 






    	 



    	 	



    
 


		12.	INVENTIONS, ETC.



 


		(a)	It shall be part of the normal duties of Employee at all times to consider in what manner and by
what new methods or devices the products, services, processes, equipment or systems of the Company or any of its affiliates with
which he is concerned or for which he is responsible might be improved, and promptly to give to the President of the Company or
Board of Directors full details of any invention or improvement which he may from time to time make or discover in the course of
his duties, and to further the interests of the Company with regard thereto. Subject only to any contrary provisions of the laws
of the United States or the Commonwealth of Massachusetts, all such materials, inventions, improvements, methods, products, services,
equipment or systems shall be deemed to be “works made for hire”, and to the extent such items are not works made for
hire, the Employee hereby irrevocably grants and assigns such materials, inventions, improvements, methods, products, services,
equipment or systems to the Company which shall be entitled, free of charge, to the sole ownership of any such invention or improvement.



 


		(b)	Employee shall, if and when required so to do by the Company, at the expense of the Company, apply
or join with the Company in applying for patents or other protection in any part of the world for any such discovery, invention
or process as aforesaid and shall at the expense of the Company, execute and do or cause to be done all instruments and things
reasonably necessary for vesting the said patent or other protection when obtained and all right, title and interest to and in
the same in the Company or in such other person as the Company may designate.



 


		(c)	For the purpose of this clause Employee hereby irrevocably authorizes the company as his attorney
in his name to execute any documents or take any actions which are required in, order to give effect to the provisions of this
Section and the Company is hereby empowered to appoint and remove at its pleasure any person as agent and substitute for and on
behalf of the Company in respect of all or any of the matters aforesaid.



 


		13.	NOTICES.



 


Any notices to be given hereunder
by either party to the other may be effectuated either by personal delivery in writing, by electronic facsimile transmission,
by commercial overnight courier or by mail, postage prepaid, with return receipt requested. Notices shall be addressed to the
parties as follows:


 


If to the Company:


 


Cyalume Specialty Products, Inc.


96 Windsor Street


West Springfield, MA, 01089


Attention: CFO


 


with a copy to:


 


Cyalume Specialty Products, Inc.


96 Windsor Street


West Springfield, MA, 01089


Attention: VP, Human Resources


 






    	 



    	 	



    
 


If to Employee:


 


James G. Schleck


15 Washington Place


Metuchen, NJ 08840


 


or to such other addresses as either
the Company or Employee may designate by written notice to each other. Notices delivered personally shall be deemed duly given
on the date of actual receipt; mailed notices shall be deemed duly given as of the fifth (5th) day after the date so
mailed. Notices hereunder may be delivered by electronic facsimile transmission (fax) if confirmation by sender is made within
three (3) business days by mail or personal delivery.


 


		14.	ATTORNEYS’
                                                                                                           FEES.



 


 If any party shall bring an action
to enforce this Agreement, each party will bear her/his/its own attorneys’ fees and costs.


 


		15.	WAIVER
                                                                                                           OF BREACH.



 


The waiver by any party to a breach of
any provision in this Agreement cannot operate or be construed as a waiver of any subsequent breach by a party.


 


		16.	SEVERABILITY.



 


The invalidity or unenforceability
of any particular provision in this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed
in all respects as if the invalid or unenforceable provision were omitted.


 


		17.	ENTIRE AGREEMENT.



 


Except as otherwise provided
herein, this Agreement covers the entire understanding of the parties as to the employment of Employee, superseding all prior understandings
and agreements, and no modification or amendment of its terms and conditions shall be effective unless in writing and signed by
the parties or their respective duly authorized agents.


 


		18.	GOVERNING LAW.



 


This Agreement shall be interpreted,
construed and governed according to the laws of Delaware, without giving effect to principles of conflicts or choice of laws of
Delaware or of any other jurisdiction.


 


		19.	CONSENT TO JURISDICTION.



 


Employee hereby irrevocably
submits to the jurisdiction of any court of Delaware or any federal court sitting in the State of Delaware over any suit, action
or proceeding arising out of or relating to this Agreement. Employee hereby agrees that a final judgment in any such suit, action
or proceeding brought in any such court, after all appropriate appeals, shall be conclusive and binding upon him.


 


		20.	SUCCESSORS AND ASSIGNS.



 


This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors, permitted assigns, legal representatives and heirs, but
neither this Agreement nor any rights hereunder shall be assignable by any of its parties except as permitted by this Section.
Employee agrees that this Agreement may be assigned or transferred by operation of law by the Company upon a sale, merger, reorganization
or other business combination of or involving the Company; provided, however, that (i) such assignee or other successor to the
Company shall assume all obligations of the Company hereunder and (ii) that Employee shall perform all services required pursuant
to this Agreement for any such assignee or successor.


 






    	 



    	 	



    
 


IN WITNESS WHEREOF, the parties
hereto have executed this Agreement as of the day and year first above written.


 


	 	CYALUME
SPECIALTY PRODUCTS, Inc.	 
	 	 	 	 
	 	 	 	
	 	By	/s/ David Mantoni	 
	 	Name:	David Mantoni	 
	 	Title:	Assistant Treasurer and Assistant Secretary	 


 


 


 


 


	 	Employee:	 
	 	 	 
	 	 	 
	 	/s/ James G. Schleck	 
	 	James G. Schleck	 


 



    	 



    	 	



    
 


SCHEDULE 1


 


TO EMPLOYMENT AGREEMENT OF


James G. (Jamie) Schleck


 





1.            Salary.  
The Company shall pay Employee an annual base salary (“Base Salary”) of One-hundred fifty thousand ($150,000.00),
at normal payroll intervals and less applicable deductions and withholdings, which shall be subject to annual adjustments at the
sole discretion of the Board of Directors of the Company.


 


		2.	Cash Bonus and Equity Bonus Awards



 


Cash Bonus.   For purposes
of this Section, cash bonuses shall include all payments under all bonus, incentive or other similar programs maintained by the
Company for which the Employee qualifies.


 


The following bonus plan is effective
as of January 1, 2012.


  


	Cash Bonus (Up to 20% of Base Pay)
	 
	Criteria	 	Maximum % of Total Award	 	 	Award
	 	 	 	 	 	 
	Revenue goals	 	 	25	 	 	100% if the Company achieves 100% of Revenue goal; 80% if the Company achieves 80% of Revenue goal.  If the Company achieves percentages of its budgeted Revenue between the limits above, the bonus will be awarded pro rata.
	 	 	 	 	 	 	 
	EBITDA* goals	 	 	25	 	 	100% if the Company achieves 100% of EBITDA goal; 80% if the Company achieves 80% of EBITDA goal.  If the Company achieves percentages of its budgeted EBITDA between the limits above, the bonus will be awarded pro rata.
	 	 	 	 	 	 	 
	Specific objectives	 	 	50	 	 	Percentage determined by CEO, Cyalume Technologies Holdings, Inc., based on specific objective accomplishments
	 
	  

	Additional Cash Bonus (Equal to 20% of Base Pay)
	 
	Criteria	 	 	Maximum % of Total Award	 	 	Award 
	 	 	 	 	 	 	 
	Core Business Ebitda Goal	 	 	100	%	 	If the EBITDA for the Core Business (as defined in the Asset Purchase Agreement) is greater than $1.3 mm and less than $1.8mm.
	 	 	 	 	 	 	 



 


*EBITDA is determined based on
actual results of the Company and irrespective of any “carve-out criteria” contained in the Asset Purchase Agreement.


 






    	 



    	 	



    
 


If the Employee’s employment
is terminated by the Employer other than for “cause”, the Employee shall be entitled to receive a prorated bonus for
the calendar year in which the Employee terminated employment and, if applicable, the prior calendar year, based on the number
of full calendar months such Employee was employed by the Employer during such calendar year.


 


 


		3.	Options



 


Security:   Options to purchase Cyalume
common stock


 


Amount:   The number of options equal to 50%
of the amount of shares that would have been earned based on JFC’s performance in 2012 according to the Earn-Out schedule.


 


Conversion:   The options can be converted
on a cashless basis


 


Strike Price:   Average closing price
for the 30 days prior to 12/31/2012


 


Exercise Date:   The options will be
exercisable during the month of December, 2013


 


Expiration Date:   12/31/2013


 


The following schedule illustrates the number of options
that will be granted at the various EBITDA levels based on a $5.00 strike price: Assumptions:


 


	 	Assumed Avg 30 Day Price (12/31/12)	 	 	 	 	 			$5.00	 	 	 	 	 	 	 	 	 
	 	% of Stock Earn-Out Shares	 	 	 	 	 	 		50%	 	 	 	 	 	 	 	 	 
	      2012 Option Calculation
	 	2012 EBITDA Threshold	 	 	 	Earn-Out Payment	 	 	 	% Stock	 	 	 	Stock Value	 	 	 	Implied # of Shares	 	 	 	# of Options	 
	$	1,300,000	 	 	$	5,000,000	 	 	 	70	%	 	$	3,500,000	 	 	 	700,000	 	 	 	350,000	 
	 	1,100,000	 	 	 	3,000,000	 	 	 	70	%	 	$	2,100,000	 	 	 	420,000	 	 	 	210,000	 
	 	1,000,000	 	 	 	2,200,000	 	 	 	70	%	 	$	1,540,000	 	 	 	308,000	 	 	 	154,000	 
	 	900,000	 	 	 	1,500,000	 	 	 	70	%	 	$	1,050,000	 	 	 	210,000	 	 	 	105,000	 
	 	800,000	 	 	 	800,000	 	 	 	70	%	 	$	560,000	 	 	 	112,000	 	 	 	56,000	 
	 	700,000	 	 	 	400,000	 	 	 	70	%	 	$	280,000	 	 	 	56,000	 	 	 	28,000	 



 


	 
	 


		4.	Benefits. Employee shall be provided with health, life, and disability insurance coverages and other similar benefits
substantially equivalent to those provided to employees of the Company from time to time, all in accordance with the standard policies
of the Company. Employee shall be permitted to participate in the Company’s 401(k) Retirement Plan, and shall be entitled
to all other benefits outlined in the annual Benefit Grid.