EXHIBIT 4.1
DCH TECHNOLOGY, INC.
1999 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
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The purposes of this 1999 Stock Option Plan (the "Plan") of DCH Technology,
Inc., a Colorado corporation (the "Company") are to:
(i) Encourage selected officers, directors, key employees and
consultants to improve operations and increase profits of the Company or its
Affiliates;
(ii) Encourage selected officers and key employees to accept or continue
employment with the Company or its Affiliates; and
(iii) Increase the interest of selected officers, directors, key employees
and consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company ("Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
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Every person who at the date of grant of an Option is a key employee of the
Company or of any Affiliate (as defined below) (including employees who are also
officers or directors of the Company or of any Affiliate) is eligible to receive
NQOs or ISOs under this Plan. The term "Affiliate" as used in the Plan means a
parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 424(e) and (f), respectively) of the Code. Every person who
is a director of or consultant to the Company or any Affiliate at the date of
grant of an Option is eligible to receive NQOs under this Plan.
3. STOCK SUBJECT TO THIS PLAN
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Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock which may be granted pursuant to this Plan
is five million (5,000,000) shares of Common Stock. The shares unexercised shall
become available again for grants under the Plan.
4. ADMINISTRATION
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4.1 Option Committee. This Plan shall be administered by the Board of
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Directors of the Company (the "Board") or by a committee of at least two Board
members, one of which is the President, (hereinafter referred to as the
"Committee Chairman") to which administration of the Plan is delegated (in
either case, the "Option Committee"). No member of the Option Committee shall be
liable for any decision, action, or omission respecting the Plan, any options,
or any option shares.
4.2 Disinterested Administration. From and after such time as the Company
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registers a class of equity securities under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), this Plan shall be
administered in accordance with the disinterested administrative requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.
4.3 Authority of the Option Committee. Subject to the other provisions of
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this Plan, the Options Committee shall have the authority, in its discretion:
(i) to grant Options; (ii) to determine the fair market of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee, to modify or amend any Option; (ix) to defer (with the consent of
the optionee) or accelerate the exercise date or vesting of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The Option
Committee may delegate nondiscretionary administrative duties to such employees
of the Company as it deems proper.
4.4 Determinations Final. All questions of interpretation, implementation,
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and application of this Plan shall be determined by the Board or the Option
Committee. Such determinations shall be final and binding on all persons.
5. GRANTING OF OPTIONS: OPTION AGREEMENT
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5.1 Ten-Year Term. No Options shall be granted under this Plan after ten
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years from the date of adoption of this Plan by the Board.
5.2 Option Agreement. Each Option shall be evidenced by a written stock
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option agreement, in form satisfactory to the Company, executed by the Company
and the person to whom such Option is granted; provided, however, that the
failure by the Company, the optionee, or both to execute such an agreement shall
not invalidate the granting of any Option.
5.3 Designation as ISO or NQO. The agreement shall specify whether each
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Option it evidences is a NQO or an ISO. Notwithstanding designation of any
Option as an ISO or a NQO, if the aggregate fair market value of the shares
under Options designated as ISOs which would become exercisable for the first
time by any Optionee at a rate in excess of $100,000 in any calendar year (under
all plans of the Company), then unless otherwise provided in the stock option
agreement or by the Option Committee, such Options shall be NQOs to the extent
of the excess above $100,000. For purposes of this Section 5.3, Options shall be
taken into account in the order in which they were granted, and the fair market
value of the shares shall be determined as of the time the Option, with respect
to such shares, is granted.
5.4 Grant to Prospective Employees. The Option Committee or the Committee
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Chairman may approve the grant of Options under this Plan to persons who are
expected to become employees of the Company, but who are not employees at the
date of approval. In such cases, the Option shall be deemed granted, without
further approval, on the date the optionee is first treated as an employee for
payroll purposes.
6. TERMS AND CONDITIONS OF OPTIONS
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Each Option granted under this Plan shall be designated as a NQO or an ISO.
Each Option shall be subject to the terms and conditions set forth in Section
6.1. NQOs shall be also subject to the terms and conditions set forth in Section
6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the
terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
6.1 Terms and Conditions to Which Options Are Subject. Options granted
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under this Plan shall, as provided in Section 6, be subject to the following
terms and conditions:
6.1.1 Changes in Capital Structure. The existence of outstanding
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Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred, or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, or other event, or converted into or
exchanged for other securities as a result of a merger, consolidation,
reorganization, or other event, appropriate adjustments shall be made in (i) the
number and class of shares of stock subject to this Plan and each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result to any such adjustments. Each such adjustment
shall be subject to approval by the Option Committee in its sole discretion, and
may be made without regard to any resulting tax consequence to the optionee.
6.1.2 Corporate Transactions. In connection with (i) any merger,
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consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another
security, (ii) any dissolution or liquidation of the Company or any partial
liquidation involving fifty percent (50%) or more of the assets of the Company,
(iii) any sale of more than fifty percent (50%) of the Company's assets, or (iv)
any like occurrence in which the Company is involved, the Option Committee may,
in its absolute discretion, do one or more of the following upon ten days' prior
written notice to all optionees; (a) accelerate any vesting schedule to which an
Option is subject; (b) cancel Options upon payment to each optionee in cash,
with respect to each Option to the extent then exercisable, of any amount which,
in the absolute discretion of the Option Committee, is determined to be
equivalent to any excess of the market value (at the effective time of such
event) of the consideration that such optionee would have received if the Option
had been exercised before the effective time over the exercise price of the
Option; (c) shorten the period during which such Options are exercisable
(provided they remain exercisable, to the extent otherwise exercisable, for at
least ten days after the date the notice is given); or (d) arrange that new
option rights be substituted for the option rights granted under this Plan, or
that the Company's obligations as to Options outstanding under this Plan be
assumed, by an employer corporation other than the Company or by a parent or
subsidiary of such employer corporation. The actions described in this Section
6.1.2 may be taken without regard to any resulting tax consequence to the
optionee.
6.1.3 Time of Option Exercise. Except as necessary to satisfy the
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requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable at such times as are specified in
the written stock option agreement relating to such Option: provided, however,
that so long as the optionee is a director or officer, as those terms are used
in Section 16 of the Exchange Act, such Option may not be exercisable, in whole
or in part, at any time prior to the six-month anniversary of the date of the
Option grant, unless the Option Committee determines that the foregoing
provision is not necessary to comply with the provisions of Rule 16b-3 or that
Rule 16b-3 is not applicable to the Plan. No Option shall be exercisable,
however, until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee. The Option Committee, in
its absolute discretion, may later waive any limitations respecting the time at
which an Option or any portion of an Option first becomes exercisable.
6.1.4 Option Grant Date. Except as provided in Section 5.4 or as
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otherwise specified by the Option Committee, the date of grant of an Option
under this Plan shall be the date as of which the Option Committee approves the
grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
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this Plan shall be assignable or otherwise transferable by the optionee except
by will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (limited in the case of an ISO, to a qualified domestic
relations order that effects a transfer of an ISO that is community property as
part of a division of community property). During the life of the optionee, an
Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full shall be
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made for all stock purchased at the time written notice of exercise of an Option
is given to the Company, and proceeds of any payment shall constitute general
funds of the Company. Payment may be made in cash, by promissory note, by
delivery to the Company of shares of Common Stock owned by the
optionee (duly endorsed in favor of the Company or accompanied by a duly
endorsed stock power), or by any other form of consideration and method of
payment to the extent permitted under applicable law. Any shares delivered shall
be valued as of the date of exercise of the Option in the manner set forth in
Section 6.1.12. Optionees may not exercise Options by delivery of shares more
frequently than at six-month intervals.
6.1.7 Termination of Employment. Unless determined otherwise by the
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Option Committee in its absolute discretion to the extent not already expired or
exercised, every Option granted under this Plan shall terminate at the earlier
of (a) the Expiration Date (as defined in Section 6.1.12) or (b) three months
after termination of employment with the Company or any Affiliate; provided,
that an Option shall be exercisable after the date of termination of employment
only to the extent exercisable on the date of termination; and provided further,
that if termination of employment is due to the optionee's "disability" (as
determined in accordance with Section 22(e)(3) of the Code), the optionee, or
the optionee's personal representative, may at any time within one (1) year
after the termination of employment (or such lesser period as is specified in
the option agreement but in no event after the Expiration Date of the Option),
exercise the option to the extent it was exercisable at the date of termination;
and provided further that if termination of employment is due to the Optionee's
death, the Optionee's estate or a legal representative thereof, may at any time
within and including six (6) months after the date of death of Optionee (or such
lesser period as is specified in the option agreement but in no event after the
Expiration Date of the Option), exercise the option to the extent it was
exercisable at the date of termination. Transfer of an optionee from the Company
to an Affiliate or vice versa, or from one Affiliate to another, or a leave of
absence due to sickness, military service, or other cause duly approved by the
Company, shall not be deemed a termination of employment for purposes of this
Plan. For the purpose of this Section 6.1.7, "employment" means engagement with
the Company or any Affiliate of the Company either as an employee, as a
director, or as a consultant.
6.1.8 Repurchase of Stock. In addition to the right of first refusal
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set forth in Section 6.1.9, at the time it grants Options under this Plan, the
Company may retain, for itself or others, rights to purchase the shares acquired
under the Option or impose other restrictions on the transfer of such shares.
The terms and conditions of any such rights or other restrictions shall be set
forth in the option agreement evidencing the Option.
6.1.9 Company's Right of First Refusal.
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(i) Company's Right; Notice. Stock delivered pursuant to the
exercise of any option granted under this Plan shall be subject to a right of
first refusal by the Company in the event that the holder of such shares
proposes to sell, pledge, or otherwise transfer such shares or any interest in
such shares to any person or entity. Any holder of shares purchased under this
Plan desiring to transfer such shares or any interest in such shares shall give
a written notice (the "Offer Notice") to the Company describing the proposed
transfer, including the number of shares proposed to be transferred, the
proposed transfer price and terms, and the name and address of the proposed
transferee. The Company's rights under this Section 6.1.9 shall be freely
assignable.
(ii) Exercise. Except as provided under any repurchase right
imposed under Section 6.1.8, if the Company fails to exercise its right of first
refusal within 20 days from the date on which the Company receives the Offer
Notice, the shareholder may, within the next 90 days, conclude a transfer to the
proposed transferee of the exact number of shares covered by that notice on
terms not more favorable to the transferee than those described in the notice.
Any subsequent proposed transfer shall again be subject to the Company's right
of first refusal. If the Company exercises its right of first refusal, the
shareholder shall endorse and deliver to the Company the stock certificates
representing the shares being repurchased. The Company shall pay the shareholder
the total repurchase price for the shares no later than the later of (a) sixty
(60) days after receipt of the Offer Notice and (b) the end of such period for
payment offered by the bona fide third-party transferor. The holder of the
shares being repurchased shall cease to have any rights with respect to such
shares immediately upon receipt of the repurchase price.
(iii) Exceptions. Notwithstanding the foregoing provisions of
this Section 6.1.9, no notice of a proposed transfer shall be required and no
right of first refusal shall exist with respect to transfers, including sales,
to an optionee's children, grandchildren, or parents or to trusts, estates, or
custodianships of or for the account of an optionee or an optionee's children,
grandchildren, or parents; provided, however, that the transferee shall take
such shares subject to the provisions of Sections 6.1.8. and 6.1.9.
(iv) Termination of Company's Right. The right of first
refusal set forth in this Section 6.1.9 shall terminate upon the earlier of the
consummation of an underwritten public offering of the Company's Common Stock
registered under the Securities Act of 1933 or the date on which the Common
Stock is registered under Section 12 of the Exchange Act.
(v) No Limitation. Nothing in this Section 6.1.9 shall limit
the rights of the Company under any repurchase right imposed under Section
6.1.8.
(vi) Conflict. In the event that the terms of this paragraph
6.1.9 conflict or are inconsistent with any provision in the Bylaws of the
Company, the terms of the Bylaws shall control.
6.1.10 Withholding and Employment Taxes. At the time of exercise of
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an Option (or at such later time(s) as the Company may prescribe), the optionee
shall remit to the Company in cash all applicable (as determined by the Company
in its sole discretion) federal and state withholding taxes. The Option
Committee may, in the exercise of its sole discretion, permit an optionee to pay
some or all of such taxes by means of a promissory note on such terms as the
Option Committee deems appropriate. If authorized by the Option Committee in its
sole discretion, and if the Option has been held for six months or more, an
optionee may elect to have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company or to tender to the Company other
shares of Common Stock or other securities of the Company owned by the optionee
on the date of determination of the amount of tax to be withheld as a result of
the exercise of such Option (the "Tax Date") to pay the amount of tax that is
required by law to be withheld by the Company as a result of the exercise of
such Option, provided that the election satisfies the following requirements:
(i) the election shall be irrevocable, shall be made at
least six months before the Option exercise, and shall be subject to the
disapproval of the Option Committee at any time before consummation of the
Option exercise; or
(ii) the election shall be made in advance to take effect in
a subsequent "window period" (as defined below) in which the Option is
exercised, and the Option Committee shall approve the election when it is made
or at any time thereafter up to consummation of the Option exercise; or
(iii) the election shall be made in a window period and the
approval of the Option Committee shall be given after the election is made and
within the same window period, and the Option exercise shall be consummated
within such window period; or
(iv) shares or other previously owned securities shall be
tendered (but stock shall not be withheld) at any time up to the consummation of
the Option exercise (in which event, neither a prior irrevocable election nor
window period timing shall be required).
Notwithstanding the foregoing, clauses (ii) and (iii) shall not be
available until the Company has been subject to the reporting requirements of
the Securities Exchange Act of 1934 for at least one year.
A "window period" is the period beginning on the third business day
following the date of release for publication of quarterly or annual summary
statements of sales and earnings and ending on the 12th business day following
such date. Any securities so withheld or tendered shall be valued by the Company
as of the Tax Date.
6.1.11 Other Provisions. Each Option granted under this Plan may
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contain such other terms, provisions, and conditions not consistent with this
Plan as may be determined by the Option Committee, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.12 Determination of Value. For purposes of the Plan, the value
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of Common Stock or other securities of the Company shall be determined as
follows:
(i) If the stock of the Company is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers
Automated Quotation System, its fair market value shall be the closing sales
price for such stock or the closing bid if no sale was reported, as quoted on
such system or exchange (or the largest such exchange) for the date the value is
to be determined (or if there is no sale for such date, then for the last
preceding business day on which there was at least one sale), as reported in the
Wall Street Journal.
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(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there is no quoted price
for the date of grant, then for the last preceding business day on which there
was a quoted price).
(iii) If the stock of the Company is as described in Section
6.1.12(i) or (ii), but is restricted by law, contract, market conditions, or
otherwise as to salability or transferability, its fair market value shall be as
set forth in Section 6.1.12(i) or (ii), as appropriate, less, as determined by
the Option Committee, an appropriate discount, based on the nature and terms of
the restrictions.
(iv) In the absence of an established market for the stock,
the fair market value thereof shall be determined by the Option Committee, with
reference to the Company's net worth, prospective earning power, dividend-paying
capacity, and other relevant factors, including the goodwill of the Company, the
economic outlook in the Company's industry, the Company's position in the
industry and its management, and the values of stock of other corporations in
the same or a similar line of business.
6.1.13 Option Term. No Option shall be exercisable more than ten
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years after the date of grant, or such lesser period of time as set forth in the
option agreement (the end of the maximum exercise period stated in the option
agreement is referred to in this Plan as the "Expiration Date"). No ISO granted
to any person who owns, directly or by attribution, stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company of any Affiliate ( a "Ten Percent Stockholder") shall be exercisable
more than five years after the date of grant.
6.1.14 Exercise Price. The exercise price of any Option granted to
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any Ten Percent Stockholder shall in no event be less than 110 percent of the
fair market value (determined in accordance with Section 6.1.12) of the stock
covered by the Option at the time the Option is granted.
6.1.15 Compliance with Securities Laws. The Company shall not be
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obligated to offer or sell any shares upon exercise of an Option unless the
shares are at that time effectively registered or exempt from registration under
the federal securities laws and the offer and sale of the shares are otherwise
in compliance with all applicable state and local securities laws. The Company
shall have no obligation to register the shares under the federal securities
laws or take whatever other steps may be necessary to enable the shares to be
offered and sold under federal or other securities laws. Upon exercising all or
any portion of an Option, an optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the Option shares or subsequent transfers of any interest in the shares to
comply with applicable securities laws. Stock certificates evidencing shares
acquired upon exercise of options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan, or the
option agreement evidencing the Option.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options granted
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under this Plan which are designated as NQOs shall be subject to the following
additional terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section 6.1.14, the
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exercise price of a NQO shall not be less than 85 percent of the fair market
value (determined in accordance with Section 6.1.12) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted
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under this Plan which are designated as ISOs shall be subject to the following
additional terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.14, the
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exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.12) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired upon exercise of
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an ISO is disposed of in a "disqualifying disposition" within the meaning of
Section 422 of the Code, the holder of the stock immediately before the
disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
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7.1 Notice of Exercise. An optionee wishing to exercise an Option
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shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Option Committee,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option will be considered as the date such Option was exercised.
7.2 Issuance of Certificates. Promptly after receipt of written
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notice of exercise of an Option, the Company shall, without stock issue or
transfer taxes to the optionee or other person entitled to exercise the Option,
deliver to the optionee or such other person a certificate or certificates for
the requisite number of shares of stock. Unless the Company specifies otherwise,
an optionee or transferee of an optionee shall not have any privileges as a
shareholder with respect to any stock covered by the Option until the date of
issuance of a stock certificate. Subject to Section 6.1.1 hereof, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date the certificates are delivered.
8. EMPLOYMENT RELATIONSHIP
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Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its Affiliates.
9. AMENDMENTS TO PLAN
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The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to federal or other tax laws relating to
incentive stock options. No amendment shall require shareholder approval unless
shareholder approval is required to preserve incentive stock option treatment
for tax purposes or the Board otherwise concludes that shareholder approval is
advisable.
10. SHAREHOLDER APPROVAL; TERM
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The Board of Directors of the Company adopted this Plan as of January 1,
2000 and the Company's shareholders approved this Plan as of June 2, 2000.
This Plan shall terminate ten years after initial adoption by the Board unless
terminated earlier by the Board. The Board may terminate this Plan without
shareholder approval. No Options shall be granted after termination of this
Plan, but termination shall not affect rights and obligations under then-
outstanding Options.