Exhibit 10.4
NONQUALIFIED STOCK OPTION AGREEMENT
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NESCO INDUSTRIES, INC.
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To
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MATTHEW HARRITON
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THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is made by and
between NESCO INDUSTRIES, INC., a Nevada corporation ("Company") having an
address at 22-09 Queens Plaza North, Long Island City, NY 11101 and MATTHEW
HARRITON an individual having an address at 305 Madison Avenue, Suite 4510, New
York, NY 10165 ("Optionee").
RECITALS
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A. Optionee is an employee of the Company and/or of one or more of its
affiliates or subsidiaries (each, a "Related Corporation") and desires
to have the opportunity to purchase shares of common stock of the
Company ("Nesco Common").
B. Company is party to a certain Share Exchange Agreement (the "Share
Exchange Agreement") with Hydrogel Systems, Inc., a Delaware
corporation ("HDS"), certain security holders of Hydrogel (the "HDS
Signatories") and certain security holders of Company (the "Nesco
Signatories")
C. The Company has agreed in the Share Exchange Agreement and further
desires for business purposes to make shares of Nesco Common available
for purchase by Optionee as an inducement to the continuing
participation of Optionee in the business and affairs of the Company
and/or the Related Corporations.
ACCORDINGLY, the Company and Optionee agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of this Agreement,
the Company grants to Optionee the right and option (the "Option") to purchase
up to 5,000,000 shares of Nesco Common (the "Shares") at an exercise price based
on the Applicable Trading Price as defined herein, on the terms set forth in
this Agreement.
2. NONQUALIFIED OPTION. The Option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended from time to time (the "Code").
3. TERM OF OPTION. The term of the Option shall commence on the Closing
Date as defined in the Share Exchange Agreement (May __, 2004) and, subject to
earlier termination as set forth in this Agreement, shall expire on the fifth
anniversary of the Closing Date (May __, 2009, the "Expiration Date").
4. NONTRANSFERABLE. Except as provided in Section 11 of this Agreement,
neither the Option nor the rights and privileges conferred upon Optionee under
this Agreement may be transferred, assigned, pledged or hypothecated in any
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manner (whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of the Option or any such right or
privilege contrary to the provisions of (i) the Code, or (ii) any sale, levy,
attachment or similar process attempted with respect to the Option or such
rights or privileges, such Option, right or privilege shall automatically
terminate and become null and void. This Section 4 shall govern over any
inconsistent term set forth in any current or future agreement concerning the
transfer in general of the Company's shares of capital stock to which the
Company, Optionee and/or the Company's shareholders may be parties.
5. VESTING/SHARES.
5.1. This Option shall be immediately exercisable for the purchase of
2,000,000 Shares and exercisable as to an additional 1,000,000 Shares of
commencing on each of the first, second and third anniversaries of the Closing
Date, respectively, provided that Optionee remains a consultant to or employee
of Company or a Related Company.
5.1.1. If Company exercises its right to terminate the Employment Agreement
it has with Optionee after the Initial Term thereof, without specifying reasons
for termination that constitute grounds for termination for "cause" as defined
in the Employment Agreement, this Option shall become immediately exercisable as
to all 5,000,000 Shares.
5.1.2. Once exercisable as set forth above, this Option shall remain
exercisable for such Shares thereafter until exercised or until the expiration
or termination of this Option as set forth in this Agreement.
5.2. Anything contained in this Section to the contrary notwithstanding,
until the last to occur of the filing of the Information Statement with the SEC
and filing of the Additional Capitalization Amendment (both as described in the
Share Exchange Agreement) to the extent that the Option is exercisable for
Shares, it shall instead be exercisable for the equivalent number of shares of
Nesco Series B Preferred.
6. EXERCISE.
6.1. Exercise Notice. Once vested as set forth in Section 5, the Option may
be exercised from time to time in accordance with the terms of this Agreement by
written notice of exercise substantially in the form attached hereto as Exhibit
A (the "Exercise Notice") signed by Optionee and Optionee's spouse, if any (or,
in the case of a permitted exercise of the Option after the death of Optionee,
by the executor, administrator, heir or legatee of Optionee, as the case may be
and the spouse, if any, of such heir or legatee), and delivered by Optionee to
the Company at the address set forth in this Agreement for notices to the
Company. The Exercise Notice shall state the number of Shares as to which the
Option is being exercised and the date of exercise. The Exercise Notice shall
also state the date (not a Saturday, Sunday or legal holiday) for completing the
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purchase of Shares covered by the Exercise Notice, which date shall be not later
than 15 days after the date of the Exercise Notice. The closing of the purchase
of Shares pursuant to an exercise of the Option shall take place at the
Company's principal executive offices.
6.2. Payment. Upon the date set forth in the Exercise Notice for completion
of the purchase, payment of the full exercise price for the Shares with respect
to which the Option is being exercised shall be made by certified check or other
immediately available funds.
6.3. Exercise Price. The price per share (the "Exercise Price") shall be
the Applicable Trading Price. "Applicable Trading Price" means the lesser of (i)
the average closing bid price per share of Nesco Common for the thirty (30)
consecutive Trading Days prior to the Closing Date (as adjusted to reflect the
Reverse Split contemplated by the Share Exchange Agreement by multiplying such
price by the number of shares of Nesco Common that became one share thereof in
the Reverse Split), and (ii) the average closing bid price per share of Nesco
Common for the thirty (30) consecutive Trading Days commencing on the 31st day
following the effective date of the Reverse Split (the "Post-Split Period");
provided, however, whenever this Agreement provides for application of the
Applicable Trading Price at any time prior to commencement of the Post-Split
Period, the Applicable Trading Price shall be the price determined under clause
(i) of this paragraph.
7. WITHHOLDING. Prior to delivering certificates for any Shares purchased
upon exercise of the Option, the Company shall determine the amount of any
federal, state or local tax, if any, which is required to be withheld under
applicable law and shall collect from Optionee the amount of any such tax to the
extent not previously withheld.
8. NO RIGHTS AS SHAREHOLDER. Neither Optionee nor Optionee's permitted
successors or assigns shall have any rights or privileges as a shareholder with
respect to any Shares subject to the Option until Optionee has exercised the
Option with respect to such Shares and stock certificate(s) have been issued to
Optionee for the Shares as to which the Option was exercised. The Company shall
issue such certificate(s) as expeditiously as possible.
9. CONTINUATION OF EMPLOYMENT. Neither the grant of the Option, execution
of this Agreement nor exercise of any portion of the Option shall confer upon
Optionee any right to, or guaranty of, continued employment by the Company
and/or any Related Corporation, or in any way limit the right of the Company or
such Related Corporation to terminate the employment of Optionee at any time.
10. TERMINATION EVENTS
10.1. Termination of Employment, Death and Disability.
10.1.1. In General. In the event that the Company's employment of Optionee
should terminate because of Optionee's retirement or for any reason (including
but not limited to voluntary termination by Optionee and termination of Optionee
by Company without "cause"), other than because of death, Disability (as defined
in subsection 10.1.3) or for "cause" (as defined in subsection 10.1.4), the
Option may be exercised by Optionee at any time prior to the Expiration Date or
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the expiration of three months after the effective date of such termination of
employment, whichever is earlier, but only if and to the extent Optionee was
entitled to exercise the Option at such effective date of termination.
10.1.2. Death. In the event of the death of Optionee while in the employ of
the Company, the Option shall be exercisable at any time prior to the Expiration
Date or the expiration of one year after the date of Optionee's death, whichever
is earlier, but only if and to the extent Optionee was entitled to exercise the
Option at the date of Optionee's death and only by the person or persons to whom
Optionee's rights under the Option shall have passed by Optionee's will or by
the laws of descent and distribution of the state or country of Optionee's
domicile at the time of death.
10.1.3. Disability.
(a) In the event Optionee's employment with the Company is terminated
because of Optionee's disability within the meaning of subsection 10.1.3(b),
below ("Disability"), the Option may be exercised by Optionee at any time prior
to the Expiration Date or the expiration of one year after the effective date of
such termination of employment, whichever is earlier, but only if and to the
extent Optionee was entitled to exercise the Option at such effective date of
termination.
(b) Optionee is disabled for purposes of this Agreement if the Board of
Company makes a good faith determination that Optionee suffers from Disability
(as hereinafter defined) so as to be unable to substantially perform his duties
hereunder for an aggregate of one hundred and eighty (180) calendar days during
any period of twelve (12) consecutive months. As used in this Agreement, the
term "Disability" shall mean the material inability, in the opinion of
three-fourths (3/4) of the entire membership of the Board set forth in a
resolution giving the particulars thereof, of Optionee to render his agreed-upon
services to Company due to physical and/or mental infirmity, which opinion is
concurred in by a physician or psychiatrist reasonably satisfactory to Company
and Optionee or his duly appointed representative or guardian.
10.1.4. For "Cause." In the event of the termination of Optionee's
employment with the Company and/or any Related Corporation for "cause," the
Option shall automatically terminate as of the first advice or discussion of
such termination. Optionee shall thereafter have no right to purchase Shares
pursuant to this Agreement. Termination for "cause" shall mean: (a) dismissal
for dishonesty, conviction or confession of a crime punishable by law (except
minor violations) intoxication while at work, fraud, misconduct or disclosure of
confidential information; (b) dismissal for cause as defined under any
employment or other service contract entered into between Optionee and the
employer; or (c) Optionee's persistent breach of (i) any policy, rule or
regulation of the employer, or (ii) Optionee's terms of employment.
10.1.5. Cancellation of Option. To the extent that the Option shall not
have been exercised under the circumstances and within the limited periods set
forth in this Agreement, all further rights to purchase Shares pursuant to this
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Agreement and the Option shall cease and terminate as of the expiration of such
applicable period, automatically and without notice or action by any party.
11. TRANSFER OF SHARES/SECURITIES LAWS. All Shares acquired by Optionee (or
Optionee's permitted successors) pursuant to an exercise of the Option shall be
acquired by the purchaser for investment only and such purchaser shall not
transfer the Shares so as to result in a distribution in violation of applicable
federal and state securities laws. Optionee understands and agrees on behalf of
Optionee (and Optionee's permitted successors) that any Shares which may be
issued pursuant to an exercise of the Option may have such legends and
restrictions on the certificates for the Shares and be subject to such
stop-transfer instructions as the Company determines to be necessary or
appropriate, and further agrees to execute such agreements regarding transfer of
such Shares as the Company or its counsel may deem advisable. Optionee
acknowledges that Shares acquired upon an exercise of the Option may be required
to be held indefinitely in the absence of registration or the availability of
exemptions from registration under applicable federal and state securities laws.
Upon an exercise of the Option, the purchaser shall be required to execute an
investment representation letter containing the representations set forth in
this Section 11 and other representations required by the Company.
12. CHANGES IN CAPITAL STRUCTURE.
12.1. Adjustments Upon Changes in Capitalization. The number of Shares
covered by the Option and the exercise price per Share shall be proportionately
adjusted for any increase or decrease in the number of issued shares of common
stock of the Company resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
12.2. Effect of Certain Transactions.
12.2.1. Termination or Acceleration of Exercise Rights. Except as provided
in subsection 12.2.2, upon a merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation of the Company, as a result of
which event the shareholders of the Company receive cash, stock or other
property in exchange for or in connection with their shares of common stock of
the Company (any such transaction is referred to as an "Exchange Event"), the
Option shall terminate; provided, however, that if Optionee shall have held the
Option for a period of at least one year from the date of this Agreement,
Optionee shall have the right to exercise the Option, in whole or in part,
whether or not any vesting requirements set forth in this Agreement have been
satisfied. Any such exercise shall be deemed to take place immediately prior to
the Exchange Event, assuming the Company receives the Exercise Notice at least
two business days prior to such Event.
12.2.2. Alternative for Conversion to Exchange Stock. If the shareholders
of the Company are to receive capital stock of another corporation ("Exchange
Stock") in exchange for their shares of common stock of the Company in any
Exchange Event, and if the issuer of the Exchange Stock agrees in writing to
assume the obligations of the Company under this Agreement, then subsection
12.2.1 shall not apply and, alternatively, the Option shall automatically, upon
the occurrence of the Exchange Event, be converted into an option to purchase
shares of Exchange Stock. The amount and exercise price of shares of Exchange
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Stock subject to the converted option shall be determined by adjusting the
amount and exercise price for Shares set forth in this Agreement in the same
proportion as used for determining the number of shares of Exchange Stock the
holders of the Company's common stock are to receive as a result of such
Exchange Event. The vesting schedule set forth in this Agreement, the Expiration
Date, and all other provisions of this Agreement shall continue to apply to the
converted option for the Exchange Stock. In the event the issuer of the Exchange
Stock does not assume the Company's obligations under this Agreement, the Option
shall terminate pursuant to subsection 12.2.1 unless sooner exercised in
accordance with the terms of this Agreement.
12.3. Fractional Shares. In the event of any adjustment in the number of
Shares covered by the Option, any fractional shares resulting from such
adjustment shall be disregarded and the Option shall cover only the number of
full Shares resulting from such adjustment.
12.4. Determination of Board of Directors to Be Final. All adjustments
under this Section 12 shall be made by the board of directors of the Company,
and its determination as to what adjustments shall be made, and the extent of
such adjustments, shall be final, binding and conclusive.
13. RESERVATION OF SHARES. The Company shall set aside and reserve for the
term of the Option set forth in Section 3 that number of shares of common stock
of the Company (or other securities arising as a result of any adjustments made
pursuant to Section 12) which will permit the Company to perform its obligations
under this Agreement.
14. MISCELLANEOUS.
14.1. Notices. Any notice or demand required or permitted to be given under
this Agreement shall be in writing and shall be effective when delivered
personally or sent by certified mail, postage prepaid, addressed as follows:
If to the Company: NESCO INDUSTRIES, INC.
22-09 Queens Plaza North
Long Island City, NY 11101
If to Optionee: MATTHEW HARRITON
305 Madison Avenue
Suite 4510
New York, NY 10165
Either party may, by notice delivered as set forth in this Section 14.1, direct
that future notices or demands be sent to a different address.
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14.2. Governing Law; Venue. This Agreement shall be governed by and
construed under the laws of the State of New York as to matters of procedure and
substantive law. All disputes under this Agreement shall be settled by a court
of competent jurisdiction of the State of New York.
14.3. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to its subject matter and supersedes all prior
oral and written agreements, negotiations and understandings between such
parties relating to the grant to Optionee of options to purchase capital stock
of the Company. This Agreement may not be changed except by an instrument in
writing signed by the Company and Optionee.
14.4. Severability. If any term or provision of this Agreement, or the
applicability of a term or provision to any person shall be deemed to any extent
to be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons other than those as to which it
is held invalid or unenforceable, shall not be affected and shall continue in
full force and effect.
14.5. Titles and Subtitles. The titles and subtitles contained in this
Agreement are used for convenience of reference only and are not to be
considered in construing or interpreting this Agreement.
14.6. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
14.7. Attorneys' Fees and Costs. If legal action should arise between the
parties concerning the interpretation of or performance in connection with this
Agreement, the substantially prevailing party, as determined by the trier of
fact in a final judgment or decree, shall recover from the other party in any
trial, bankruptcy, appellate court or arbitration such costs and attorneys' fees
as shall be fixed by the trier of fact.
14.8. Rules of Construction. This Agreement shall be construed so that,
whenever applicable, the use of the singular shall include the plural, the use
of the plural shall include the singular, the use of any gender shall be
applicable to all genders, and the word "person" shall include corporations,
partnerships (including limited partnerships), estates, governmental authorities
and all other legal entities. Unless expressly stated to be "business days," the
term "days" as used in this Agreement shall mean calendar days.
14.9. Specific Performance. The parties to this Agreement declare that it
is impossible to measure in money the damages that will accrue to a party or to
the personal representative or other administrator of the estate of a deceased
party by reason of any failure to perform the obligations contained in this
Agreement. Therefore, if any party or the personal representative or other
administrator of the estate of a party shall institute any action or proceeding
to enforce specifically the provisions of this Agreement, any person, including
the Company, against whom such action or proceeding is brought, waives any claim
or defense in such action or proceeding that such person has an adequate remedy
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at law or in damages, and such person shall not urge in any action or proceeding
the claim or defense that such remedy at law or in damages exists.
14.10. Acknowledgment Regarding Any Outstanding Rights and Options. The
Company and Optionee acknowledge and agree the Option granted in this Agreement
shall replace, supersede, cancel and annul any and all outstanding rights and/or
options Optionee may have to acquire shares of the common stock of Company.
14.11. Date of Agreement. This Agreement shall be dated and effective as of
the Closing Date defined above.
IN WITNESS WHEREOF the parties have agreed to the terms hereof as of the date of
this Agreement.
Company Optionee
Nesco Industries, Inc.
By /s/ /s/
Authorized Signator Matthew Harriton
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Exhibit A
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Notice of Election to Exercise
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This Notice of Election to Exercise shall constitute proper notice pursuant
to Section 6.1 of that certain Nonqualified Stock Option Agreement (the
"Agreement") dated as of May __, 2000, between Nesco Industries, Inc. (the
"Company") and the undersigned.
The undersigned hereby elects to exercise Optionee's option to purchase
______________ shares of the common stock of the Company at a purchase price of
$_________ per share, for aggregate consideration of $_____________ on the terms
and conditions set forth in the Agreement.. Such aggregate consideration, in the
form specified in Section 6.2 of the Agreement, accompanies this Notice.
The undersigned has executed this Notice this ______ day of _____________,
200_.
___________________________________
[Name]
___________________________________
[spouse]