exv10w5



 







Exhibit 10.5




STOCK OPTION AGREEMENT




     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”).



RECITALS




     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:



AGREEMENT




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,
setting forth the number of Shares with respect to which Options are being exercised. The purchase
price of the Option Shares upon exercise of the Options by the Optionee shall be paid in full in
cash, or as otherwise permitted by the Company’s stock option plan.



2.3 STOCK CERTIFICATES. Promptly after any exercise in whole or in part of the Options by
Optionee, the Corporation shall deliver to Optionee a certificate or certificates for the number of
Shares with respect to which the Options were so exercised, registered in Optionee’s name.




SECTION 3

NONTRANSFERABILITY



3.1 RESTRICTION. The Options are not transferable by Optionee.




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SECTION 4




NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE



4.1 Optionee shall not be deemed for any purpose to be a shareholder of Corporation with respect to
any shares subject to the Options under this Agreement to which the Options shall not have been
exercised.




SECTION 5

ADJUSTMENTS



5.1 NO EFFECT ON CHANGES IN CORPORATION’S CAPITAL STRUCTURE. The existence of the Options shall
not affect in any way the right or power of the Corporation or its shareholders to make or
authorize any adjustments, recapitalization, reorganization, or other changes in the Corporation’s
capital structure or its business, or any merger or consolidation of the Corporation, or any issue
of bonds, debentures, preferred or preference stocks ahead of or affecting the Option Shares, or
the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether of a similar character or
otherwise.



5.2 ADJUSTMENT TO OPTION SHARES. The Option Shares are subject to adjustment upon
recapitalization, reclassification, consolidation, merger, reorganization, stock dividend, reverse
or forward stock split and the like. If the Corporation shall be reorganized, consolidated or
merged with another corporation, Optionee shall be entitled to receive upon the exercise of the
Option the same number and kind of shares of stock or the same amount of property, cash or
securities as Optionee would have been entitled to receive upon the happening of any such corporate
event as if Optionee had been, immediately prior to such event, the holder of the number of Shares
covered by the Option.




SECTION 6

TERMINATION OF EMPLOYMENT OR DEATH



6.1 The terms and conditions of paragraph 9 of the Company’s Amended and Restated Number 2 2004
Non-Statutory Stock Option Plan, adopted on November 15, 2004, is incorporated herein by
references, and shall govern the rights and privileges of the Optionee with respect to the issues
addressed therein.




SECTION 7

MISCELLANEOUS PROVISIONS



7.1 DISPUTES. Any dispute or disagreement that may arise under or as a result of this Agreement,
or any question as to the interpretation of this Agreement, may be determined by the Corporation’s
board of directors in its absolute and uncontrolled discretion, and any such determination shall be
final, binding, and conclusive on all affected persons.




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7.2 NOTICES. Any notice that a party may be required or permitted to give to the other shall be in
writing, and may be delivered personally, by overnight courier or by certified or registered mail,
postage prepaid, addressed to the parties at their current principal addresses, or such other
address as either party, by notice to the other, may designate in writing from time to time.



7.3 LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware.



7.4 TITLES AND CAPTIONS. All section titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context nor affect the interpretation of this
Agreement.



7.5 ENTIRE AGREEMENT. With the exception of the Merger Agreement, this Agreement contains the
entire understanding between the parties and supersedes any prior understandings and agreements
between them respecting the subject matter of this Agreement.



7.6 AGREEMENT BINDING. This Agreement shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties hereto.



7.7 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular, or plural as the identity of the person or persons may
require.



7.8 FURTHER ACTION. The parties hereto shall execute and deliver all documents, provide all
information and take or forbear from all such action as may be necessary or appropriate to achieve
the purposes of the Agreement.



7.9 PARTIES IN INTEREST. Nothing herein shall be construed to be to the benefit of any third
party, nor is it intended that any provision shall be for the benefit of any third party.



7.10 SAVINGS CLAUSE. If any provision of this Agreement, or the application of such provision to
any person or circumstance, shall be held invalid, the remainder of this Agreement, or the
application of such provision to persons or circumstances other than those as to which it is held
invalid, shall not be affected thereby.





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




	 	 	 	 	 	 	 
	 	 	SPECTRUM SCIENCES & SOFTWARE HOLDINGS CORP., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ William H. Ham, Jr.	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	William H. Ham, Jr.	 	 
	 

	 	Title:
	 	President and Chief Executive Officer	 	 





The undersigned Optionee hereby acknowledges receipt of an executed original of this Agreement,
accepts the Options granted thereunder, and agrees to the terms and conditions thereof.




OPTIONEE




/s/ Darryl K. Horne                                        

Darryl K. Horne




 









 





SPECTRUM SCIENCES AND SOFTWARE HOLDINGS CORP.




NOTICE OF EXERCISE OF STOCK OPTION



The undersigned hereby exercises the Stock Options granted by Spectrum Sciences & Software Holdings
Corp. and seeks to purchase
                                         shares of Common Stock of the Corporation pursuant
to said Options. The undersigned understands that this exercise is subject to all the terms and
provisions of the Stock Option Agreement dated as of May ___, 2005.



Enclosed is a check in the sum of US $                                                             as payment for such shares.




                                                            

Signature of Optionee



Date: