A couple of years back, John Signorello figured he had cut a pretty good deal: He sold STMS Inc., the Sterling computer services and consulting firm where he was chief executive and 45 percent owner, to Dunn Computer Corp., a Dulles firm that specializes in providing federal agencies with built-to-order computers.

Signorello and two other principals in the privately held STMS--it stood for Solutions That Make Sense--got a total of $1 million in cash, 150,000 shares of Dunn and 1.35 million stock options. They also got jobs at Dunn, where Signorello became the $200,000-a-year vice president of sales and marketing.

But Signorello, a part-time big band pop singer, left the firm 14 months ago and now is engaged in a legal fight with Dunn over the value of his 550,000 stock options, a skirmish he described as "such a soap opera."

So far, it's Signorello 2, Dunn 0.

In August, an arbitrator ruled that Dunn owed Signorello $1,664,996 in compensation. The company sued to overturn the arbitrator's ruling, and on Friday, Fairfax County Circuit Judge Jane Marum Roush upheld the award.

Signorello said he has yet to collect a penny of the award, and the company has vowed to appeal the ruling to the Virginia Supreme Court.

The firm's president and chief executive, Thomas P. Dunne, said in a news release, "The arbitration award lacks merit, we intend to appeal and we will also pursue all other legal options."

Dunne could not be reached for further comment, and Bill Hughes, Dunn's marketing vice president, who wrote the news release, declined to discuss the case.

Signorello said he was "very excited" in September 1997 to sell STMS to Dunn and join the firm. "I thought it was a great match," said Signorello, 33. "You get a salary and you go to work. Who knew they wouldn't honor the contract?"

As part of his deal to join Dunn, Signorello said the firm agreed to let him buy his option shares at $6.50, the price of its stock at the time he signed his employment contract. Under terms of the contract, he said, if Dunn's stock price dipped within the first year, his option price would become the lower stock value.

Signorello said the stock price dropped to $3.12 1/2 in the year he worked at Dunn. As he neared his 12-month anniversary, he had his lawyer write Dunn a letter asking that the stock option price be reset.

Instead, Signorello said, "The stock options never got repriced. And on Sept. 30 [1998], they stopped paying me and then I terminated the contract.

"They claim I voluntarily quit, but why would I do that with 550,000 options?" Signorello asked. "I terminated the contract. There's a difference."

An arbitrator with the American Arbitration Association who heard the dispute decided the case mostly in Signorello's favor, awarding him compensation that included unpaid salary under the contract and the lower stock price for his options. That resulted in the $1,664,996 total, plus 9 percent interest from Aug. 27 until the damages are paid, and lawyer's fees. The sum has already pushed past $1.7 million. (The stock price closed yesterday at $4.75, down 9 3/4 cents.)

Signorello said he has cut a couple of compact discs as a singer and is now chief executive of New York City Lights Entertainment, a firm developing a digital car radio that would allow drivers to tune to a station from anywhere in the country.

CAPTION: John Signorello said he was "very excited" when the deal with Dunn was made in 1997.