<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
N2H2, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1686754
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
John F. Duncan
900 Fourth Avenue, Suite 3400 900 Fourth Avenue, Suite 3400
Seattle, Washington 98164 Seattle, Washington 98164
(Address of Principal Executive (206) 336-1501
Offices, including zip code) (Name, address and telephone number,
including area code, of agent for service)
N2H2, Inc. 2000 Stock Option Plan
Employee Stock Purchase Plan
(Full Title of Plans)
Copies to:
Gregory L. Anderson
William W. Lin
Lane Powell Spears Lubersky LLP
1420 Fifth Avenue, Suite 4100
Seattle, Washington 98101-2338
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount To Be Offering Price Aggregate Amount of
To Be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N2H2, Inc. 2000 Stock Option Plan
Common stock, no par value 4,000,000 $12.8125 $51,250,000 $13,530.00
Employee Stock Purchase Plan
Common stock, no par value 750,000 $12.8125 $ 9,609,375 $ 2,536.88
Total 4,750,000 $60,859,375 $16,066.88
==========================================================================================================
</TABLE>
(1) Together with an indeterminate number of additional shares of common stock
which may be necessary to adjust the number of shares of common stock reserved
for issuance pursuant to the Plans as the result of any future stock split,
stock dividend or similar adjustment of the outstanding common stock of N2H2.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and 457(h) under the Securities Act of 1933 for shares
of common stock reserved under the N2H2, Inc. 2000 Stock Option Plan and
Employee Stock Purchase Plan. The price per share is estimated to be $12.8125
based on the average of the high ($14.5625) and low ($11.0625) sales prices for
the Common Stock on March 30, 2000 as reported on the Nasdaq National Market.
================================================================================
<PAGE> 2
PART II
INFORMATION REQUIRED IN
THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
The following documents filed with the Securities and Exchange Commission (the
"Commission") are hereby incorporated by reference in this registration
statement:
(a) N2H2's latest Annual Report on Form 10-K for the fiscal year
ended September 30, 1999 filed with the Commission on December
30, 1999.
(b) All other reports filed by N2H2 pursuant to Section 13(a) or
15(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), since the end of the fiscal year covered by the
Annual Report on Form 10-K referred to in (a) above, including
N2H2's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999 filed with the Commission on February 14, 2000,
and N2H2's Current Report on Form 8-K filed with the Commission
on March 24, 2000; and
(c) The description of N2H2's common stock contained in Amendment No.
3 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-78495) filed with the Commission on July
20, 1999, including any amendment or report filed for the purpose
of updating such description.
All documents subsequently filed by N2H2 pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment
which indicates that the securities offered hereby have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this registration statement and to be a part
hereof from the date of filing such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
The legality of the common stock being registered is being passed upon by Lane
Powell Spears Lubersky LLP. On March 30, 2000, members of that firm owned
directly or indirectly an aggregate of approximately 60,320 shares of common
stock of N2H2, Inc.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
N2H2's restated articles of incorporation include a provision that limits the
liability of directors to the fullest extent permitted by the Washington
Business Corporation Act as it currently exists or as it may be amended in the
future. Consequently, subject to the Washington Business Corporation Act, no
director will be personally liable to N2H2 or its shareholders for monetary
damages resulting from his or her conduct as a director of N2H2, except
liability for:
- acts or omissions involving intentional misconduct or knowing
violations of law,
- unlawful distributions, or
- transactions from which the director personally receives a
benefit in money, property or services to which the director is
not legally entitled.
<PAGE> 3
The restated articles of incorporation also provide that N2H2 will indemnify any
individual made a party to a proceeding because that individual is or was a
director of N2H2. N2H2 will also advance or reimburse reasonable expenses
incurred by that individual prior to the final disposition of the proceeding to
the fullest extent permitted by applicable law. In addition, N2H2 maintains
director and officer liability insurance coverage under which its directors and
officers may be indemnified against any liability they may incur for serving as
directors and officers of N2H2.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
5.1 Opinion of Lane Powell Spears Lubersky LLP (filed herewith)
10.1 N2H2, Inc. 2000 Stock Option Plan (filed herewith)
10.2 Employee Stock Purchase Plan (filed herewith)
23.1 Consent of Independent Accountants (filed herewith)
23.2 Consent of Lane Powell Spears Lubersky LLP (included in Exhibit
5.1)
24.1 Power of Attorney (see signature page)
</TABLE>
ITEM 9. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this registration
statement, and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement,
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
<PAGE> 4
any of the securities being registered which remain unsold at the termination of
the offering.
That, for purposes of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
[Signature Pages Follow]
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-8 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 3rd day of April, 2000.
N2H2, INC.
/s/ John F. Duncan
---------------------------------------
By: John F. Duncan, Vice President --
Chief Financial Officer, Secretary
and Treasurer
<PAGE> 6
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes Peter H.
Nickerson and John F. Duncan, or either of them, as attorney-in-fact with full
power of substitution, to execute in the name and on the behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this registration statement, including any and all post-effective
amendments, and any related Rule 462(b) registration statement and any amendment
thereto.
Pursuant to the requirements of the Securities Act, this registration statement
has been signed by the following persons in the capacities indicated below on
the 3rd day of April, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ PETER H. NICKERSON Chief Executive Officer, President and
- ------------------------------ Chairman of the Board (Principal Executive
Peter H. Nickerson Officer)
/s/ JOHN F. DUNCAN Vice President -- Chief Financial Officer,
- ------------------------------ Secretary and Treasurer(Principal Accounting
John F. Duncan and Financial Officer)
/s/ HOLLIS R. HILL Director
- ------------------------------
Hollis R. Hill
/s/ MARK A. SEGALE Director
- ------------------------------
Mark A. Segale
/s/ RICHARD R. ROWE Director
- ------------------------------
Richard R. Rowe
</TABLE>
<PAGE> 7
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
5.1 Opinion of Lane Powell Spears Lubersky LLP (filed herewith)
10.1 N2H2, Inc. 2000 Stock Option Plan (filed herewith)
10.2 Employee Stock Purchase Plan (filed herewith)
23.1 Consent of Independent Accountants (filed herewith)
23.2 Consent of Lane Powell Spears Lubersky LLP (included in Exhibit
5.1)
24.1 Power of Attorney (see signature page)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
April 3, 2000
N2H2, Inc.
900 Fourth Avenue, Suite 3400
Seattle, Washington 98164
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
We have examined the registration statement on Form S-8 (the
"Registration Statement") filed by you with the Securities and Exchange
Commission (the "Commission") on April 3, 2000 in connection with the
registration under the Securities Act of 1933, as amended, of a total of
4,750,000 shares of your common stock (the "Shares") issued or reserved for
issuance under the N2H2, Inc. 2000 Stock Option Plan and the Employee Stock
Purchase Plan. As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including any Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
/s/ Lane Powell Spears Lubersky LLP
LANE POWELL SPEARS LUBERSKY LLP
<PAGE> 1
EXHIBIT 10.1
N2H2, INC.
2000 STOCK OPTION PLAN
ARTICLE 1. INTRODUCTION.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of shareholder value by encouraging the attraction and
retention of Employees and Consultants with exceptional qualifications and
linking Employees and Consultants directly to shareholder interests through
increased stock ownership.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Washington.
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish for
outside directors acting under plans intended to qualify for exemption under
Section 162(m)(4)(C) of the Code.
2.2 Committee Responsibilities. The Committee shall (a) select the
Employees and Consultants who are to receive Options under the Plan, (b)
determine the type, number, vesting requirements and other features and
conditions of Options, (c) interpret the Plan and (d) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
2.3 Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of two or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered executive officers or directors of the
Company under Section 16 of the Exchange Act, may grant Options under the Plan
to such Employees and Consultants and may determine all features and conditions
of such Options. Within the limitations of this Section 2.3, any reference in
the Plan to the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan shall be
authorized but unissued shares. The aggregate number of Common Shares issued
pursuant to Options awarded under the Plan shall not exceed (a) 4,000,000 plus
(b) the additional Common Shares described in Section 3.2. The limitation of
this Section 3.1 shall be subject to adjustment pursuant to Article 7.
3.2 Additional Shares. If Options are forfeited or terminate for any
other reason before being exercised, then the corresponding Common Shares shall
again become available for the grant of Options under the Plan.
ARTICLE 4. ELIGIBILITY.
4.1 Nonstatutory Stock Options. Only Employees and Consultants shall be
eligible for the grant of NSOs.
4.2 Incentive Stock Options. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs.
<PAGE> 2
In addition, an Employee who owns more than 10% of the total combined voting
power of all classes of outstanding stock of the Company or any of its Parents
or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in Section 422(c)(6) of the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 7. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
100,000 Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than 200,000 Common Shares. The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 7.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service.
5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company provided that
in the case of an ISO, the acceleration of exercisability shall not occur
without the Optionee's written consent.
5.6 Modification of Options. Within the limitations of the Plan, the
Committee may modify outstanding options. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such Option.
5.7 Buyout Provisions. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made in
any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
<PAGE> 3
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
6.5 Other Forms of Payment. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7 PROTECTION AGAINST DILUTION.
7.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options available for future grants under Article 3;
(b) The limitations set forth in Section 5.2;
(c) The number of Common Shares covered by each outstanding Option; or
(d) The Exercise Price under each outstanding Option.
Except as provided in this Article 7, an 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.
7.2 Dissolution or Liquidation. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
7.3 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for:
(a) The continuation of the outstanding Options by the Company, if the
Company is a surviving corporation;
(b) The assumption of the outstanding Options by the surviving
corporation or its parent or subsidiary;
<PAGE> 4
(c) The substitution by the surviving corporation or its parent or
subsidiary of its own options for the outstanding Options;
(d) Full exercisability or vesting and accelerated expiration of the
outstanding Options; or
(e) Settlement of the full value of the outstanding Options in cash or
cash equivalents followed by cancellation of such Options.
ARTICLE 8. LIMITATION ON RIGHTS.
8.1 Retention Rights. Neither the Plan nor any Option granted under the
Plan shall be deemed to give any individual a right to remain an Employee or
Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the
right to terminate the service of any Employee or Consultant at any time, with
or without cause, subject to applicable laws, the Company's Articles of
Incorporation and Bylaws and a written employment agreement (if any).
8.2 Shareholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a shareholder with respect to any Common Shares
covered by his or her Option prior to the time when he or she becomes entitled
to receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided in
the Plan.
8.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan 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 Common Shares pursuant
to any Option prior to the satisfaction of all legal requirements relating to
the issuance of such Common Shares, to their registration, qualification or
listing or to an exemption from registration, qualification or listing.
ARTICLE 9. WITHHOLDING TAXES.
9.1 General. To the extent required by applicable federal, state, local
or foreign law, an Optionee or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
9.2 Share Withholding. The Committee may permit an Optionee to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 10. FUTURE OF THE PLAN.
10.1 Term of the Plan. The Plan, as set forth herein, shall become
effective upon approval by the Company's shareholders. The Plan shall remain in
effect until it is terminated under Section 10.2, except that no ISOs shall be
granted on or after the 10th anniversary of the later of (a) the date when the
Board adopted the Plan or (b) the date when the Board adopted the most recent
increase in the number of Common Shares available under Article 3 which was
approved by the Company's shareholders.
10.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's shareholders to the extent required by
applicable laws, regulations or rules. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
<PAGE> 5
ARTICLE 11. DEFINITIONS.
11.1 "Affiliate" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
11.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
11.3 "Change in Control" shall mean:
(a) The execution of an agreement by the Company or the shareholder of
the Company providing for the merger or consolidation of the Company with or
into another entity or any other corporate reorganization, if more than 50% of
the combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were not shareholders of the Company immediately prior
to such merger, consolidation or other reorganization;
(b) The execution of an agreement by the Company or the shareholder of
the Company providing for the sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of which fewer
than 50% of the incumbent directors are directors who either (i) had been
directors of the Company on the date 24 months prior to the date of the event
that may constitute a Change in Control (the "original directors") or (ii) were
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the aggregate of the original directors who were still in
office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 40% of the total
voting power represented by the Company's then outstanding voting securities.
For purposes of this Subsection (d), the term "person" shall have the same
meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall
exclude (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation
owned directly or indirectly by the shareholders of the Company in substantially
the same proportions as their ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
11.4 "Code" means the Internal Revenue Code of 1986, as amended.
11.5 "Committee" means a committee of the Board, as described in
Article 2.
11.6 "Common Share" means one share of the common stock of the Company,
no par value per share.
11.7 "Company" means N2H2, Inc., a Washington corporation.
11.8 "Consultant" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.
11.9 "Employee" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
11.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 6
11.11 "Exercise Price" means the amount for which one Common Share may
be purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
11.12 "Fair Market Value" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
11.13 "ISO" means an incentive stock option described in Section 422(b)
of the Code.
11.14 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
11.15 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
11.16 "Optionee" means an individual or estate who holds an Option.
11.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
11.18 "Plan" means this N2H2, Inc. 2000 Stock Option Plan, as amended
from time to time.
11.19 "Stock Option Agreement" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
11.20 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
<PAGE> 1
EXHIBIT 10.2
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN
The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Plan is intended to qualify under
Section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Committee Composition. The Plan shall be administered by the
Committee.
(b) Committee Responsibilities. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two Offering Periods shall
commence in each calendar year. The Offering Periods shall consist of the
six-month periods commencing on each April 1 and October 1.
(b) Enrollment. Any individual who, on the day preceding the first day of an
Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than three (3) days
prior to the commencement of such Offering Period.
(c) Duration of Participation. Once enrolled in the Plan, a Participant shall
continue to participate in the Plan until he or she ceases to be an Eligible
Employee, withdraws from the Plan under Section 5(a) or reaches the end of the
Offering Period in which his or her employee contributions were discontinued
under Section 4(d) or 8(b). A Participant who discontinued employee
contributions under Section 4(d) or withdrew from the Plan under Section 5(a)
may again become a Participant, if he or she then is an Eligible Employee, by
following the procedure described in Subsection (b) above. A Participant whose
employee contributions were discontinued automatically under Section 8(b) shall
automatically resume participation at the beginning of the earliest Offering
Period ending in the next calendar year, if he or she then is an Eligible
Employee.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of Stock
under the Plan solely by means of payroll deductions. Payroll deductions, as
designated by the Participant pursuant to Subsection (b) below, shall occur on
each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate on the
enrollment form the portion of his or her Compensation that he or she elects to
have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than one
percent (1%) nor more than ten percent (10%).
(c) Changing Withholding Rate. If a Participant wishes to change the rate of
payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be
<PAGE> 2
effective as soon as reasonably practicable after such form has been received by
the Company.
(d) Discontinuing Payroll Deductions. If a Participant wishes to discontinue
employee contributions entirely, he or she may do so by filing a new enrollment
form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) Limit on Number of Elections. No Participant shall make more than four (4)
elections under Subsection (c) or (d) above during any Offering Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by filing the
prescribed form with the Company at the prescribed location at any time before
the last day of an Offering Period. As soon as reasonably practicable
thereafter, payroll deductions shall cease and the entire amount credited to the
Participant's Plan Account shall be refunded to him or her in cash, without
interest. No partial withdrawals shall be permitted.
(b) Re-enrollment After Withdrawal. A former Participant who has withdrawn from
the Plan shall not be a Participant until he or she re-enrolls in the Plan under
Section 3(c). Re-enrollment may be effective only at the commencement of an
Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) Termination of Employment. Termination of employment as an Eligible Employee
for any reason, including death, shall be treated as an automatic withdrawal
from the Plan under Section 5(a). (A transfer from one Participating Company to
another shall not be treated as a termination of employment.)
(b) Leave of Absence. For purposes of the Plan, employment shall not be deemed
to terminate when the Participant goes on a military leave, a sick leave or
another bona fide leave of absence, if the leave was approved by the Company in
writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) Death. In the event of the Participant's death, the amount credited to his
or her Plan Account shall be paid to a beneficiary designated by him or her for
this purpose on the prescribed form or, if none, to the Participant's estate.
Such form shall be valid only if it was filed with the Company at the prescribed
location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Company shall maintain a Plan Account on its books in the
name of each Participant. Whenever an amount is deducted from the Participant's
Compensation under the Plan, such amount shall be credited to the Participant's
Plan Account. Amounts credited to Plan Accounts shall not be trust funds and may
be commingled with the Company's general assets and applied to general corporate
purposes. No interest shall be credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased at the
close of an Offering Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading day in such
Offering Period; or
<PAGE> 3
(ii) 85% of the Fair Market Value of such share on the last trading day before
the commencement of such Offering Period.
(c) Number of Shares Purchased. As of the last day of each Offering Period, each
Participant shall be deemed to have elected to purchase the number of shares of
Stock calculated in accordance with this Subsection (c), unless the Participant
has previously elected to withdraw from the Plan in accordance with Section
5(a). The amount then in the Participant's Plan Account shall be divided by the
Purchase Price, and the number of shares that results shall be purchased from
the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than one thousand (1,000)
shares of Stock with respect to any Offering Period nor more than the amounts of
Stock set forth in Sections 8(b) and 13(a). Any fractional share, as calculated
under this Subsection (c), shall be rounded down to the next lower whole share.
(d) Available Shares Insufficient. In the event that the aggregate number of
shares that all Participants elect to purchase during an Offering Period exceeds
the maximum number of shares remaining available for issuance under Section
13(a), then the number of shares to which each Participant is entitled shall be
determined by multiplying the number of shares available for issuance by a
fraction, the numerator of which is the number of shares that such Participant
has elected to purchase and the denominator of which is the number of shares
that all Participants have elected to purchase.
(e) Issuance of Stock. Certificates representing the shares of Stock purchased
by a Participant under the Plan shall be issued to him or her as soon as
reasonably practicable after the close of the applicable Offering Period, except
that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) Unused Cash Balances. Any amount remaining in the Participant's Plan Account
that represents the Purchase Price for a fractional share shall be carried over
in the Participant's Plan Account to the next Offering Period. Any amount
remaining in the Participant's Plan Account that represents the Purchase Price
for whole shares that could not be purchased by reason of Subsection (c) above,
Section 8(b) or Section 13(a) shall be refunded to the Participant in cash,
without interest.
(g) Shareholder Approval. Any other provision of the Plan notwithstanding, no
shares of Stock shall be purchased under the Plan unless and until the Company's
shareholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding, no
Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the attribution rules
of Section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or she has a
right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase one
thousand (1,000) shares of Stock under this Plan with respect to each Offering
Period.
(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
<PAGE> 4
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A) $25,000
minus (B) the Fair Market Value of the Stock that the Participant previously
purchased in the current calendar year under this Plan.
(ii) In the case of Stock purchased during an Offering Period that commenced in
the immediately preceding calendar year, the limit shall be equal to (A) $50,000
minus (B) the Fair Market Value of the Stock that the Participant previously
purchased under this Plan in the current calendar year and in the immediately
preceding calendar year.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. If a Participant is precluded by this Subsection (b) from
purchasing additional Stock under the Plan, then his or her employee
contributions shall automatically be discontinued and shall resume at the
beginning of the earliest Offering Period ending in the next calendar year (if
he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest in
any Stock or moneys to which he or she may be entitled under the Plan, shall not
be transferable by voluntary or involuntary assignment or by operation of law,
or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer upon the
Participant any right to continue in the employ of a Participating Company for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Participating Companies or of the Participant, which
rights are hereby expressly reserved by each, to terminate his or her employment
at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect to any shares
of Stock that he or she may have a right to purchase under the Plan until such
shares have been purchased on the last day of the applicable Offering Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The aggregate number of shares of Stock available for
purchase under the Plan shall be seven hundred and fifty thousand (750,000)
subject to adjustment pursuant to this Section 13.
(b) Antidilution Adjustments. The aggregate number of shares of Stock offered
under the Plan, the one thousand (1,000) share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such
<PAGE> 5
shares effected without receipt or payment of consideration by the Company, the
distribution of the shares of a Subsidiary to the Company's shareholders or a
similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 7, unless the Plan is assumed by the surviving corporation
or its parent corporation pursuant to the plan of merger or consolidation. The
Plan shall in no event be construed to restrict in any way the Company's right
to undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at any
time and without notice. Except as provided in Section 13, any increase in the
aggregate number of shares of Stock to be issued under the Plan shall be subject
to approval by a vote of the shareholders of the Company. In addition, any other
amendment of the Plan shall be subject to approval by a vote of the shareholders
of the Company to the extent required by an applicable law or regulation.
SECTION 15. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, as constituted from
time to time.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Company" means N2H2, Inc., a Washington corporation.
(e) "Compensation" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under Section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(f) "Corporate Reorganization" means:
(i) The consummation of a merger or consolidation of the Company with or into
another entity, or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or substantially all of the
Company's assets or the complete liquidation or dissolution of the Company.
(g) "Eligible Employee" means any employee of a Participating Company whose
customary employment is for more than five months per calendar year and for more
than 20 hours per week.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the market price of Stock, determined by
the Committee as follows:
<PAGE> 6
(i) If Stock was traded on The Nasdaq National Market on the date
in question, then the Fair Market Value shall be equal to the last sale price
quoted for such date by The Nasdaq National Market;
(ii) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Wall Street Journal or as
reported directly to the Company by Nasdaq or a stock exchange. Such
determination shall be conclusive and binding on all persons.
(j) "Offering Period" means a six-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(k) "Participant" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(b).
(l) "Participating Company" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(m) "Plan" means this N2H2, Inc. Employee Stock Purchase Plan, as it may
be amended from time to time.
(n) "Plan Account" means the account established for each Participant
pursuant to Section 7(a).
(o) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(p) "Stock" means the Common Stock of the Company, no par value per
share.
(q) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference this Registration
Statement on Form S-8 of our report dated November 8, 1999 relating to the
financial statements appearing in N2H2 Inc.'s Annual Report on Form 10-K for the
year ended September 30, 1999.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
March 30, 2000
