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                                                                    EXHIBIT 10.2


                       NONQUALIFIED STOCK OPTION AGREEMENT
                                   N2H2, INC.


I.      OPTION GRANT. N2H2, INC., a Washington corporation (the "Company")
        hereby grants a nonqualified stock option to purchase up to 1,400,000
        shares of Common Stock of the Company, no par value, (the "Common
        Stock") as of August 2, 2002 ("Grant Date") to HOWARD PHILIP WELT (the
        "Optionee"), subject in all respects to the terms and provisions of this
        Nonqualified Stock Option Agreement (the "Option"). This Option shall be
        governed by, and construed in accordance with, the laws of the state of
        Washington without regard for principles of conflict of laws.

II.     DEFINITIONS.

        "Board" shall mean the Board of Directors of the Company.

        "Cause" is defined as (i) Optionee's failure or refusal to perform his
        duties, responsibilities or obligations hereunder after at least
        twenty-one (21) days' prior written notice regarding any such failure or
        refusal; (ii) Optionee's breach of any non-competition or
        confidentiality agreement with the Company; (iii) the willful
        misappropriation of funds or property of the Company; (iv) use of
        alcohol or drugs which interferes with performance of Optionee's
        obligations under the Employment Agreement, continuing after thirty (30)
        days' prior written notice; (v) conviction of a felony or of any crime
        involving moral turpitude, fraud or misrepresentation; or (vi) the
        commission by Optionee of any willful or intentional act in disregard of
        the interests of the Company which could be reasonably expected to
        materially injure the reputation, business or business relationships of
        the Company, provided, however, that a good faith mistake in the normal
        course of business shall not be considered "Cause".

        "Committee" shall mean the Compensation Committee of the Board.

        "Disability" means that Optionee is unable to perform the principal
        functions of his duties due to a mental or physical impairment, but only
        if such inability has lasted or is reasonably expected to last for at
        least six (6) months. The determination of whether Optionee has a
        Disability shall be determined by the Committee based on evidence
        provided by one or more medical experts selected by the Committee.

        "Employment Agreement" shall mean the Employment Agreement between
        Optionee and the Company dated of even date herewith.

        "Exercise Price" shall mean the exercise price per share of the Option,
        as set forth in Section IV.

        "Fair Market Value" shall mean the average of the high and low sales
        prices of the Common Stock on the Over-the-Counter Bulletin Board.

         "Good Reason" means (i) a material reduction (without Optionee's
         consent) in his title, authority, status, or responsibilities, or (ii)
         a material breach by the Company of its

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        obligations under the Employment Agreement.

III.    VESTING SCHEDULE. The Vesting Initiation Date shall be May 18, 2002. The
        Option shall vest and become exercisable vest as to 116,666 shares per
        month on the 18th calendar day of each month, commencing on June 18,
        2002, with 100% of the option being vested and exercisable on May 18,
        2003. Notwithstanding the foregoing, (i) if Optionee's employment with
        the Company is terminated without Cause, (ii) if Optionee resigns for
        Good Reason before the first anniversary of the Grant Date or (iii) in
        the event of Optionee's death or Disability, this Option shall
        automatically vest and become immediately exercisable for a total of
        100% of the total number of shares of Common Stock originally subject to
        the Option. Optionee agrees to be seen by or consult with medical
        experts of the Committee's choosing, if so requested by the Committee,
        for purposes of making a determination of whether the Optionee suffers
        from a Disability under this Section II.

IV.     PRICE. The Option Exercise price shall be $0.145, the Fair Market Value
        on the date that the Option is granted by the Board. The Exercise Price
        shall be paid by delivery of cash or, subject to the discretion of the
        Board, by delivery of an approved equivalent to cash. In addition,
        Optionee may pay the Exercise Price by surrender of shares of Common
        Stock which have already been owned by Optionee for such duration as
        shall be specified by the Committee. For purposes of this Section IV,
        shares of Common Stock already owned by Optionee shall be valued at
        their Fair Market Value on the date of exercise of the Option. Shares
        surrendered in payment of the Exercise Price and applicable withholding
        taxes shall be deemed to be paid upon delivery of an irrevocable
        directive to a securities broker approved by the Company to sell all or
        part of such shares and to deliver the sales proceeds to the Company.

V.      PURCHASE FOR INVESTMENT. This Option may not be exercised if the
        issuance of shares of Common Stock pursuant to an exercise would
        constitute a violation of any applicable federal or state securities or
        other law or valid regulation. Any other provision of this Option
        notwithstanding, the obligation of the Company to issue shares pursuant
        to an exercise of the Option shall be subject to all applicable laws,
        rules and regulations and such approval by any regulatory body as may be
        required. The Company reserves the right to restrict, in whole or in
        part, the delivery of shares prior to the satisfaction of all legal
        requirements relating to the issuance of such shares, to their
        registration, qualification or listing or to an exemption from
        registration, qualification or listing.

VI.     NON-ASSIGNABILITY. The Option may not be transferred or hypothecated in
        any manner and shall only be exercisable by the Optionee or his legal
        representative. The terms of this Option shall be binding upon the
        executors, administrators, heirs, successors, and assigns of the
        Optionee.

VII.    EXERCISE.

        A.     This Option shall be exercisable, to the extent of the number of
               shares purchasable by Optionee at the date of termination, only
               (1) within one year after such termination if the Optionee's
               termination is coincident with the Optionee's


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               death or Disability, (2) within three years after the termination
               of Optionee's employment by the Company without Cause or by the
               Optionee for Good Reason or (3) within three months after the
               termination of Optionee's employment by the Company with Cause or
               by the Optionee without Good Reason, provided, however, that in
               no event shall the option be exercisable on any date after the
               expiration of the Term set forth in Section VII.B. below. Any
               portion of this Option exercisable at the time of the Optionee's
               death may be exercised by the personal representative of the
               Optionee's estate or the person(s) to whom the Optionee's rights
               under the Option have passed by will or the applicable laws of
               descent and distribution. This Option may be exercised only for
               whole shares of Common Stock.

        B.     This Option may not be exercised more than ten (10) years from
               the date hereof (the "Term"), and may be exercised during the
               Term only in accordance with the terms and provisions set forth
               herein. If the Optionee's employment with the Company is
               suspended pending an investigation of whether the Optionee shall
               be terminated for Cause, all the Optionee's rights under the
               Option likewise shall be suspended during the period of
               investigation.

        C.     This Option may be exercised for all or part of the shares
               eligible for exercise by presenting a written notice to the
               Company that this Option is exercised, or by such other method as
               complies with standard Company procedure. In either event, the
               Company shall determine whether the exercise complies with the
               terms and provisions of this Option. If the Option is exercised
               by written notice, such notice shall identify this Option, state
               the number of shares as to which the Option is exercised and be
               signed by the Optionee. Delivery of the exercise price for the
               shares to be purchased pursuant to the exercise of this Option
               shall accompany the notice or shall be otherwise accomplished in
               accordance with standard Company procedure. If the Optionee is
               deceased, exercise shall be by written notice, which notice shall
               be signed by the Optionee's legal representatives or
               beneficiaries. If the Optionee has a Disability, this Option may
               be exercised by written notice signed by Optionee's legal
               representatives. In all instances such notice shall be
               accompanied by evidence satisfactory to the Company and its
               transfer agent of the right of such person or persons to exercise
               this Option.

        D.     The Optionee shall make arrangements satisfactory to the Company
               for the satisfaction of any withholding tax obligations that
               arise in connection with his Option. The Company shall not be
               required to issue any shares of Common Stock until such
               obligations are satisfied.

VIII.   MARKET STANDOFF. In connection with any underwritten public offering by
        the Company of its equity securities pursuant to an effective
        registration statement filed under the Securities Act after the date
        hereof, Optionee shall not sell, make any short sale of, loan,
        hypothecate, pledge, grant any option for the purchase of, or otherwise
        dispose or transfer for value or otherwise agree to engage in any of the
        foregoing transactions with respect to, any shares issued pursuant to
        this Option without the prior written consent of the Company or its
        underwriters. Such limitations shall be in effect for such


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        period of time as may be requested by the Company or such underwriters
        and agreed to by the Company's officers and directors with respect to
        their shares; provided, however, that in no event shall such period
        exceed 180 days. Holders of shares issued pursuant to this Option shall
        be subject to the market standoff provisions of this paragraph only if
        the officers and directors of the Company are also subject to similar
        arrangements. In the event of any stock split, stock dividend,
        recapitalization, combination of shares, exchange of shares or other
        change affecting the outstanding Common Stock effected as a class
        without the Company's receipt of consideration, then any new,
        substituted or additional securities distributed with respect to the
        purchased shares shall be immediately subject to the provisions of this
        Section VIII., to the same extent the purchased shares are at such time
        covered by such provisions. In order to enforce the limitations of this
        Section VII., the Company may impose stop-transfer instructions with
        respect to the purchased shares until the end of the applicable standoff
        period.

IX.     EFFECT OF CHANGE IN COMMON STOCK SUBJECT TO OPTION. In the event of a
        subdivision of the outstanding shares of Common Stock, a declaration of
        a dividend payable in shares of Common Stock in an amount that has a
        material effect on the price of the Common Stock, a combination or
        consolidation of the outstanding shares of Common Stock (by
        reclassification or otherwise) into a lesser number of shares of Common
        Stock, a recapitalization, spin-off or a similar occurrence, the Board
        shall make such adjustments as it, in its sole discretion, deems
        appropriate in one or more of the number of shares subject to the Option
        or the Exercise Price. Except as provided in this Section IX., Optionee
        shall have no rights by reason of any issue by the Company of stock of
        any class or securities convertible into stock of any class, any
        subdivision or consolidation of shares of stock of any class, the
        payment of any stock dividend or any other increase or decrease in the
        number of shares of stock of any class.

X.      AMENDMENT OR ALTERATION. The Board may amend or alter this Option,
        except that no amendment or alteration shall be made which would impair
        the rights of the Optionee hereunder, without his consent.

XI.     OPTION NOT A SERVICE CONTRACT. This Option is not an employment contract
        and nothing in this Option shall be construed as giving Optionee any
        right to be retained in the employ of the Company or limit the Company's
        right to terminate the employment or services of Optionee.


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XII.    NO RIGHTS AS A SHAREHOLDER. The Optionee, or a transferee of the
        Optionee, shall have no rights as a shareholder with respect to any
        Common Stock covered by the Option until such person becomes entitled to
        receive such Common Stock by delivering a written notice of exercise
        price (or completing exercise by such other method as complies with the
        Company's standard exercise procedure) and paying the Exercise Price
        pursuant to the terms of this Option.

                                        N2H2, Inc.


                                        By: /s/ J. Paul Quinn
                                            ----------------------------------
                                        Name:  J. Paul Quinn
                                        Title: Chief Financial Officer



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If the following acknowledgment and acceptance is not executed within ten (10)
days of the effective date of this Option, it shall lapse and be treated for all
purposes as if it were never granted.

The Optionee acknowledges and represents that he is familiar with and
understands the terms and provisions of this Option. The Optionee hereby accepts
this Option subject to all the terms and provisions contained herein. The
Optionee hereby agrees to accept as binding, conclusive, and final all decisions
and interpretations of the Board upon any questions arising under the Option.

Dated:  8/13/02

WITNESS:                                OPTIONEE:

/s/ J. Paul Quinn                       /s/ Howard P. Welt
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