EXHIBIT 10.1
NONQUALIFIED STOCK OPTION AGREEMENT
N2H2, INC.
I. OPTION ▇▇▇▇▇. ▇▇▇▇, INC., a Washington corporation (the "Company")
hereby grants a nonqualified stock option to purchase up to 1,400,000
shares of Common Stock of the Company, no par value, (the "Common
Stock") as of August 2, 2002 ("Grant Date") to ▇▇▇▇▇▇ ▇▇▇▇▇▇ WELT (the
"Optionee"), subject in all respects to the terms and provisions of this
Nonqualified Stock Option Agreement (the "Option"). This Option shall be
governed by, and construed in accordance with, the laws of the state of
Washington without regard for principles of conflict of laws.
II. DEFINITIONS.
"Board" shall mean the Board of Directors of the Company.
"Cause" is defined as (i) Optionee's failure or refusal to perform his
duties, responsibilities or obligations hereunder after at least
twenty-one (21) days' prior written notice regarding any such failure or
refusal; (ii) Optionee's breach of any non-competition or
confidentiality agreement with the Company; (iii) the willful
misappropriation of funds or property of the Company; (iv) use of
alcohol or drugs which interferes with performance of Optionee's
obligations under the Employment Agreement, continuing after thirty (30)
days' prior written notice; (v) conviction of a felony or of any crime
involving moral turpitude, fraud or misrepresentation; or (vi) the
commission by Optionee of any willful or intentional act in disregard of
the interests of the Company which could be reasonably expected to
materially injure the reputation, business or business relationships of
the Company, provided, however, that a good faith mistake in the normal
course of business shall not be considered "Cause".
"Committee" shall mean the Compensation Committee of the Board.
"Disability" means that Optionee is unable to perform the principal
functions of his duties due to a mental or physical impairment, but only
if such inability has lasted or is reasonably expected to last for at
least six (6) months. The determination of whether Optionee has a
Disability shall be determined by the Committee based on evidence
provided by one or more medical experts selected by the Committee.
"Employment Agreement" shall mean the Employment Agreement between
Optionee and the Company dated of even date herewith.
"Exercise Price" shall mean the exercise price per share of the Option,
as set forth in Section IV.
"Fair Market Value" shall mean the average of the high and low sales
prices of the Common Stock on the Over-the-Counter Bulletin Board.
"Good Reason" means (i) a material reduction (without Optionee's
consent) in his title, authority, status, or responsibilities, or (ii) a
material breach by the Company of its obligations under the Employment
Agreement.
III. VESTING SCHEDULE. The Vesting Initiation Date shall be May 18, 2002. The
Option shall vest and become exercisable vest as to 116,666 shares per
month on the 18th calendar day of each month, commencing on June 18,
2002, with 100% of the option being vested and exercisable on May 18,
2003. Notwithstanding the foregoing, (i) if Optionee's employment with
the Company is terminated without Cause, (ii) if Optionee resigns for
Good Reason before the first anniversary of the Grant Date or (iii) in
the event of Optionee's death or Disability, this Option shall
automatically vest and become immediately exercisable for a total of
100% of the total number of shares of Common Stock originally subject to
the Option. Optionee agrees to be seen by or consult with medical
experts of the Committee's choosing, if so requested by the Committee,
for purposes of making a determination of whether the Optionee suffers
from a Disability under this Section II.
IV. PRICE. The Option Exercise price shall be $0.145, the Fair Market Value
on the date that the Option is granted by the Board. The Exercise Price
shall be paid by delivery of cash or, subject to the discretion of the
Board, by delivery of an approved equivalent to cash. In addition,
Optionee may pay the Exercise Price by surrender of shares of Common
Stock which have already been owned by Optionee for such duration as
shall be specified by the Committee. For purposes of this Section IV,
shares of Common Stock already owned by Optionee shall be valued at
their Fair Market Value on the date of exercise of the Option. Shares
surrendered in payment of the Exercise Price and applicable withholding
taxes shall be deemed to be paid upon delivery of an irrevocable
directive to a securities broker approved by the Company to sell all or
part of such shares and to deliver the sales proceeds to the Company.
V. PURCHASE FOR INVESTMENT. This Option may not be exercised if the
issuance of shares of Common Stock pursuant to an exercise would
constitute a violation of any applicable federal or state securities or
other law or valid regulation. Any other provision of this Option
notwithstanding, the obligation of the Company to issue shares pursuant
to an exercise of the Option shall be subject to all applicable laws,
rules and regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in
part, the delivery of shares prior to the satisfaction of all legal
requirements relating to the issuance of such shares, to their
registration, qualification or listing or to an exemption from
registration, qualification or listing.
VI. NON-ASSIGNABILITY. The Option may not be transferred or hypothecated in
any manner and shall only be exercisable by the Optionee or his legal
representative. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors, and assigns of the
Optionee.
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VII. EXERCISE.
A. This Option shall be exercisable, to the extent of the number of
shares purchasable by Optionee at the date of termination, only
(1) within one year after such termination if the Optionee's
termination is coincident with the Optionee's death or
Disability, (2) within three years after the termination of
Optionee's employment by the Company without Cause or by the
Optionee for Good Reason or (3) within three months after the
termination of Optionee's employment by the Company with Cause or
by the Optionee without Good Reason, provided, however, that in
no event shall the option be exercisable on any date after the
expiration of the Term set forth in Section VII.B. below. Any
portion of this Option exercisable at the time of the Optionee's
death may be exercised by the personal representative of the
Optionee's estate or the person(s) to whom the Optionee's rights
under the Option have passed by will or the applicable laws of
descent and distribution. This Option may be exercised only for
whole shares of Common Stock.
B. This Option may not be exercised more than ten (10) years from
the date hereof (the "Term"), and may be exercised during the
Term only in accordance with the terms and provisions set forth
herein. If the Optionee's employment with the Company is
suspended pending an investigation of whether the Optionee shall
be terminated for Cause, all the Optionee's rights under the
Option likewise shall be suspended during the period of
investigation.
C. This Option may be exercised for all or part of the shares
eligible for exercise by presenting a written notice to the
Company that this Option is exercised, or by such other method as
complies with standard Company procedure. In either event, the
Company shall determine whether the exercise complies with the
terms and provisions of this Option. If the Option is exercised
by written notice, such notice shall identify this Option, state
the number of shares as to which the Option is exercised and be
signed by the Optionee. Delivery of the exercise price for the
shares to be purchased pursuant to the exercise of this Option
shall accompany the notice or shall be otherwise accomplished in
accordance with standard Company procedure. If the Optionee is
deceased, exercise shall be by written notice, which notice shall
be signed by the Optionee's legal representatives or
beneficiaries. If the Optionee has a Disability, this Option may
be exercised by written notice signed by Optionee's legal
representatives. In all instances such notice shall be
accompanied by evidence satisfactory to the Company and its
transfer agent of the right of such person or persons to exercise
this Option.
D. The Optionee shall make arrangements satisfactory to the Company
for the satisfaction of any withholding tax obligations that
arise in connection with his Option. The Company shall not be
required to issue any shares of Common Stock until such
obligations are satisfied.
VIII. MARKET STANDOFF. In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective
registration statement filed
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under the Securities Act after the date hereof, Optionee shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for
the purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to this Option without the prior written
consent of the Company or its underwriters. Such limitations shall be in
effect for such period of time as may be requested by the Company or
such underwriters and agreed to by the Company's officers and directors
with respect to their shares; provided, however, that in no event shall
such period exceed 180 days. Holders of shares issued pursuant to this
Option shall be subject to the market standoff provisions of this
paragraph only if the officers and directors of the Company are also
subject to similar arrangements. In the event of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock effected as a class
without the Company's receipt of consideration, then any new,
substituted or additional securities distributed with respect to the
purchased shares shall be immediately subject to the provisions of this
Section VIII., to the same extent the purchased shares are at such time
covered by such provisions. In order to enforce the limitations of this
Section VII., the Company may impose stop-transfer instructions with
respect to the purchased shares until the end of the applicable standoff
period.
IX. EFFECT OF CHANGE IN COMMON STOCK SUBJECT TO OPTION. In the event of a
subdivision of the outstanding shares of Common Stock, a declaration of
a dividend payable in shares of Common Stock in an amount that has a
material effect on the price of the Common Stock, a combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common
Stock, a recapitalization, spin-off or a similar occurrence, the Board
shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of the number of shares subject to the Option
or the Exercise Price. Except as provided in this Section IX., Optionee
shall have no rights by reason of any issue by the Company of stock of
any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class.
X. AMENDMENT OR ALTERATION. The Board may amend or alter this Option,
except that no amendment or alteration shall be made which would impair
the rights of the Optionee hereunder, without his consent.
XI. OPTION NOT A SERVICE CONTRACT. This Option is not an employment contract
and nothing in this Option shall be construed as giving Optionee any
right to be retained in the employ of the Company or limit the Company's
right to terminate the employment or services of Optionee.
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XII. NO RIGHTS AS A SHAREHOLDER. The Optionee, or a transferee of the
Optionee, shall have no rights as a shareholder with respect to any
Common Stock covered by the Option until such person becomes entitled to
receive such Common Stock by delivering a written notice of exercise
price (or completing exercise by such other method as complies with the
Company's standard exercise procedure) and paying the Exercise Price
pursuant to the terms of this Option.
N2H2, Inc.
By: /s/ J. ▇▇▇▇ ▇▇▇▇▇
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Name: J. ▇▇▇▇ ▇▇▇▇▇
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Title: Chief Financial Officer
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If the following acknowledgment and acceptance is not executed within ten (10)
days of the effective date of this Option, it shall lapse and be treated for all
purposes as if it were never granted.
The Optionee acknowledges and represents that he is familiar with and
understands the terms and provisions of this Option. The Optionee hereby accepts
this Option subject to all the terms and provisions contained herein. The
Optionee hereby agrees to accept as binding, conclusive, and final all decisions
and interpretations of the Board upon any questions arising under the Option.
Dated: 8/13/02
WITNESS: OPTIONEE:
/s/ J. ▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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