Exhibit 10.2
OPTION AGREEMENT
June 2, 2004
This OPTION AGREEMENT (this "Agreement") is entered into and made
effective as of the 2nd day of June, 2004, between SLS International, Inc., a
Delaware corporation (the "Company"), and Global Drumz, Inc., a California
corporation ("Consultant").
WHEREAS, the Company desires to grant to Consultant options to purchase
shares of its common stock, $.001 par value per share, in consideration for
services provided and to be provided by Consultant pursuant to a promotion
agreement between the Company and Consultant dated effective as of June 2, 2004
(the "Promotion Agreement").
WHEREAS, the Company and Consultant each intends that the Options
granted herein shall be Non-Qualified Stock Options.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. GRANT OF OPTIONS. On the date hereof ("Grant Date"), the Company
hereby grants to Consultant options ("Options") to purchase 1,000,000 shares of
the Company's common stock, par value $.00l per share ("Shares"), at the
exercise price per share stated below ("Exercise Price").
2. CHARACTER OF OPTIONS. These Options shall be considered
Non-Qualified Stock Options.
3. EXERCISE PRICE. The exercise price of the Options is $2.00 per Share
("Exercise Price").
4. Vesting Schedule. The Options shall become exercisable, in whole or
in part, in accordance with the following vesting schedule: fifty percent (50%)
of the Shares subject to the Options shall vest on the date hereof and 1/12 of
the Shares subject to the Options shall vest each month thereafter, as set forth
immediately below:
Date Number of Shares Vesting
---- ------------------------
June 2, 2004 500,000
July 2, 2004 83,333
August 2, 2004 83,333
September 2, 2004 83,334
October 2, 2004 83,333
November 2, 2004 83,333
December 2, 2004 83,334
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Total: 1,000,000
Notwithstanding the foregoing, vesting of the Options shall accelerate and the
Shares shall vest in full upon the occurrence of any of the following events:
(a) any termination of the Promotion Agreement by the Company except as
permitted under Section 7(b) or Section 11 of the Promotion Agreement, (b) any
termination of the Promotion Agreement by the Consultant pursuant to Section
7(b) or 7(c) of the Promotion Agreement, or (c) any sale of all or substantially
all of the Company's voting stock, assets or business or any merger of the
Company with another entity (excluding a merger with a wholly owned subsidiary).
5. PAYMENT OF EXERCISE PRICE. To the extent vested pursuant to Section
4 hereof, Options represented hereby may be exercised in whole or in part by
delivering to the Company notice of exercise and payment of the Exercise Price
of the Options so exercised (i) in cash; (ii) by check; (iii) to the extent
permitted by applicable law, by delivering a written direction to the Company
that the Option be exercised pursuant to a "cashless" exercise/sale procedure
(pursuant to which funds to pay for exercise of the Option are delivered to the
Company by a broker upon receipt of stock certificates from the Company) through
a licensed broker whereby the stock certificate or certificates for the shares
of Common Stock for which the Option is exercised will be delivered to such
broker as the agent for Consultant exercising the Option and the broker will
deliver to the Company cash equal to the aggregate Exercise Price for the shares
of Common Stock purchased pursuant to the exercise of the Option plus the amount
(if any) of federal and other taxes that the Company, in its reasonable
judgment, is required to withhold with respect to the exercise of the Option; or
(iv) any combination of the foregoing. Exercise of this Option to the extent
above stated may be made in whole or in part at any time and from time to time,
subject to the limitations stated herein, except that no fractional share will
be issued pursuant to this Option. The Company shall issue to Consultant stock
certificates representing the Shares exercised in accordance with this Section 5
within one week of such exercise.
6. TERM OF OPTIONS. The term of the Options granted herein shall be for
five years commencing with the Grant Date. The Options shall expire and no
longer be exercisable at the end of such term.
7. TRANSFER OF OPTIONS. The Shares issuable hereunder shall be freely
transferable, in whole or in part, and there are no restrictions upon any
transfer, sale, monetization, pledge, alienation or other encumbrance with
respect to either such Shares, except as provided by law. The Options are not
transferable, other than to one or more "affiliates" of the Consultant for tax
or estate planning purposes. For purposes of this Section 7, "affiliates" shall
have the meaning provided to such term in Rule 144 promulgated under the
Securities Act of 1933, as amended.
8. ADJUSTMENTS. (a) If the outstanding shares of the Company's common
stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
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receipt of consideration by the Company, occurring after the date of this
Agreement, the number and kinds of Shares subject to the outstanding Options
granted hereunder shall be adjusted proportionately and accordingly by the
Company. Any such adjustment in the number and kind of shares subject to the
outstanding Options shall not change the aggregate Exercise Price payable with
respect to shares subject to the unexercised portion of the Option outstanding
but shall include a corresponding proportionate adjustment in the Exercise Price
per share.
(b) The Exercise Price shall be subject to adjustment from time to time
as follows:
(i) If the Company shall issue, after the date of this Agreement, any
Additional Stock (as defined below) without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to the
issuance of such Additional Stock, the Exercise Price in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in
this clause (i)) be adjusted to a price determined by multiplying such Exercise
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock that the aggregate consideration received by the Company
for such issuance would purchase at such Exercise Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock. The
foregoing calculation shall not take into account shares deemed issued on
account of outstanding options, warrants, rights or convertible or exchangeable
securities (or the actual or deemed consideration therefor), except to the
extent (i) such options, warrants, rights or convertible or exchangeable
securities have been exercised, converted or exchanged; and (ii) the
consideration to be paid upon such exercise, conversion or exchange per share of
underlying Common Stock is less than or equal to the per share consideration for
the Additional Stock that has given rise to the Exercise Price adjustment being
calculated.
(ii) "Additional Stock" means any shares of the Company's common stock
issued by the Company after the date of this Agreement other than (A) shares of
common stock issuable or issued to employees, consultants, directors or vendors
(if in transactions with primarily non-financing purposes) of the Company
directly or pursuant to a stock option plan or restricted stock plan approved by
the Board of Directors of the Company; (B) shares of the Company's common stock
issued upon the exercise or conversion of options, warrants, rights or
convertible or exchangeable securities outstanding on the date of this
Agreement; and (C) shares of the Company's common stock issued upon conversion
of the Company's Series B Preferred Stock or exercise of the Company's Class C
Warrants issued pursuant to the Company's private placement of up to 1,000,000
shares of Series B Preferred Stock (each with ten attached Class C Warrants),
which commenced in February 2004.
9. AMENDMENTS. The Company may not amend this Agreement without
Consultant's consent.
10. WITHHOLDING TAXES. The Company may withhold from sums due or to
become due to Consultant from the Company any amount necessary to satisfy its
obligation to withhold taxes incurred by reason of the exercise of the Option or
the disposition of the Shares acquired by exercise of the Options in a
disqualifying disposition (within the meaning of Section 421(b) of the Code), or
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may require Consultant (by request delivered to the Consultant within twelve
months of the date of exercise or the date of the disqualifying disposition, as
applicable) to reimburse the Company in such amount.
11. Governing Law. This Agreement shall be construed and enforced in
accordance with the law of the State of Delaware, without giving effect to the
conflict of law principles thereof.
12. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto were upon the same instrument.
14. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision in any
other jurisdiction.
[The signature page follows immediately.]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SLS INTERNATIONAL, INC.
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By: Xxxx Xxxx, President
GLOBAL DRUMZ, INC.
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By: ______________, ___________
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