This Stock Option
Agreement (this “ Agreement ”) is made as of
May 11, 2005 by and between Spectrum Sciences & Software
Holdings Corp. (the “ Corporation ”) and Darryl
K. Horne (the “ Optionee ”).
A. Optionee
and the Corporation are parties to that certain Agreement and Plan
of Merger, dated April 14, 2005 (the “ Merger
Agreement ”) with Horne Acquisition LLC, a Virginia
limited liability company and a wholly-owned subsidiary of the
Corporation (“ Acquisition LLC ”), Horne
Engineering Services, Inc., a Virginia corporation (“
Horne ”) and the remaining shareholders of Horne,
providing for the merger of Horne with and into Acquisition LLC
pursuant to the Virginia Stock Corporation Act (the “
Merger ”). Capitalized terms used but not otherwise
defined herein shall have the meaning set forth in the Merger
Agreement.
B. Under the
terms of the Merger Agreement, the Corporation has agreed to grant
stock options to the Optionee to purchase shares of the
Corporation’s common stock (the “ Shares
”). The stock options granted herein are not “incentive
stock options” under Section 422 of the Internal Revenue
Code of 1986, as amended.
NOW THEREFORE,
specifically incorporating these recitals herein, it is agreed as
follows:
SECTION 1
GRANT OF OPTIONS
1.1 NUMBER OF
SHARES. Subject to the terms and conditions of this Agreement, the
Corporation grants to Optionee, Options to purchase from the
Corporation one million (1,000,000) Shares (the “ Option
Shares ”).
1.2 EXERCISE
PRICE. Each Option Share is exercisable, upon vesting, at $1.65
(the “ Option Price ”).
1.3 VESTING. In
accordance with Section 7.4 of the Merger Agreement, the
Options granted herein shall become fully vested as of the date on
which the Corporation certifies, in accordance with
Sections 7.3(b)(i) and 7.3(b)(ii) of the Merger Agreement,
that each of the following thresholds has been achieved:
(a) the
gross revenues of Acquisition LLC for the fiscal year ending
December 31, 2005, together with the gross revenues of Horne
for the fiscal year ending December 31, 2005 prior to the
Effective Time of the Merger (as set forth in the Merger
Agreement), based on the Corporation’s audited financial
statements for the fiscal year ending December 31, 2005 as
filed in the Corporation’s Annual Report on Form 10-K filed
with
the SEC for
such fiscal year, is equal to or greater than $75,000,000 (such
amount being referred to herein as the “ 2005 Gross
Revenues Threshold ”); and
(b) the
EBITDA (as defined in the Merger Agreement) of Acquisition LLC for
the fiscal year ending December 31, 2005, together with the
EBITDA of Horne for the fiscal year ending December 31, 2005
prior to the Effective Time of the Merger (as set forth in the
Merger Agreement), based on the Corporation’s audited
financial statements for the fiscal year ending December 31,
2005 as filed in the Corporation’s Annual Report on Form 10-K
filed with the SEC for such fiscal year, is equal to or greater
than $3,250,000 (such amount being referred to herein as the
“ 2005 EBITDA Threshold ”).
1.4 TERM. The
Expiration Date for all Options issued hereunder shall be that date
that is five (5) years from the date on which the Corporation
certifies that the Options become fully vested; provided, however,
that in the event that either the 2005 Gross Revenues Threshold or
the 2005 EBITDA Threshold is not achieved, in accordance with
Sections 7.3(b)(i) and 7.3(b)(ii) of the Merger Agreement, as
applicable, the Options shall be cancelled immediately upon
certification thereof by the Corporation.
SECTION 2
EXERCISE OF OPTION
2.1 . DATE
EXERCISABLE. The Options shall become exercisable by Optionee as of
the date on which the Corporation certifies that the Options become
fully vested pursuant to Section 1.3 of this
Agreement.
2.2 MANNER OF
EXERCISE OF OPTIONS AND PAYMENT FOR COMMON STOCK. The Options may
be exercised by the Optionee, in whole or in part, by giving
written notice to the Secretary of the Corporation,
settin
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