Exhibit
10.3

       

      EMPLOYMENT
AGREEMENT

    

     

    This
Employment Agreement (the “Agreement”) is made and entered into between Cyalume
Technologies, Inc., a Delaware Corporation (the “Company”), and Thomas C.
McCarthy, (the “Employee”).

     

    WHEREAS,
the Company desires to employ Employee as Government Sales Vice 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 of three years, beginning on May 15, 2009.
      The Agreement shall continue for successive one-year periods thereafter
      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 Government Sales Vice President.  Employee’s duties
      shall be such executive, managerial, administrative, and professional
      duties as are commensurate with the position of Government Sales Vice
      President, and as shall be assigned by the President and Chief Operating
      Officer 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.  The principal place of employment of Employee shall
      be at the Company’s executive offices in West Springfield,
      Massachusetts.

            


    

     

    
      	
               
      

            	
              (b)

            	
              Exclusive Employment. Employee
      shall devote the whole of his business time, attention and abilities to
      carrying out his duties hereunder.

            


    

     

    
      	
               
      

            	
              (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. 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.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (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)), or
      if Employee’s employment with the Company is terminated by Employee for
      the reason set forth in Section 8(d), and upon execution by Employee of a
      separation agreement prepared by the Company, the Company will pay
      Employee, at normal payroll intervals for twelve (12) 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)

            	
              If,
      upon a Change of Control, or as a consequence of the Change of Control
      prior to the Change of Control, or within twelve (12) months following a
      Change of Control, the Employee’s employment is terminated without “cause”
      or if the Employee terminates his employment for Good Reason, and upon
      execution by Employee of a separation agreement prepared by the Company,
      the Employee will be entitled to receive, in addition to the severance
      benefit set forth in Section 3(b)(i), a severance benefit equal to twelve
      (12) months of his Base Salary, less applicable deductions and
      withholdings, payable in full on the date of Employee’s
      termination.  For purposes of this provision, the following
      definitions will apply:

            


    

     

    
      	
               
      

            	
              (A)

            	
              A
      “Change of Control shall mean (1) any consolidation, merger or
      amalgamation of the Company with or into any other corporation whereby the
      voting shareholders of the Company immediately prior to such event receive
      less than fifty percent (50%) of the voting shares of the consolidated,
      merged or amalgamated corporation; (2) a sale by the Company of all or
      substantially all of the Company’s assets; or (3) any transaction or
      series of transactions having, directly or indirectly, the same effect as
      any of the foregoing.

            


    

     

    
      	
               
      

            	
              (B)

            	
              A
      termination for “cause” shall mean those reasons defined in Sections
      8(a)(i), 8(a)(ii) and 8(a)(iii).

            


    

     

    
      	
               
      

            	
              (C)

            	
              A
      termination for “Good Reason” shall mean (1) a material diminution in the
      Employee’s title or duties or assignment to the Employee of materially
      inconsistent duties; (2) a reduction in the Employee’s Base Salary except
      for reductions applicable to all management; or (3) a relocation of
      Employee’s principal place of employment of a distance in excess of fifty
      (50) miles unless such relocation is effected at the request of Employee
      or with the Employee’s approval.  There shall be no termination
      for Good Reason without written notice from the Employee describing the
      basis for the termination and the Company (or a successor) having a
      reasonable period to cure.

            


    

     

    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (iii)

            	
              In
      the event that Employee elects to terminate this Agreement for any reason
      other than that set forth in Sections 3(b)(ii)(C) or  8(d), 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.

            


    

     

    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    
      	
              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.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              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 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 be paid
      any applicable severance benefits as set forth in Section 3(b) and the
      remainder of the compensation due him during that initial term as set
      forth in Schedule 1 to
      this Agreement, less applicable deductions and
    withholdings.

            


    

     

    
      
         


      

      
        5

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (d)

            	
              The
      Employee may terminate his employment hereunder upon any breach by the
      Company of any material provision of this Agreement not cured within sixty
      (60) days of written notice
thereof.

            


    

     

    
      	
               
      

            	
              (e)

            	
              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.

            


    

     

    
      	
               
      

            	
              (f)

            	
              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.

            


    

     

    
      	
               
      

            	
              (g)

            	
              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.

            


    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
              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
Technologies, Inc.

    96
Windsor Street

    West
Springfield, MA, 01089

    Attention:
President

    


    with a
copy to:

    


    Bowditch
& Dewey, LLP

    311 Main
Street, P.O. Box 15156

    Worcester,
MA 01615-0156

    Attention:
David M. Felper, Esquire

    


    If to
Employee:

    


    Thomas C.
McCarthy

    58
Falmouth Road

    Longmeadow,
MA  01106


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

     

    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.

            


    

     

    
      	
              21.

            	
              MISCELLANEOUS. The Section
      headings of this Agreement are for convenience of reference only and do
      not form a part hereof and do not in any way modify, interpret, or
      construe the intentions of the parties. This Agreement may be executed in
      one or more counterparts and all such counterparts shall constitute one
      and the same instrument.

            


    

     

    
      
         


      

      
        8

        
          

        

      

      
         


      

    

     

    
      	
              22.

            	
              RIGHT OF SET-OFF. The Company
      may at any time offset against any compensation or other remuneration due
      or to become due to the Employee, or anyone claiming through or under the
      Employee, any debt or debts due or to become due from the Employee to the
      Company.

            


    

     

    
      
         


      

      
        9

        
          

        

      

      
         


      

    


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

     

    
      
        
          
            
              
                
                  
                    	
                            [COMPANY]

                          
	 	 
	
                            By:

                          	
                             

                          
	
                            Name:

                          	 
      
	
                            Title:

                          	 
      
	 
      	 
      
	 


                  

                

              

            

          

        

      

    

     

    
      
         


      

      
        10

        
          

        

      

      
         


      

    


    SCHEDULE
1

    


    TO
EMPLOYMENT AGREEMENT OF

    Thomas
C. McCarthy

     

    
      	
              1.

            	
              Salary. The Company shall pay
      Employee an annual base salary (“Base Salary”) of Two-hundred ten thousand
      ($210,000.00), 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.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              Cash
      Bonus (Up to 30% of Base Pay)

                                            
	
                                              Criteria

                                            	 	
                                              Maximum % of

                                              Total
      Award

                                            	 	
                                              Award

                                            
	
                                              Revenue
      goals

                                            	 	
                                              12.5

                                            	 	
                                              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

                                            	 	
                                              12.5

                                            	 	
                                              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.

                                            
	 	 	 	 	 
	
                                              Revenue
      goals of Military Division

                                            	 	
                                              25

                                            	 	
                                              100%
      if the military division achieves 100% of Revenue goal; 80% if the
      military division achieves 80% of Revenue goal.  If the military
      division achieves percentages of its budgeted Revenue between the limits
      above, the bonus will be awarded pro rata.

                                            
	 	 	 	 	 
	
                                              EBITDA
      goals of Military Division

                                            	 	
                                              25

                                            	 	
                                              100%
      if the military division achieves 100% of EBITDA goal; 80% if the military
      division achieves 80% of EBITDA goal.  If the military division
      achieves percentages of its budgeted EBITDA between the limits above, the
      bonus will be awarded pro rata.

                                            
	 	 	 	 	 
	
                                              Specific
      objectives

                                            	 	
                                              25

                                            	 	
                                              Percentage
      determined by CEO based on specific objective
    accomplishments

                                            


                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              12.5%
      of the bonus will be based on the Company achieving overall Revenue
      targets

            


    

     

    
      	
               
      

            	
              12.5%
      of the bonus will be based on the Company achieving overall EBITDA
      targets

            


    

     

    
      	
               
      

            	
              25%
      of the bonus will be based on the military division achieving Revenue
      targets

            


    

     

    
      	
               
      

            	
              25%
      of the bonus will be based on the military division achieving EBITDA
      targets

            


    

     

    
      The
remaining 25% of bonus will be based on specific objectives relating
to:

    

     

    
      	
               
      

            	
              §

            	
              Renewal
      of the 40 item contract with DLA

            


    

     

    
      	
               
      

            	
              §

            	
              Execution
      of the European military business
plan

            


    

     

    
      	
               
      

            	
              §

            	
              Winning
      the solicitation for IR flags

            


    

     

    
      	
               
      

            	
              §

            	
              Development
      and execution of business plan for
ammunition

            


    

     

    
      	
               
      

            	
              §

            	
              Development
      and execution of international military sales
  strategy

            


    

     

    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.

     

    Equity Bonus. Employee shall be
entitled to participate in the Company’s Restricted Stock Plan in accordance
with the eligibility requirements for participation therein.  Nothing
herein shall be construed so as to prevent the Company modifying or terminating
the Restricted Stock Plan.

     

    
      Employee
shall be entitled to receive equity compensation of up to 10% of base salary in
the form of restricted stock.  Such restricted stock shall be vested
over a period of three years.

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              Equity
      Bonus (Up to 10% of Base Pay)

                                            
	
                                              Criteria

                                            	 	
                                              Maximum % of
      

                                              Total
      Award

                                            	 	
                                              Award

                                            
	
                                              Revenue
      goals

                                            	 	
                                              12.5

                                            	 	
                                              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

                                            	 	
                                              12.5

                                            	 	
                                              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.

                                            
	 	 	 	 	 
	
                                              Revenue
      goals of Military Division

                                            	 	
                                              25

                                            	 	
                                              100%
      if the military division achieves 100% of Revenue goal; 80% if the
      military division achieves 80% of Revenue goal.  If the military
      division achieves percentages of its budgeted Revenue between the limits
      above, the bonus will be awarded pro rata.

                                            
	 	 	 	 	 
	
                                              EBITDA
      goals of Military Division

                                            	 	
                                              25

                                            	 	
                                              100%
      if the military division achieves 100% of EBITDA goal; 80% if the military
      division achieves 80% of EBITDA goal.  If the military division
      achieves percentages of its budgeted EBITDA between the limits above, the
      bonus will be awarded pro rata.

                                            
	 	 	 	 	 
	
                                              Specific
      objectives

                                            	 	
                                              25

                                            	 	
                                              Percentage
      determined by CEO based on specific objective
    accomplishments

                                            


                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      The
restricted stock award will be based on specific objectives relating
to:

    

     

    
      	
               
      

            	
              §

            	
              Renewal
      of the 40 item contract with DLA

            


    

     

    
      	
               
      

            	
              §

            	
              Execution
      of the European military business
plan

            


    

     

    
      	
               
      

            	
              §

            	
              Winning
      the solicitation for IR flags

            


    

     

    
      	
               
      

            	
              §

            	
              Development
      and execution of business plan for
ammunition

            


    

     

    
      	
               
      

            	
              §

            	
              Development
      and execution of international military sales
  strategy

            


    

     

    
      	
              3.

            	
              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.

            


    

     

    
      	
              4.

            	
              Paid Time Off (PTO)/Sick Days.
      Employee shall be provided with three (3) weeks of PTO, accrued on a
      monthly basis, and with sick days in accordance with the standard policies
      of the Company. Employee shall be permitted to carry over any unused PTO
      into any subsequent period. Upon termination of employment, Employee shall
      not be paid for unused sick days, but will be paid for accrued, unused
      PTO.

            


    

     

    
      
        	
                5.

              	
                Automobile Allowance.
      Employee
      shall be furnished an automobile allowance of $9000 per year, paid on a
      weekly basis.

              


      

    

     

    
      
         


      

      
        13