EXHIBIT 10.1
N2H2, INC.
XXXXXX XXXXXX WELT EMPLOYMENT AGREEMENT
This Agreement is made by and between N2H2, Inc. (the "Company"), and
Xxxxxx Xxxxxx Welt ("Executive") as of May 18, 2003 (the "Effective Date").
1. DUTIES AND SCOPE OF EMPLOYMENT.
a. POSITIONS AND DUTIES. Executive will continue to serve as
President and Chief Executive Officer of the Company.
Executive will render such business and professional services
in the performance of his duties, consistent with Executive's
position within the Company, as shall reasonably be assigned
to him by the Company's Board of Directors (the "Board").
Executive will report to the Board and all other Company
employees will report to Executive.
b. BOARD MEMBERSHIP. Executive will continue to serve as a member
of the Board, subject to any required Board and/or stockholder
approval.
c. OBLIGATIONS. During the Employment Term (as defined below),
Executive will devote his full business efforts and time to
the Company. For the duration of the Employment Term,
Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct
or indirect remuneration without the prior approval of the
Board (which approval will not be unreasonably withheld);
provided, however, that Executive may, without the approval of
the Board, serve in any capacity with any civic, educational
or charitable organization, or as a member of corporate Boards
of Directors (but in all cases subject to Section 11).
2. TERM.
a. Executive and the Company agree that Executive's employment
with the Company under this Agreement shall be for a period of
twelve (12) months commencing on the Effective Date, unless
earlier terminated in accordance with this Agreement or
extended by mutual written agreement of the Company and
Executive (the "Employment Term") (it being understood that
nothing in the paragraph shall obligate the Company or
Executive to continue the Employment Term beyond twelve (12)
months). Executive and the Company acknowledge that this
employment relationship may be terminated at any time, upon
sixty (60) days advance written notice to the other party,
with or without good cause or for any or no cause, at the
option of either the Company or Executive.
3. EXECUTIVE BENEFITS.
a. During the Employment Term, Executive will be eligible to
participate in accordance with the terms of all Company
employee benefit plans that are applicable to other senior
executives of the Company, as such plans and terms may exist
from time to time.
b. Executive shall, during the Employment Term, accrue five weeks
of vacation leave per year, commencing on the effective date
of this Agreement.
c. Company shall, during the Employment Term, pay for Executive's
parking and health club membership.
4. COMPENSATION.
a. BASE SALARY. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of $175,000.
Executive's salary shall be paid in bi-monthly installments,
consistent with the Company's customary payroll practices. The
Compensation Committee of the Board (the "Committee") will
reevaluate compensation arrangements from time to time and may
adjust the Base Salary in accordance with its normal
practices.
b. BONUS. If Executive is employed by the Company on September
30, 2003, Executive shall be eligible to receive a cash bonus
(the "2003 Bonus") of not more than $87,500 (such maximum, the
"2003 Bonus Target"), pursuant to the Company's existing
company-wide bonus program, [a copy of which is attached
hereto as Exhibit A], with the amount of such bonus to be
determined by the Committee in its sole discretion based on
the Company's attainment of performance criteria for the
Company determined by the Committee, including without
limitation, whether the Company achieves its fiscal 2003
cashflow targets. The 2003 Bonus shall be paid within 60 days
after September 30, 2003.
If Executive is employed by the Company on September 30, 2004
(whether as a result of the extension of the Employment Term
under this Agreement or otherwise), Executive shall be
eligible to receive a cash bonus (the "2004 Bonus") of up to
$75,000 (such amount, the "2004 Bonus Target"). The 2004 Bonus
shall be paid within 60 days after September 30, 2004. The
Committee shall determine in its sole discretion the actual
amount of the 2004 Bonus, substantially in accordance with the
following standards:
(1) Executive shall be eligible to receive up to 80% of
the 2004 Bonus Target based on the Company's
attainment of performance criteria for the Company,
with such criteria to be mutually agreed upon by the
Committee and the Executive on or before September
30, 2003; and
(2) Executive shall be eligible to receive up to the
remaining 20% of the 2004 Bonus Target based on
Executive's attainment of individual performance
criteria to be mutually agreed upon by the Committee
and the Executive on or before September 30, 2003.
If Executive's employment with the Company is not extended by
mutual written agreement of the Company and Executive beyond
the expiration of the
Employment Term, then Executive will be eligible to receive a
prorated portion of the 2004 Bonus Target equal to the amount
determined by multiplying (y) the quotient obtained by
dividing the number of calendar days in the period from the
first day of the 2004 fiscal year to the end of the Employment
Term, May 17, 2004, by 365, by (z), the 2004 Bonus Target. The
prorated 2004 Bonus Target will be paid to the extent
Executive has achieved mutually agreed upon Company and
individual performance criteria as measured through the end of
the Employment Term. The Committee shall determine in its sole
discretion the actual amount of the pro-rated 2004 Bonus, in
accordance with the standards set forth in section b(1) and
b(2). The prorated 2004 Bonus shall be paid within 60 days
after end of Employment Term.
c. STOCK OPTION. On May 18, 2003, subject to execution by
Executive of the SOLA (as defined below), the Company will
grant Executive an option (the "Option") to purchase up to
25,000 shares of the Company's common stock ("Shares") at an
exercise price equal to Fair Market Value (as defined below)
on the date of grant. The Option shall vest and become
exercisable 8.333% per month beginning on June 18, 2003, with
the result that 100% of the Shares subject to the Option shall
be vested and exercisable on May 18, 2004. Executive and the
Company shall enter into a stock option letter agreement,
substantially in the form of the Company's standard form of
such agreement (the "SOLA"), reflecting the terms of the
Option described herein. For purposes of this Section 4(b),
"Fair Market Value" shall mean the average of the high and low
sales prices of the Company's common stock on the
Over-the-Counter Bulletin Board.
5. EXPENSES. The Executive is authorized to incur reasonable expenses on
behalf of the Company in the performance of his duties under this
Agreement on a basis consistent with the Company's policies from time
to time, including expenses for travel, business entertainment and
other business activities. The Executive shall submit all claims for
reimbursement of such expenses directly to the Company and the Company
shall ensure that such expenses are reimbursed to the Executive within
a reasonable time after submission by the Executive of an itemized
account of such expenses, together with such vouchers or receipts for
individual expense items as the Company may reasonably require.
6. SEVERANCE.
a. UNPAID SALARY AND BENEFITS. If Executive's employment with the
Company is terminated for any reason (including the expiration
of the Employment Term), Executive shall be entitled to
receive unpaid annual base salary and benefits that have
accrued but have not yet been paid for services already
performed as of the date of termination.
b. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Company
terminates Executive's employment with the Company without
"Cause" (as defined below) prior to the expiration of the
Employment Term, or if Executive terminates his employment for
Good Reason (as defined below) prior to the expiration of the
Employment Term, then subject to Section 6(c), promptly
following such termination of employment, Executive will be
entitled to receive as severance: (i) the monthly salary and
benefits set forth in Section 4(a) for a period of six months
after such termination, and (ii) a cash bonus equal to the
amount determined by multiplying (y) the quotient obtained by
dividing the number of calendar days in the period from the
first day of the fiscal year in which such termination occurs
to the date of such termination, by 365, by (z) in the case of
a termination prior to September 30, 2003 (a "2003
Termination"), the 2003 Bonus Target and, in the case of a
termination after September 30, 2003 and before September 30,
2004 (a "2004 Termination"), the 2004 Bonus Target; provided,
however, that such severance payments will be subject to all
customary payroll deductions and shall be paid to Executive in
accordance with the Company's usual payroll practices, as in
effect at the time of termination. In addition, if the Company
terminates Executive's employment with the Company without
Cause prior to the expiration of the Employment Term, or if
Executive terminates his employment for Good Reason prior to
the expiration of the Employment Term, 100% of the remaining
unvested Shares subject to the Option, shall immediately vest
and become exerciseable.
c. TERMINATION FOLLOWING CHANGE OF CONTROL. If Executive's
employment is terminated for any reason other than for Cause,
death or Disability (including by Executive, for any reason
and including by reason of the expiration of the Employment
Term) within twelve (12) months after a "Change of Control"
(as defined below) that occurs during the Employment Term,
then notwithstanding Section 6(b) and in lieu of the payments
and benefits described in any section above, Executive shall
be paid a cash severance payment of $250,000, in twelve
monthly installments beginning on the first day of the month
immediately following termination. In addition, if within
twelve (12) months after a Change of Control that occurs
during the Employment Term, the Company terminates Executive's
employment with the Company without Cause, or if Executive
terminates his employment for Good Reason, then 100% of the
Shares subject to the Option shall immediately vest and become
exercisable.
d. TERMINATION AS A RESULT OF DEATH OR DISABILITY. If Executive's
employment with the Company is terminated as a result of his
death or Disability during the Employment Term, Executive (or
his personal representative) shall be entitled to receive all
of the payments and benefits described in Sections 6(a) and
6(b).
e. TERMINATION FOR CAUSE. For the avoidance of doubt, if at any
time during the Employment Term or otherwise, the Company
terminates Executive's employment with the Company for Cause,
then Executive shall be entitled to receive the payments
described in Section 6(a), but shall not be entitled to any
other compensation or benefits from the Company, except to the
extent provided under the applicable stock option agreement(s)
between the Company and Executive, or as may be required by
law.
f. NO OTHER COMPENSATION OR SEVERANCE. Except as otherwise
provided in this Section 6 or under any applicable stock
option agreement(s) between the Company and Executive,
Executive shall not be entitled to receive any payments or
benefits under this Agreement in the event of termination of
Executive's employment, whether such termination occurs before
or after the expiration of the Employment Term.
g. OTHER STOCK OPTION AGREEMENTS. Nothing in this Agreement shall
be construed to amend or modify the terms of any applicable
stock option agreement between the Company and the Executive
entered into between the Company and Executive prior to the
Effective Date.
h. DEFINITIONS. For purposes of this Agreement:
"Cause" means a termination of Executive's employment by the
Company due to (i) Executive'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) Executive'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 Executive's obligations under this 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 Executive 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" under this Section 6(g).
"Disability" or "Disabled" means Executive being unable to
perform the principal functions of his duties due to a
physical or mental impairment, but only if such inability has
lasted or is reasonably expected to last for at least six (6)
months. Whether Executive is Disabled shall be determined by
the Committee based on evidence provided by one or more
medical experts selected by the Committee. Executive agrees to
be seen by or consult with medical experts of the Committee's
choosing;
"Good Reason" means (i) a material reduction (without
Executive's consent) in his title, authority, status, or
responsibilities, or (ii) a material breach by the Company of
its obligations under this Agreement;
"Change of Control" means a merger, consolidation or other
reorganization in which the Company is not the surviving
corporation, or in which the Company becomes a subsidiary of
another corporation, or the sale, lease or exchange of all or
substantially all of the Company's assets to any other
corporation or entity (except a subsidiary or parent
corporation).
7. INDEMNIFICATION. The Company shall (and is hereby obligated to)
indemnify (including advance payment of expenses, which such expenses
shall include, without limitation, attorneys' fees) the Executive for
all actions taken by Executive as an officer of Company or the failure
of Executive to take any action in each and every situation where the
Company is obligated to make such indemnification pursuant to
applicable law and the relevant portions of the Company's Articles of
Incorporation and Bylaws. During the Employment Term, the Company, at
its sole expense, shall maintain in effect director and officer
liability insurance containing a liability coverage endorsement
covering the Company's indemnification duty. Upon request, the Company
shall furnish to the Executive a certificate of such insurance that
shall bear an endorsement that the same shall not be canceled,
non-renewed or materially reduced in coverage or limits by the Company,
without thirty (30) days prior written notice to the Executive.
8. ASSIGNMENT. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of
Executive upon Executive's death and (b) any successor of the Company.
Any such successor of the Company will be deemed substituted for the
Company under the terms of this Agreement for all purposes. For this
purpose, "successor" means any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or
otherwise, directly or indirectly acquires all or substantially all of
the assets or business of the Company. None of the rights of Executive
to receive any form of compensation payable pursuant to this Agreement
may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance
or other disposition of Executive's right to compensation or other
benefits will be null and void.
9. NOTICES. All notices, requests, demands and other communications called
for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being
sent by a well established commercial overnight service, or (iii) four
(4) days after being mailed by registered or certified mail, return
receipt requested, prepaid and addressed to the parties or their
successors at the following addresses, or at such other addresses as
the parties may later designate in writing:
If to the Company:
N2H2, Inc
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
ATTN: Xxxxx Xxxxxxxxx, Chairman of the Board
If to Executive:
at the last residential address known by the Company.
10. SEVERABILITY AND MODIFICATION OF ANY UNENFORCEABLE COVENANT. It is the
parties' intent that each of the covenants be read and interpreted with
every reasonable inference given to its enforceability. However, it is
also the parties' intent that if any term, provision or condition of
the covenants is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions thereof
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. Finally, it is also the parties' intent that
if a court should determine any of the covenants are unenforceable
because of over breadth, then the court shall modify said covenant so
as to make it reasonable and enforceable under the prevailing
circumstances.
11. NON-COMPETITION AND NON-SOLICITATION. For a period beginning on the
Effective Date (defined below) and ending twelve (12) months from the
date when Executive ceases to be employed by the Company for any reason
whatsoever, Executive, directly or indirectly, whether as employee,
owner, sole proprietor, partner, director, member, consultant, agent,
founder, co-venturer or otherwise, will:
a. Not engage, participate or invest in any business activity
anywhere in the world which develops, manufactures or markets
products or performs services which are competitive with the
products or services of the Company at the time of Executive's
termination, or products or services which the Company has
under development or which are the subject of active planning
at the time of Executive's termination; PROVIDED, HOWEVER,
that Executive, may own as a passive investor, securities of
any corporation which competes with the business of the
Company so long as such securities do not, in the aggregate,
constitute more than 2% of any class of outstanding securities
of such corporations;
b. Not attempt to employ, recruit or otherwise solicit, induce or
influence any person to leave employment with the Company or
its resellers or distributors; and
c. Not directly or indirectly solicit business from any of the
Company's customers and users on behalf of any business that
competes with the Company.
Notwithstanding the foregoing, this Section 11 shall not apply if this Agreement
is breached by the Company.
12. NON-DISPARAGEMENT. Executive and the Company mutually covenant and
agree that, during the Employment Term and for a period of twelve (12)
months after the date of termination of Executive's employment with the
Company, neither shall, directly or indirectly, disparage the other.
13. ENTIRE AGREEMENT. This Agreement, the stock option agreements entered
into by the Company and Executive prior to the date hereof, and the
SOLA, represent the entire agreement and understanding between the
Company and Executive concerning Executive's employment relationship
with the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Executive's employment
relationship with the Company.
14. ARBITRATION. In the event of any dispute arising out of or relating to
this Agreement, the parties undertake to make every effort to reach an
amicable settlement of their differences (including mediation if
requested by a party). Failing such settlement, the dispute shall be
referred to final and binding arbitration. It is understood and agreed
between the parties hereto that any claim of any nature whatsoever
arising out of or connected with Executive's employment with the
Company, including but not limited to wrongful termination, breach of
contract, defamation, and claims of discrimination (including age,
disability, sex, religion, race, national origin, color, etc.) or
harassment, whether under federal, state or local laws, common law or
in equity, shall be decided by submission to final and binding
arbitration. The arbitrator shall be a retired or former superior court
or appellate court judge. This arbitration provision shall be governed
by the Federal Arbitration Act. Any arbitration hereunder shall be
conducted in Seattle, Washington in accordance with the Employment
Arbitration Rules of the American Arbitration Association. Judgment
shall be final upon the award rendered by the arbitrator and may be
entered in any court having jurisdiction thereof. It is further
understood and agreed between the parties hereto that actions seeking
temporary injunctions are hereby excluded from arbitration and,
therefore, may be sought in a court of appropriate jurisdiction without
resort to arbitration, even though resolution of the underlying claim
must be submitted to arbitration. Provided: This Section shall not
govern any matter arising out of Executive's violation of the covenants
contained in Section 11 of this Agreement, in which event the Company
shall be entitled to seek injunctive or other equitable relief in any
state or federal court located in King County, Washington, and the
parties agree to submit to the jurisdiction of such court.
15. ATTORNEYS FEES. In the event of any dispute arising out of or involving
this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, experts' fees, and costs, including those
for pretrial, trial, on appeal, in arbitration and in bankruptcy and
all other costs and expenses associated with any such action in
addition to any other relief to which such party may be entitled.
16. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may be
changed or terminated only in writing (signed by Executive and the
Company).
17. WITHHOLDING. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full
amount of any applicable withholding taxes.
18. GOVERNING LAW. This Agreement will be governed by the laws of the State
of Washington (with the exception of its conflict of laws provisions).
19. ACKNOWLEDGMENT. Executive acknowledges that he has had the opportunity
to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
EXECUTIVE:
/s/ Xxxxxx Xxxxxx Welt Date: 5/16/03
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Xxxxxx Xxxxxx Welt
COMPANY:
N2H2, INC.
By: /s/ Xxxx Xxxxxx Date: 5/15/03
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Name: Xxxx X. Xxxxxx
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Title: Compensation Committee Chair
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