Document:

Unassociated Document

     

    THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "
1933
ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR
(ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE 1933 ACT
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER
IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE
ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.

     

    WARRANT
TO PURCHASE COMMON STOCK

     

    OF

     

    CYALUME
TECHNOLOGIES HOLDINGS, INC.

    __________

     

    This
is to Certify That, FOR VALUE RECEIVED, Patriot
Capital II, LP, or its assigns ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from Cyalume
Technologies Holdings, Inc., a Delaware corporation (the "Company"),
65,882 shares of fully paid, validly issued and nonassessable shares of the
common stock of the Company ("Common
Stock") at a price of $2.00 per share. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share Common Stock in effect at any
time and as adjusted from time to time is hereinafter sometimes referred to as
the "Exercise
Price."

     

    (a) EXERCISE OF
WARRANT.

     

    (1) This
Warrant may be exercised in whole or in part at any time or from time to time
from the date hereof up to and including July ___, 2015 (the "Exercise
Period"); provided, however, that (i) if either such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day, and (ii)
in the event of any merger, consolidation or sale of substantially all the
assets of the Company as an entirety, resulting in any distribution to the
Company's stockholders, prior to termination of the Exercise Period, the Holder
shall have the right to exercise this Warrant commencing at such time through
the termination of the Exercise Period into the kind and amount of shares of
stock and other securities and property (including cash) receivable by a holder
of the number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office with
the Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of this Warrant, but not later than
seven (7) days following the receipt of good and available funds, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares issuable upon such exercise, registered in the name of the Holder
or its designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the Warrant Shares purchasable hereunder. As of the end of business on the
date of receipt by the Company of this Warrant at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares shall not then be physically delivered to the
Holder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (2) At
any time during the Exercise Period, the Holder may, at its option, exercise
this Warrant on a cashless basis by exchanging this Warrant, in whole or in part
(a "Warrant
Exchange"), into the number of Warrant Shares determined in accordance
with this Section (a)(2), by surrendering this Warrant at the principal office
of the Company or at the office of its stock transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of
Exchange"). The Warrant Exchange shall take place on the date specified
in the Notice of Exchange or, if later, the date the Notice of Exchange is
received by the Company (the "Exchange
Date"). Certificates for the shares issuable upon such Warrant Exchange
and, if this Warrant should be exercised in part only, a new Warrant evidencing
the rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder, shall be issued as of the Exchange Date and delivered to
the Holder within seven (7) days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Warrant Shares equal to (i) the number of Warrant
Shares specified by the Holder in its Notice of Exchange (the "Total
Number") less (ii) the number of Warrant Shares equal to the quotient
obtained by dividing (A) the product of the Total Number and the existing
Exercise Price by (B) Fair Market Value of a share of Common Stock. "Fair Market
Value" shall equal the 5 trading day average closing trading price of the
Common Stock on the relevant market or exchange for the 5 trading days preceding
the date of determination or, if the Common Stock is not listed or admitted to
trading on any market or exchange, and the average price cannot be determined as
contemplated above, the Fair Market Value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors with the
concurrence of the Holder.

     

    (b) REPRESENTATIONS
OF HOLDER. The Holder (i) is an
“accredited investor,” as defined in Rule 501 promulgated under the Securities
Act of 1933, as amended (the “1933 Act”), (ii) understands the risks of, and
other considerations relating to, a purchase of this Warrant, (iii) understands
that the Warrants and/or the Warrant Shares may not be sold, transferred,
hypothecated or pledged, except pursuant to an effective registration statement
under the 1933 Act and under any applicable state securities law, or pursuant to
an available exemption from the registration requirements of the 1933 Act and
any applicable state securities laws, in all cases established to the
satisfaction of the Company, and (v) the Holder has been given the opportunity
to obtain such additional information that it believes is
necessary.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) RESERVATION
OF SHARES. The Company shall at all times reserve for issuance and/or
delivery upon exercise of the this Warrant such number of shares of Common Stock
as shall be required for issuance and delivery upon exercise of this
Warrant.

     

    (d) FRACTIONAL
SHARES.  No fractional shares or strips representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the Fair
Market Value of a share of Common Stock.

     

    (e) LOSS OR
DESTRUCTION OF WARRANT. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.

     

    (f) RIGHTS OF
THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any
rights of a shareholder in the Company, either at law or equity, and the rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth
herein.

     

    (g) ANTI-DILUTION
PROVISIONS. In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding Common Stock in shares of Common Stock,
(ii) subdivide or reclassify its outstanding Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
The number of shares of Common Stock that the Holder shall thereafter, on the
exercise hereof, be entitled to receive shall be adjusted to a number determined
by multiplying the number of shares of Common Stock that would otherwise (but
for the provisions of this Section (f)) be issuable on such exercise by a
fraction of which (a) the numerator is the Exercise Price that would otherwise
(but for the provisions of this Section (f)) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise (taking
into account the provisions of this Section (f)). Notwithstanding the foregoing,
in no event shall the Exercise Price be less than the par value of the Common
Stock. Adjustment pursuant to this Section shall be made successively whenever
any event listed above shall occur.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h) NOTICES TO
WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the
Company shall pay any dividend or make any distribution upon the Common Stock or
(ii) if the Company shall offer to the holders of Common Stock for subscription
or purchase by them any share of any class or any other rights or (iii) if any
capital reorganization of the Company, reclassification of the capital stock of
the Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed to the Holder, at least
fifteen days prior the date specified in (x) or (y) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.

     

    (i) RECLASSIFICATION,
REORGANIZATION OR MERGER. In case of any reclassification, capital
reorganization or other change of outstanding Common Stock of the company, or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding Common Stock of the class
issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety,
the Company shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock that might have been purchased upon exercise of this
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (h) shall similarly apply to successive reclassifications, capital
reorganizations and changes of Common Stock and to successive consolidations,
mergers, sales or conveyances. In the event that in connection with any such
capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Section (f)
hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (j) NO NET-CASH
SETTLEMENT.  In no event will the Holder be entitled to receive
a net-cash settlement or other consideration in lieu of physical settlement in
securities.

     

    (k) MODIFICATION
OF AGREEMENT.  The provisions of this Warrant may from time to
time be amended, modified or waived, by the Company and the holder of this
Warrant.

     

    (l) TRANSFER OF
WARRANT. This
Warrant shall inure to the benefit of the successors to and assigns of the
Holder; provided,
however,
this Warrant may not be pledged, sold, assigned or otherwise transferred,
directly or indirectly, by operation of law, change of control, or otherwise,
without the prior written consent of the Company, except to an affiliate of the
Holder.  This Warrant and all rights hereunder are registrable at the
office or agency of the Company referred to below by the Holder in person or by
its duly authorized attorney, upon surrender of this Warrant properly endorsed
accompanied by an assignment form in a form approved by the Company, duly
executed by the transferring Holder and the transferee.

     

    (m) REGISTER OF
WARRANTS. The
Company shall maintain, at the principal office of the Company (or such other
office as it may designate by notice to the Holder), a register in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each successor and
prior owner of such Warrant.  The Company shall be entitled to treat
the Person in whose name this Warrant is so registered as the sole and absolute
owner of this Warrant for all purposes.

     

    (n) WARRANT
AGENT. The
Company may, by written notice to the Holder, appoint the transfer agent and
registrar for the Common Stock as the Company’s agent for the purpose of issuing
Common Stock (or other securities) on the exercise of this Warrant pursuant to
paragraph(a), and the Company may, by written notice to the Holder, appoint an
agent having an office in the United States of America for the purpose of
replacing this Warrant pursuant to paragraph (d), or any of the foregoing,
and thereafter any such replacement shall be made at such office by such
agent.

     

    (o) NOTICES,
ETC. All
notices and other communications from the Company to the Holder shall be mailed
by first class certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by the Holder or at the address shown for
the Holder on the register of Warrants referred to in paragraph
(l).

     

    (p) REGISTRATION
RIGHTS. The
Holder and the Company are parties to a Registration Rights Agreement of even
date herewith.

     

    [Signatures
appear on the following page.]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the parties hereto have executed this Warrant on the _____ day
of July, 2010.

     

     

    
      
        	 	
                HOLDER:

              	 
	 	 	 
	 	PATRIOT CAPITAL II,
      L.P., a Delaware limited partnership	 
	 	 	 	 
	 	
                By:
      

              	Patriot
      Partners II, LLC, a Delaware limited	 
	 	 	liability
      company, General Partner	 
	 	 	 	 
	 	 	 	 
	
              	
                By:
      

              	 	 
	 	Name: 	 	 
	 	Title:    	 	 

      

    

     

     

    
      
        	 	
                COMPANY:

              	 
	 	 	 
	 	CYALUME TECHNOLOGIES
      HOLDINGS, INC.	 
	 	 	 	 
	 	 	 	 
	
              	
                By:
      

              	 	 
	 	Name:  	 	 
	 	Title:   	 	 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    PURCHASE
FORM

     

    
      	
              (1)

            	
              The
      undersigned hereby irrevocably elects to exercise the within Warrant to
      the extent of purchasing shares of Common Stock of Cyalume Technologies
      Holdings, Inc. (or such number of shares of Common Stock or other
      securities or property to which the undersigned is entitled in lieu
      thereof or in addition thereto under the provisions of the
      Warrant).

            

    

     

    (2)           The
undersigned hereby elects to make payment (Please check one):

     

    ___         on
a cashless basis pursuant to the provisions of Section (a)(2) of the
Warrant.

     

    
      	
               
      

            	
              ___

            	
              with
      the enclosed bank draft, certified check or money order payable to the
      Company in payment of the exercise price determined under, and on the
      terms specified in, the Warrant.

            

    

     

    
      	
              (3)

            	
              The
      undersigned hereby irrevocably directs that the said shares be issued and
      delivered as follows:

            

    

     

    
      	
              Name(s) in
      Full

            	
              Address(es)

            	
              Number of
      Shares

            	
              S.S. or IRS
    #

            
	 
      	 
      	 
      	 
      

    

     

    (4)           If
the Warrant was not exercised in full, please check the following:

     

    The
undersigned hereby irrevocably directs that any remaining portion of the warrant
be issued and delivered as follows:

     

    
      	
              Name(s) in
      Full

            	
              Address(es)

            	
              Number of
      Shares

            	
              S.S. or IRS
    #

            
	 
      	 
      	 
      	 
      

    

     

     

    
      
        	
              	
              	 	 
	 	 	
                Signature
      of Holder

              	 
	 	 	
              	 
	 	 	 
       	 
	 	 	
                Print
      NameUnassociated Document

     

    REGISTRATION
RIGHTS AGREEMENT

     

    THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as of the 29th
day of July 2010, by and among Cyalume Technologies Holdings, Inc., a Delaware
corporation (the “Company”), and Granite Creek FlexCap I, L.P. (the “Investor”).

     

    WHEREAS,
the Investor is making an equity investment in the Company on the date hereof;
and

     

    WHEREAS,
pursuant to such investment by the Investor, the Company is issuing to the
Investor a common stock purchase warrant as of the date hereof to purchase
94,118 shares common stock of the Company at a price of $2.00 per share (the
"Warrant); and

     

    WHEREAS,
the Investor and the Company desire to enter into this Agreement to provide the
Investor with certain rights relating to the registration of the Warrant
Shares;

     

    NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     

    1. DEFINITIONS;
INTERPRETATION.  The following capitalized terms used herein
have the following meanings:

     

    “Agreement” means this
Agreement, as amended, restated, supplemented, or otherwise modified from time
to time.

     

    “Commission” means the
Securities and Exchange Commission, or any other federal agency then
administering the Securities Act or the Exchange Act.

     

    “Common Stock” means
the common stock, par value $0.001 per share, of the Company.

     

    “Company” is defined
in the preamble to this Agreement.

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder, all as the same shall be in effect at
the time.

     

    “Indemnified Party” is
defined in Section 4.3.

     

    “Indemnifying Party”
is defined in Section 4.3.

     

    “Investor” is defined
in the preamble to this Agreement.

     

    “Investor Indemnified
Party” is defined in Section 4.1.

     

    “Maximum Number of
Shares” is defined in Section 2.1.2.

     

    “Notices” is defined
in Section 6.2.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Piggy-Back
Registration” is defined in Section 2.1.1.

     

    “Register,” “registered” and
“registration”
mean a registration effected by preparing and filing a registration statement or
similar document in compliance with the requirements of the Securities Act, and
the applicable rules and regulations promulgated thereunder, and such
registration statement becoming effective.

     

    “Registrable
Securities” means on and after the issuance of the Warrant to the
Investor by the Company, the Warrant Shares.  As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when: (a) a Registration Statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been sold, transferred, disposed of or exchanged in accordance with such
Registration Statement; (b) such securities shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent public
distribution of them shall not require registration under the Securities Act;
(c) such securities shall have ceased to be outstanding or (d) the securities
are able to be sold without volume limitations pursuant to Rule 144 under the
Securities Act.

     

    “Registration
Statement” means a registration statement filed by the Company with the
Commission in compliance with the Securities Act and the rules and regulations
promulgated thereunder for a public offering and sale of Common Stock (other
than a registration statement on Form S-4 or Form S-8, or their successors, or
any registration statement covering only securities proposed to be issued in
exchange for securities or assets of another entity).

     

    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.

     

    “Underwriter” means a
securities dealer who purchases any Registrable Securities as principal in an
underwritten offering and not as part of such dealer’s market-making
activities.

     

    “Warrant” is defined
in the preamble above.

     

    “Warrant Issue Date”
means the date that the Warrant is issued to the Investor by the
Company.

     

    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants and any Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of such shares of Common Stock.

     

    2. REGISTRATION
RIGHTS.

     

    2.1 Piggy-Back
Registration.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2.1.1. Piggy-Back
Rights.  If at any time on or after the Warrant Issue Date the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering of equity securities, or securities or other obligations
exercisable or exchangeable for, or convertible into, equity securities, by the
Company for its own account or for the account of other securityholders of the
Company, other than a Registration Statement (i) filed in connection with any
employee stock option or other benefit plan, (ii) for an exchange offer or
offering of securities solely to the Company’s existing shareholders, (iii) for
an offering of debt that is convertible into equity securities of the Company or
(iv) for a dividend reinvestment plan, then the Company shall (x) give written
notice of such proposed filing to the holders of Registrable Securities as soon
as practicable but in no event less than ten (10) days before the anticipated
filing date, which notice shall describe the amount and type of securities to be
included in such offering, the intended method(s) of distribution, and the name
of the proposed managing Underwriter or Underwriters, if any, of the offering,
and (y) offer to the holders of Registrable Securities in such notice the
opportunity to register the sale of such number of shares of Registrable
Securities as such holders may request in writing within fifteen (15) days
following receipt of such notice (a “Piggy-Back
Registration”). The Company shall cause such Registrable Securities to be
included in such registration and shall use its best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company and to permit the sale or other disposition of such
Registrable Securities in accordance with the intended method(s) of distribution
thereof. All holders of Registrable Securities proposing to distribute their
securities through a Piggy-Back Registration that involves an Underwriter or
Underwriters shall enter into an underwriting agreement in customary form with
the Underwriter or Underwriters selected for such Piggy-Back
Registration.  The Company shall have no obligation under this Section
2.1 to complete any offering of its securities that it proposes to
make.

     

    2.1.2. Reduction of
Offering.  If the managing Underwriter or Underwriters for a
Piggy-Back Registration that is to be an underwritten offering advises the
Company and the holders of Registrable Securities in writing that the dollar
amount or number of shares of Common Stock or other securities which the Company
desires to sell, taken together with shares of Common Stock or other securities,
if any, as to which registration has been demanded pursuant to written
contractual arrangements with persons other than the holders of Registrable
Securities hereunder, the Registrable Securities as to which registration has
been requested under this Section 2.1, and the shares of Common Stock or other
securities, if any, as to which registration has been requested pursuant to the
written contractual piggy-back registration rights of other shareholders of the
Company, exceeds the maximum dollar amount or maximum number of shares that can
be sold in such offering without adversely affecting the proposed offering
price, the timing, the distribution method, or the probability of success of
such offering (such maximum dollar amount or maximum number of shares, as
applicable, the “Maximum Number of
Shares”), then the Company shall include in any such
registration:

     

    (i) first,
the shares of Common Stock or other securities that the Company or such other
requesting holders, as the case may be, desire to sell; and

     

    (ii) to the
extent that the Maximum Number of Shares has not been reached under the
foregoing clause (i), the number of securities as to which registration as been
requested pursuant to Piggy-Back Registration, including the Registrable
Securities, that can be sold without exceeding the Maximum Number of Shares,
provided, however, that if the Maximum Number of Shares is less than the total
number of securities for which Piggy-Back Registration has been requested, then
each security holder requesting Piggy-Back Registration shall be entitled to
have registered the pro-rata number of the shares requested by each such holder
based on the number of shares requested by each holder.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    2.1.3. Withdrawal.  Any
holder of Registrable Securities may elect to withdraw such holder’s request for
inclusion of Registrable Securities in any Piggy-Back Registration by giving
written notice to the Company of such request to withdraw prior to the
effectiveness of the Registration Statement.  The Company may also
elect to withdraw a registration statement at any time prior to the
effectiveness of the Registration Statement.  Notwithstanding any
withdrawal by the Company, the Company shall pay all expenses incurred by the
holders of Registrable Securities in connection with such Piggy-Back
Registration as provided in Section 3.3.

     

    3. REGISTRATION
PROCEDURES.

     

    3.1 Filings;
Information.  Whenever the Company is required to effect the
registration of any Registrable Securities pursuant to Section 2, in connection
with any such request:

     

    3.1.1. Copies.  The
Company shall, prior to filing a Registration Statement or prospectus, or any
amendment or supplement thereto, furnish without charge to the holders of
Registrable Securities included in such registration, and such holders’ legal
counsel, copies of such Registration Statement as proposed to be filed, each
amendment and supplement to such Registration Statement (in each case including
all exhibits thereto and documents incorporated by reference therein), the
prospectus included in such Registration Statement (including each preliminary
prospectus), and such other documents as the holders of Registrable Securities
included in such registration or legal counsel for any such holders may request
in order to facilitate the disposition of the Registrable Securities owned by
such holders.

     

    3.1.2. Notification.  After
the filing of a Registration Statement, the Company shall promptly, and in no
event more than two (2) business days after such filing, notify the holders of
Registrable Securities included in such Registration Statement of such filing,
and shall further notify such holders promptly and confirm such advice in
writing in all events within two (2) business days of the occurrence of any of
the following: (i) when such Registration Statement becomes effective; (ii) when
any post-effective amendment to such Registration Statement becomes effective;
(iii) the issuance or threatened issuance by the Commission of any stop order
(and the Company shall take all actions required to prevent the entry of such
stop order or to remove it if entered); and (iv) any request by the Commission
for any amendment or supplement to such Registration Statement or any prospectus
relating thereto or for additional information or of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of the securities covered by
such Registration Statement, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
promptly make available to the holders of Registrable Securities included in
such Registration Statement any such supplement or amendment; except that before
filing with the Commission a Registration Statement or prospectus or any
amendment or supplement thereto, including documents incorporated by reference,
the Company shall furnish to the holders of Registrable Securities included in
such Registration Statement and to the legal counsel for any such holders,
copies of all such documents proposed to be filed sufficiently in advance of
filing to provide such holders and legal counsel with a reasonable opportunity
to review such documents and comment thereon.

     

    
      
        
        

      

      
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    3.1.3. State Securities Laws
Compliance.  The Company shall use its best efforts to (i)
register or qualify the Registrable Securities covered by the Registration
Statement under such securities or “blue sky” laws of such jurisdictions in the
United States as the holders of Registrable Securities included in such
Registration Statement (in light of their intended plan of distribution) may
request and (ii) take such action necessary to cause such Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other Governmental Authorities as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things that may be
necessary or advisable to enable the holders of Registrable Securities included
in such Registration Statement to consummate the disposition of such Registrable
Securities in such jurisdictions; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e) or subject itself to taxation in any such
jurisdiction.

     

    3.1.4. Agreements for
Disposition.  The Company shall enter into customary agreements
(including, if applicable, an underwriting agreement in customary form) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of Registrable Securities.  The representations,
warranties and covenants of the Company in any underwriting agreement which are
made to or for the benefit of any Underwriters, to the extent applicable, shall
also be made to and for the benefit of the holders of the Registrable Securities
included in such underwritten public offering.  No holder of
Registrable Securities included in such registration statement shall be required
to make any representations or warranties in the underwriting agreement except
as reasonably requested by the Company and, if applicable, with respect to such
holder’s organization, good standing, authority, title to Registrable
Securities, lack of conflict of such sale with such holder’s material agreements
and organizational documents, and with respect to written information relating
to such holder that such holder has furnished in writing expressly for inclusion
in such Registration Statement.  Holders of Registrable Securities
shall agree to such covenants and indemnification and contribution obligations
for selling shareholders as are customarily contained in agreements of that
type.  Further, such holders shall cooperate fully in the preparation
of the Registration Statement and other documents relating to any offering in
which they include Registrable Securities pursuant to Section 2
hereof.  Each holder shall also furnish to the Company such
information regarding itself, the Registrable Securities held by such holder, as
applicable, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable
Securities.

     

    3.1.5. Cooperation.  The
principal executive officer of the Company, the principal financial officer of
the Company, the principal accounting officer of the Company and all other
officers and members of the management of the Company shall cooperate fully in
any offering of Registrable Securities hereunder, which cooperation shall
include, without limitation, the preparation of the Registration Statement with
respect to such offering and all other offering materials and related documents,
and participation in meetings with Underwriters, attorneys, accountants and
potential investors.

     

    
      
        
        

      

      
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    3.1.6. Records.  The
Company shall make available for inspection by the holders of Registrable
Securities included in such Registration Statement, any Underwriter
participating in any disposition pursuant to such Registration Statement and any
attorney, accountant or other professional retained by any holder of Registrable
Securities included in such Registration Statement or by any Underwriter
participating in such distribution, all financial and other records, pertinent
corporate documents and properties of the Company, as shall be necessary to
enable them to exercise their due diligence responsibility, and cause the
Company’s officers, directors and employees to supply all information requested
by any of them in connection with such Registration Statement.

     

    3.1.7. Listing.  The
Company shall use its best efforts to cause all Registrable Securities included
in any registration to be listed on such exchanges or otherwise designated for
trading in the same manner as similar securities issued by the Company are then
listed or designated.

     

    3.2 Obligation to Suspend
Distribution.  Upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.1.2(iv), each
holder of Registrable Securities included in any registration shall immediately
discontinue disposition of such Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such holder
receives the supplemented or amended prospectus contemplated by Section
3.1.2(iv) and, if so directed by the Company, each such holder will deliver to
the Company all copies, other than permanent file copies then in such holder’s
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice.

     

    3.3 Registration
Expenses.  The Company shall bear all costs and expenses
incurred in connection with any Piggy-Back Registration pursuant to Section 2.1
and all expenses incurred in performing or complying with its other obligations
under this Agreement, whether or not the Registration Statement becomes
effective, including, without limitation: (i) all registration and filing fees;
(ii) fees and expenses of compliance with securities or “blue sky” laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities); (iii) printing expenses; (iv) the
Company’s internal expenses (including, without limitation, all salaries and
expenses of its officers and employees); (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities as required by Section
3.1.7; (vi) National Association of Securities Dealers, Inc. fees; (vii) fees
and disbursements of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company; (viii) the
fees and expenses of any special experts retained by the Company in connection
with such registration and (ix) the fees and expenses of one legal counsel
selected by the holders of a majority in interest of the Registrable Securities
included in such registration. The Company shall have no obligation to pay any
underwriting discounts or selling commissions attributable to the Registrable
Securities being sold by the holders thereof, which underwriting discounts or
selling commissions shall be borne by such holders.  Additionally, in
an underwritten offering, all selling shareholders and the Company shall bear
the expenses of the underwriter pro rata in
proportion to the respective amount of shares each is selling in such
offering.

     

    3.4 Information.  The
holders of Registrable Securities shall provide such information as may
reasonably be requested by the Company, or the managing Underwriter, if any, in
connection with the preparation of any Registration Statement, including
amendments and supplements thereto, in order to effect the registration of any
Registrable Securities under the Securities Act pursuant to Section 2 and in
connection with the Company’s obligation to comply with federal and applicable
state securities laws.

     

    
      
        
        

      

      
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    4. INDEMNIFICATION
AND CONTRIBUTION.

     

    4.1 Indemnification by the
Company.  The Company agrees to indemnify and hold harmless the
Investor and each other holder of Registrable Securities, and each of their
respective officers, employees, affiliates, directors, partners, members,
attorneys and agents, and each person, if any, who controls the Investor and
each other holder of Registrable Securities (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) (each, an “Investor Indemnified
Party”), from and against any expenses, losses, judgments, claims,
damages or liabilities, whether joint or several, arising out of or based upon
any untrue statement (or allegedly untrue statement) of a material fact
contained in any Registration Statement under which the sale of such Registrable
Securities was registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained in the Registration Statement,
or any amendment or supplement to such Registration Statement, or arising out of
or based upon any omission (or alleged omission) to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation promulgated thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration; and the Company shall promptly reimburse the Investor Indemnified
Party for any legal and any other expenses reasonably incurred by such Investor
Indemnified Party in connection with investigating and defending any such
expense, loss, judgment, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such expense,
loss, claim, damage or liability arises out of or is based upon any untrue
statement or allegedly untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus, or
summary prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by such
selling holder expressly for use therein.

     

    4.2 Indemnification by Holders
of Registrable Securities.  Each selling holder of Registrable
Securities will, in the event that any registration is being effected under the
Securities Act pursuant to this Agreement of any Registrable Securities held by
such selling holder, indemnify and hold harmless the Company, each of its
directors and officers and each Underwriter (if any), and each other person, if
any, who controls such selling holder or such Underwriter or the Company within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, judgments, damages or liabilities, whether joint or several, insofar as
such losses, claims, judgments, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or allegedly untrue
statement of a material fact contained in any Registration Statement under which
the sale of such Registrable Securities was registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or the alleged
omission to state a material fact required to be stated therein or necessary to
make the statement therein not misleading, if the statement or omission was made
in reliance upon and in conformity with information furnished in writing to the
Company by such selling holder expressly for use therein, and shall reimburse
the Company, its directors and officers, and each such controlling person for
any legal or other expenses reasonably incurred by any of them in connection
with investigation or defending any such loss, claim, damage, liability or
action. Each selling holder’s indemnification obligations hereunder shall be
several and not joint and shall be limited to the amount of any net proceeds
actually received by such selling holder from the sale of Registrable Securities
which gave rise to such indemnification obligation.

     

    
      
        
        

      

      
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    4.3 Conduct of Indemnification
Proceedings.  Promptly after receipt by any person of any
notice of any loss, claim, damage or liability or any action in respect of which
indemnity may be sought pursuant to Section 4.1 or 4.2, such person (the “Indemnified Party”)
shall, if a claim in respect thereof is to be made against any other person for
indemnification hereunder, notify such other person (the “Indemnifying Party”)
in writing of the loss, claim, judgment, damage, liability or action; provided,
however, that the failure by the Indemnified Party to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability which the
Indemnifying Party may have to such Indemnified Party hereunder, except and
solely to the extent the Indemnifying Party is actually prejudiced by such
failure. If the Indemnified Party is seeking indemnification with respect to any
claim or action brought against the Indemnified Party, then the Indemnifying
Party shall be entitled to participate in such claim or action, and, to the
extent that it wishes, jointly with all other Indemnifying Parties, to assume
control of the defense thereof with counsel satisfactory to the Indemnified
Party.  After notice from the Indemnifying Party to the Indemnified
Party of its election to assume control of the defense of such claim or action,
the Indemnifying Party shall not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that in any action in which both the
Indemnified Party and the Indemnifying Party are named as defendants, the
Indemnified Party shall have the right to employ separate counsel (but no more
than one such separate counsel) to represent the Indemnified Party and its
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, with the fees and expenses of such counsel to be paid by
such Indemnifying Party if, based upon the written opinion of counsel of such
Indemnified Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, consent to entry of judgment or effect any settlement of any claim or
pending or threatened proceeding in respect of which the Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such judgment or settlement includes an unconditional
release of such Indemnified Party from all liability arising out of such claim
or proceeding.

     

    4.4 Contribution.

     

    4.4.1. If the
indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.3 is
unavailable to any Indemnified Party in respect of any loss, claim, damage,
liability or action referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such loss, claim, damage,
liability or action in such proportion as is appropriate to reflect the relative
fault of the Indemnified Parties and the Indemnifying Parties in connection with
the actions or omissions which resulted in such loss, claim, damage, liability
or action, as well as any other relevant equitable considerations. The relative
fault of any Indemnified Party and any Indemnifying Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such Indemnified Party or such Indemnifying
Party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    4.4.2. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 4.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding Section
4.4.1.  The amount paid or payable by an Indemnified Party as a result
of any loss, claim, damage, liability or action referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or
claim.  Notwithstanding the provisions of this Section 4.4, no holder
of Registrable Securities shall be required to contribute any amount in excess
of the dollar amount of the net proceeds (after payment of any underwriting
fees, discounts, commissions or taxes) actually received by such holder from the
sale of Registrable Securities which gave rise to such contribution
obligation.  No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

     

    5. UNDERWRITING
AND DISTRIBUTION.

     

    5.1 Rule
144.  The Company covenants that it shall file any reports
required to be filed by it under the Securities Act and the Exchange Act and
shall take such further action as the holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 under the
Securities Act, as such Rules may be amended from time to time, or any similar
Rule or regulation hereafter adopted by the Commission.

     

    6. MISCELLANEOUS.

     

    6.1 Assignment; No Third Party
Beneficiaries.  This Agreement and the rights, duties and
obligations of the Company hereunder may not be assigned or delegated by the
Company in whole or in part.  This Agreement and the rights, duties
and obligations of the holders of Registrable Securities hereunder may be freely
assigned or delegated by such holder of Registrable Securities in conjunction
with and to the extent of any transfer of Registrable Securities by any such
holder.  This Agreement and the provisions hereof shall be binding
upon and shall inure to the benefit of each of the parties and their respective
successors and the permitted assigns of the Investor or holder of Registrable
Securities or of any assignee of the Investor or holder of Registrable
Securities.  This Agreement is not intended to confer any rights or
benefits on any persons that are not party hereto other than as expressly set
forth in Section 4 and this Section 6.1.

     

    
      
        
        

      

      
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    6.2 Notices.  All
notices, demands, requests, consents, approvals or other communications
(collectively, “Notices”) required or
permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served, delivered by
reputable air courier service with charges prepaid, or transmitted by hand
delivery or facsimile, addressed as set forth below, or to such other address as
such party shall have specified most recently by written
notice.  Notice shall be deemed given on the date of service or
transmission if personally served or transmitted by telegram, telex or
facsimile; provided, that if such service or transmission is not on a business
day or is after normal business hours, then such notice shall be deemed given on
the next business day.  Notice otherwise sent as provided herein shall
be deemed given on the next business day following timely delivery of such
notice to a reputable air courier service with an order for next-day
delivery.

     

    To the
Company:

    Cyalume
Technologies Holdings, Inc.

    96
Windsor Street

    West
Springfield, Massachusetts 01089

    Attn:    Derek
Dunaway, President

     

    with a
copy to:

     

    Loeb
& Loeb LLP

    345 Park
Avenue

    New York,
New York 10154

    Attn:    Mitchell S.
Nussbaum, Esq.

     

    To the
Investor, to:

     

    Their
address of record on the books of the Company

     

    with a
copy to:

     

    Goldberg
Kohn Ltd.

    55 East
Monroe, Suite 3300

    Chicago
Illinois 60603

    Attn:    Denise
Caplan

     

    6.3 Severability.  This
Agreement shall be deemed severable, and the invalidity or unenforceability of
any term or provision hereof shall not affect the validity or enforceability of
this Agreement or of any other term or provision hereof.  Furthermore,
in lieu of any such invalid or unenforceable term or provision, the parties
hereto intend that there shall be added as a part of this Agreement a provision
as similar in terms to such invalid or unenforceable provision as may be
possible and be valid and enforceable.

     

    6.4 Counterparts.  This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, and all of which taken together shall constitute one and the
same instrument.

     

    
      
        
        

      

      
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    6.5 Entire
Agreement.  This Agreement (including all agreements entered
into pursuant hereto and all certificates and instruments delivered pursuant
hereto and thereto) constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous
agreements, representations, understandings, negotiations and discussions
between the parties, whether oral or written.

     

    6.6 Modifications and
Amendments.  This Agreement shall not be charged, modified or
amended except by a writing signed by the Company and the holdings of at least a
majority in interest of the then outstanding Registrable Securities affected
thereby.

     

    6.7 Titles and
Headings.  Titles and headings of sections of this Agreement
are for convenience only and shall not affect the construction of any provision
of this Agreement.

     

    6.8 Waivers and
Extensions.  Any party to this Agreement may waive any right,
breach or default which such party has the right to waive, provided that such
waiver will not be effective against the waiving party unless it is in writing,
is signed by such party, and specifically refers to this
Agreement.  Waivers may be made in advance or after the right waived
has arisen or the breach or default waived has occurred.  Any waiver
may be conditional.  No waiver of any breach of any agreement or
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof nor of any other agreement or provision herein
contained.  No waiver or extension of time for performance of any
obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.

     

    6.9 Remedies
Cumulative.  In the event that the Company fails to observe or
perform any covenant or agreement to be observed or performed under this
Agreement, the Investor or any other holder of Registrable Securities may
proceed to protect and enforce its rights by suit in equity or action at law,
whether for specific performance of any term contained in this Agreement or for
an injunction against the breach of any such term or in aid of the exercise of
any power granted in this Agreement or to enforce any other legal or equitable
right, or to take any one or more of such actions, without being required to
post a bond. None of the rights, powers or remedies conferred under this
Agreement shall be mutually exclusive, and each such right, power or remedy
shall be cumulative and in addition to any other right, power or remedy, whether
conferred by this Agreement or now or hereafter available at law, in equity, by
statute or otherwise.

     

    6.10 Governing
Law.  This Agreement shall be governed by, interpreted under,
and construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed within the State of New York,
without giving effect to any choice-of-law provisions thereof that would compel
the application of the substantive laws of any other jurisdiction. Each of the
parties hereby agrees that any action, proceeding or claim against it arising
out of or relating in any way to this Agreement shall be brought and enforced in
the courts of the State of New York or the United States District Court for the
Southern District of New York (each, a “New York Court”), and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. Each of the
parties hereby waives any objection to such exclusive jurisdiction and that such
courts represent an inconvenient forum.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    6.11 Waiver of Trial by
Jury.  Each party hereby irrevocably and unconditionally waives
the right to a trial by jury in any action, suit, counterclaim or other
proceeding (whether based on contract, tort or otherwise) arising out of,
connected with or relating to this Agreement, the transactions contemplated
hereby, or the actions of the Investor in the negotiation, administration,
performance or enforcement hereof.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    

    
      
        
        

      

      
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    IN
WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to
be executed and delivered by their duly authorized representatives as of the
date first written above.

     

    
      
        	 	
                CYALUME
      TECHNOLOGIES HOLDINGS, INC.

              	 
	 	 	 	 
	
              	
                By:
      

              	/s/ Derek
    Dunaway	 
	 	 	

                Derek
      Dunaway, President

              	 

      

    

     

    -
Signature page of the Investor immediately follows -

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	 	INVESTOR:	 
	 	 	 
	 	GRANITE CREEK FLEXCAP I,
      L.P.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Brian
      Boorstein	 
	 	 	Its:
      Managing Member

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