Spectra (di/ S) Regulatory News (SPSC)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

Spectra Systems Corporation

("Spectra" or the "Company")

Updated CEO employment agreement

Spectra Systems Corporation, a leader in machine-readable high speed banknote authentication, brand protection technologies, and gaming security software, announces that it yesterday entered into an updated employment agreement (the "Updated Agreement") with Dr. Nabil M. Lawandy, Chief Executive Officer and a Director of Spectra, replacing the agreement originally entered into on 17 December 1999, and as most recently amended on 29 June 2011.

Dr. Lawandy's agreement was updated as part of an effort by the Board of Directors to review the employment agreements for its three most senior executives. Spectra has also therefore entered into new employment agreements with Brian E. McLain, CFO, and William Goltsos, Vice President Engineering.

The Updated Agreement with Dr. Lawandy represents a related party transaction in accordance with AIM Rule 13. Neither Mr. McLain nor Mr. Goltsos is a Director of any Spectra group company.

On 11 January 2019, Spectra announced that Dr. Lawandy had, on 8 January 2019, exercised options (the "2019 Expiry Options") over 500,000 shares of common stock of $0.01 each of the Company ("Shares") at an exercise price of USD 0.60 per Share.

When the 2019 Expiry Options had originally been granted in 2009, the then board of directors had intended that they would all be tax efficient options. However the US fiscal authorities ruled that only the options over 500,000 Shares exercised on 8 January 2019 were tax efficient. Exercise of the remaining 2019 Expiry Options over 977,979 Shares would have crystalised a significant tax liability for Dr. Lawandy, with limited opportunity to sell sufficient of such Shares, being restricted securities as defined in Rule 144 of the US Securities Act of 1933, to meet such liability. Accordingly Dr. Lawandy allowed these options to lapse.

The Independent Directors (being each of the current Directors of the Company excluding Dr. Lawandy) believe it important to compensate Dr. Lawandy for this US fiscal authority ruling.

Accordingly the Updated Agreement provides for a payment to Dr. Lawandy, in the event of a Change in Control, as defined in the appendix below, equal, on a net of tax basis:

· In the event of a Change in Control prior to 7 January 2020, to the profit Dr. Lawandy would have made on 600,000 options exercised at USD 0.60 each, based on the the price per Share paid in such change of control (or if higher the average market price in the preceding period of 6 months); or

· In the event of a Change in Control post 7 January 2020, to the profit Dr. Lawandy would have made on 1,040,000 options exercised at USD 0.60 each, based on the price per Share paid in such change of control (or if higher the average market price in the preceding period of up to 6 months post 7 January 2020).

The number of shares was arrived at through a calculation which included the lapsed options in a tax favourable exercise, as originally intended and referred to above, and the additional tax consequences associated with this new form of remuneration. This structure was agreed to by Dr. Lawandy in order not to deplete the cash resources the Company has in place for potential requirements related to pending business opportunities and to Spectra's Share buyback programme announced on 10 April 2019.

The Updated Agreement also includes provisions as follows:

· To (a) increase the severance payment to Dr. Lawandy, in the event of termination without cause, from 100% to 150% of his base salary, which remains at USD 375,000, and 100%, as previously, of his annual target performance bonus, which remains at USD 100,000, and (b) advance the payment thereof such that two thirds (previously one half) of such aggregate amount shall be payable in a lump sum on or about the date of termination and balance of which shall be payable in equal instalments during the six months (previously 12 months) following the date of termination;

· To enable him to exercise all vested and unvested options in the event of termination of his employment without cause upon or following a Change of Control;

· To pay for medical benefits for up to 12 months in the event of termination without cause; and

· To limit (a) the scope of his existing 12-month non-compete to any business activity in which the Company has been involved during the term of his employment in the fields or applications of authentication, security and/or banknotes and (b) the scope of any inventions which he is obliged to assign to Spectra to only those in the fields or applications of authentication, security and banknotes.

The Updated Agreement represents a related party transaction in accordance with AIM Rule 13. The Independent Directors consider, having consulted with the Company's nominated adviser, that the Updated Agreement is fair and reasonable insofar as shareholders are concerned.

Spectra now considers itself free to make purchases, when it so determines, under the share buyback programme announced on 10 April 2019.

Appendix: Definition of Change in Control

The occurrence of any of the following:

(aa) one person (or more than one person acting as a group) acquiring ownership of Shares of the Company that, together with Shares held by such person or group, constitute more than 50% of the total fair market value or total voting power of the Shares;

(bb) one person (or more than one person acting as a group) acquiring (or having acquired during the twelve-month period ending on the date of the most recent acquisition) ownership of the Company's Shares possessing 30% or more of the total voting power of the Shares;

(cc) a majority of the members of the Board being replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or

(dd) the sale of all or substantially all of the Company's assets.