EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “ Agreement ”), entered into this 24 day of February, 2008, by and between Cyalume Technologies, Inc., a Delaware corporation (the “ Company ”), and Derek Dunaway (the “ Executive ”).

WHEREAS , the Company desires to secure the services of the Executive, the Executive desires to commence employment with the Company, and each desires to enter into an agreement to provide for the terms of such employment as set forth herein.

NOW, THEREFORE , the parties hereto agree as follows:

“ Affiliate ” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person.  As used in this definition, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

“ Board ” means the board of directors of the Company.

“ Employment Period ” means the period beginning on the date of this Agreement and ending on the date on which the Executive is no longer employed by the Company.

“ Person ” means an individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

” Subsidiary ” means any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of units entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by the Company.

 (a)            Employment .  The Company agrees to employ the Executive, and the Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement during the Employment Period.

 (b)            Position and Duties .

 (i)            Position .  During the Employment Period the Executive shall serve as the President and Chief Executive Officer of the Company under the supervision and direction and reporting directly to the Cyalume Board.

 (ii)            Responsibilities .  In the Executive’s capacity as the President of the Company, the Executive shall perform such duties as are customarily performed by a President of a non-public company of comparable size and shall have such power and authority as shall reasonably be required to enable him to perform such duties hereunder.  The Executive shall attend Board meetings as requested by the Board.  The Executive will have such other duties and responsibilities as the Board may reasonably determine from time to time, and the Executive will faithfully perform such duties to the best of his ability.

 (iii)          Time to be Devoted to Employment .  Except for vacation, absences due to temporary illness and absences resulting from a disability, the Executive shall (A) devote substantially all of his business time, attention, energy and skills to the business of the Company, (B) use his best efforts to promote the success of the Company’s businesses, and (C) cooperate fully with the Board in the advancement of the best interests of the Company.

 (iv)          Policies .  The Executive will be subject to, and will comply with, the policies, standards and procedures generally applicable to senior management employees of the Company from time to time.

 (c)            Base Salary and Benefits .

 (i)            Base Salary .  During the Employment Period, the Company will pay to the Executive a base salary (the “ Base Salary ”) at the annual rate of $250,000.  The Base Salary shall be paid by the Company in regular installments in accordance with the Company’s general payroll practices and shall be subject to customary withholding, payroll and other taxes.

 (ii)           Vacation .  During the Employment Period, the Executive shall be entitled to three (3) weeks paid vacation during each 12-month period worked.  If the Executive is employed hereunder during a calendar year for less than all of that year, he shall be entitled in that year to a number of such vacation days, pro rated based on the number of days worked during such year. Unused vacation days shall not accumulate or roll over between calendar years.

 (iii)          Benefits .  In addition to the Base Salary, the Executive shall be entitled, during the Employment Period, to participate in such employee benefit plans generally made available to senior management employees of the Company, subject to the terms and conditions thereof and subject to change from time to time (the “ Benefit Plans ” and the benefits offered under the Benefit Plans being herein referred to as the “ Benefits ”).

 (iv)          Business Expenses .  The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by him in the course of performing his duties under this Agreement, in each case which are consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses. The Executive must furnish the Company with evidence relating to such expenses as the Company requires to substantiate such expenses for tax and accounting purposes. During the Employment Period, the Executive shall be entitled to a  monthly car allowance in the amount of $1,000, which allowance shall be paid in regular installments in accordance with the Company’s general payroll practices and shall be subject to customary tax withholding.

 (d)            Termination .

 (i)           The Employment Period shall terminate (x) upon the Executive’s death or disability, (y) upon the Executive’s voluntary resignation of his employment with the Company, or (z) by the Company for any reason.  The effective date of the termination of the Employment Period pursuant to this Section 2(d) is hereinafter referred to as the “ Termination Date .”  Except as otherwise provided herein, the Termination Date with respect to termination of the Employment Period by the Company shall be the date specified by the Company in a written notice to the Executive.  Upon the termination of the Employment Period, the Executive shall be entitled to (1) all previously earned and accrued but unpaid Base Salary up to the Termination Date, (2) all unpaid vacation and reimbursable expenses which have accrued up to the Termination Date and (3) any other amounts the payment of which is required by applicable law, but shall not be entitled to any further Base Salary or Benefits for the remainder of that year or any future year, or to any severance compensation of any kind, nature or amount.

 (ii)          Any payments pursuant to this Section 2(d) shall be made in regular payroll payment installments in accordance with the Company’s general payroll practices and as of the date of the final such payment, the Company shall have no further obligation to the Executive pursuant to this Section 2(d) except as provided by applicable law.

3.             Confidential Information .  The Executive acknowledges that the information, observations and data obtained by the Executive while employed by the Company concerning the business and affairs of the Company and/or any Affiliated entity (collectively, the “ Confidential Information ”), are the property of the Company and/or an Affiliated entity, as applicable.  Therefore, the Executive agrees that he shall not disclose to any unauthorized Person or use for his own account any Confidential Information unless such Confidential Information (i) is generally   known to and available for use by the public other than as a result of the Executive’s acts or omissions to act; (ii) is rightfully received by the Executive from a party who was not subject to any obligations of confidentiality; or (iii) the Executive is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information, provided , that in such case, the Executive shall promptly inform the Company of such order, shall cooperate with any effort by the Company to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the extent necessary to comply with any such court order.  If in the absence of a protective order or the receipt of a waiver hereunder, the Executive, on the written advice of counsel, is compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, the Executive shall, at the reasonable request of the Company, use his best efforts to obtain an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Company shall designate. The Executive shall deliver to the Company at the termination of the Executive’s employment, or at any other time that the Com