OPTION AGREEMENT
Exhibit
4.2
THIS AGREEMENT, made as of
this 26th day of October 2004, by and between eLEC COMMUNICATIONS CORP., having
its principal office at 00 Xxxxx Xxxxxxxx, Xxxxx 000, Xxxxx Xxxxxx, Xxx Xxxx
00000 (the “Company”) and Xxxxxxx Xxxxxxxxx, an employee of the Company,
residing at 000 Xxxxxxxxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxx 00000, (the
“Optionee”).
W I T N E S S E T
H:
WHEREAS, the Board of
Directors of the Company believes that the interests of the Company will be
advanced by granting an incentive to officers, directors and key employees of
the Company by providing them with the opportunity to purchase shares of the
Company’s Common Stock on terms which will give them a more direct and
continuing interest in the future success of the Company’s
business;
NOW, THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
parties agree as follows:
1. Grant of
Options. Subject to, and pursuant to, all of the terms and
conditions of this Agreement, the Company hereby grants to the Optionee the
right and option (the “Option”) to purchase all or any part of an aggregate of
900,000 shares (the “Shares”) of Common Stock, par value $.10 per share (“Common
Stock”) of the Company, at a purchase price of $0.23 per share. The
Option granted hereunder is intended to be a non-qualified stock option and
shall not qualify as an “incentive stock option” under Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).
2. Expiration. The
Option may not be exercised after the fifth anniversary of the date hereof (the
“Expiration Date”).
3. Exercise of
Option. The Option may be exercised at any time after the date
hereof and prior to the Expiration Date or the earlier termination of the
Option. Notwithstanding the foregoing, the Option shall not be
exercisable for more than the number of Shares that are then
vested. The Option shall vest with respect to 100% of the Shares over
a period ending October 26, 2007 and shall vest in the installments listed
below: In addition, the options shall vest with respect to 100% of the shares
upon a Sale of the Company (as defined in section 9 b (i)).
|
Vesting Date
|
Shares Vesting
|
|
|
October
26, 2005
|
450,000
|
|
|
October
26, 2006
|
225,000
|
|
|
October
26, 2007
|
225,000
|
If the
Option is not exercised to the maximum extent permissible, it shall be
exercisable, in whole or in part, with respect to all Shares not so purchased
prior to the Expiration Date or the earlier termination of the Option. During
the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee and only while the Optionee is continuously a director or employee of
the Company or a Subsidiary (as defined in the Plan), within three months after
the Optionee ceases to be a director or employed or, if disabled (within the
meaning of Section 22(e)(3) of the Code), within one year of such disability
(but not later than the Expiration Date) if and to the extent the Option was
exercisable by the Optionee on the last day that the Optionee served as a
director or employee of the Company or a Subsidiary. Notwithstanding the
foregoing, in the event that the Optionee shall be removed from the Board of
Directors or terminated as an employee for cause, all rights as to that portion
of the Option that is unexercised shall immediately terminate.
4. Payment of Purchase Price
Upon Exercise. The Option granted under this Agreement may be
exercised in whole or in part by the Optionee’s delivering or mailing to the
Company at its principal office, or such other place as the Company may
designate, written notice of exercise in the form prescribed by the Committee
and duly signed by the Optionee (the “Exercise Notice”). Such
exercise shall be effective upon (a) receipt of such written notice by the
Company and (b) payment to the Company of the full purchase price in
cash. The Optionee shall make appropriate arrangements for the
payment of all applicable withholding taxes.
5. Issuance and
Delivery. The Optionee’s Exercise Notice shall state the
number of Shares with respect to which the Option is being exercised and specify
a date, not less than five (5) or more than fifteen (15) days after the date of
the mailing of such notice, on which the Shares will be taken and payment made
therefor. On the date specified in the Exercise Notice, the Company
shall deliver, or cause to be delivered, to the Optionee (or his personal
representative, as the case may be) stock certificates for the number of Shares
with respect to which the Option is being exercised, against receipt of payment
therefor. Certificates evidencing the Shares issued upon exercise of
the Option may contain such legends reflecting any restrictions upon transfer of
the Shares evidenced thereby as in the opinion of counsel to the Company may be
necessary for the lawful and proper issuance of such
certificates. Delivery of the Shares may be made at the office of the
Company or at the office of a transfer agent appointed for the transfer of
shares of Common Stock.
6. Transferability. The
Option shall not be transferable otherwise than by will or by the laws of
descent and distribution. The Option shall not be subject, in whole or in part,
to attachment, execution or levy of any kind.
7. No Rights as a
Shareholder. Neither the Optionee nor his legal representative shall be,
nor have any of the rights or privileges of, a shareholder of the Company in
respect of any of the Shares, unless and until certificates representing such
Shares shall have been issued and delivered to the Optionee (or his legal
representative).
8. Adjustment. In the
event of any change in the outstanding Common Stock by reason of stock
dividends, special dividends, recapitalization, reorganizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number and kind of shares under this Agreement and the purchase price per share
hereof shall be appropriately adjusted consistent with such
change. The determination of the Committee as to any adjustment shall
be final, binding and conclusive. It is the intention hereunder to
provide for an equitable adjustment.
9. Sale of the Company.
(a) Notwithstanding any provision in this Agreement to the contrary, in the
event of a Sale of the Company (as defined in paragraph (b) below), the Option,
at the election of the Company, may be terminated and, if terminated, the
Optionee shall receive an amount in cash equal to the difference between the
purchase price in effect at the time of such Sale of the Company and the Fair
Market Value (as defined in paragraph (b) below) of the Shares subject to the
then remaining unexercised portion of the Option.
(b) For
purposes of this Section 9 the following terms shall have the indicated
meanings:
(i) “Sale
of the Company” means a Change of Control of the Company (as defined in clause
(ii) below) or a sale of all or substantially all of the assets of the Company
in a single transaction or a series of related transactions.
(ii) “Change of Control” of
the Company will be deemed to have occurred at such time as (A) any person or
entity (a “Person”), including a Person’s affiliates and associates, becomes the
beneficial owner (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Securities Exchange Act of 1934, as amended) of
50% or more of the total voting power of the Common Stock, (B) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which the Common
Stock would be converted into cash, securities or other property, other than a
merger or consolidation of the Company in which the holders of the Common Stock
outstanding immediately prior to the consolidation or merger hold, directly or
indirectly, at least a majority of the common stock of the surviving corporation
immediately after such consolidation or merger, or (C) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company has
been approved by 66 2/3% of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors.
(iii) “Fair
Market Value” shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date of
the Sale of the Company and shall mean (A) the closing selling price per share
on that date of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (B) the closing selling price per share on that
date of the Common Stock on the NASDAQ quotation system, if the Common Stock is
not then traded on a national securities exchange; or (C) the closing bid price
per share last quoted on that date by an established quotation service for
over-the-counter securities, if the Company Stock is not reported on the NASDAQ
quotation system.
10. Compliance with Law and
Regulations. The Option and the obligation of the Company to
sell and deliver Shares hereunder shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any governmental or
regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for Shares prior to (i) the
listing of such Shares on any stock exchange on which the Common Stock may then
be listed and (ii) the completion of any registration or qualification of such
Shares under any federal or state law, or any rule or regulation of any
government body which the Board of Directors or the Committee shall, in its sole
discretion, determine to be necessary or advisable. Moreover, the
Options may not be exercised if their exercise, or the receipt of Shares
pursuant thereto, would be contrary to applicable law.
11. Investment
Representation. The Board of Directors or the Committee may
require the Optionee to furnish to the Company, prior to the issuance of any
Shares upon the exercise of any Option, an agreement (in such form as the Board
of Directors or the Committee may specify) in which the Optionee represents that
the Shares acquired by the Optionee upon exercise are being acquired for
investment and not with a view to the sale or distribution thereof.
12. Continued
Employment. Neither this Agreement nor any Option granted
hereunder shall confer upon any Employee any right to continue in the employ of
the Company or any Subsidiary, confer upon any member of the Board of
Directors any right to continue on the Board of Directors or limit in any
respect the right of the Company, the Board of Directors or any Subsidiary to
terminate the employment of any Employee or the service of any member of the
Board of Directors at any time.
13. Notices. Any
notice hereunder to the Company shall be addressed to it at its offices, 00
Xxxxx Xxxxxxxx, Xxxxx 000, Xxxxx Xxxxxx, Xxx Xxxx
00000. Attention: Xx. Xxxx Xxxx, Chief Executive Officer,
and any notice hereunder to Optionee shall be addressed to him at 000
Xxxxxxxxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxx 00000 subject to the right of either
party to designate at any time hereafter in writing some other
address.
14. Miscellaneous. This
Agreement contains the entire understanding and agreement between the parties
relating to the subject matter hereof and thereof, except as otherwise referred
to herein, and supersedes any prior agreement between the parties, whether
written or oral. Neither this Agreement nor any provision hereof may
be waived, modified, amended, changed, discharged or terminated, except by an
agreement in writing signed by the party against whom enforcement of any waiver,
modification, change, amendment, discharge or termination is
sought. To the extent that any one or more of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any manner be affected or impaired thereby.
15. Governing
Law. This Agreement shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the internal
laws of the State of New York, without regard to the conflicts of law principles
thereof.
16. Counterparts. This
Agreement may be executed in two counterparts each of which shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the
undersigned have signed this Agreement as of the date and year first above
written.
By: /s/ Xxxx X.
Xxxx
Name:
Xxxx X. Xxxx
Title:
Chief Executive Officer
/s/ Xxxxxxx
Xxxxxxxxx
Xxxxxxx
Xxxxxxxxx
