Exhibit 10.5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO eLEC
COMMUNICATIONS CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase up to 1,683,928 Shares of Common Stock of
eLEC Communications Corp.
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(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________ Issue Date: November 30, 2005
eLEC COMMUNICATIONS CORP., a corporation organized under the laws of the
State of New York ("ELEC"), hereby certifies that, for value received, LAURUS
MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company (as defined herein) from and after
the Issue Date of this Warrant and at any time or from time to time before 5:00
p.m., New York time, through the close of business November 30, 2020 (the
"Expiration Date"), up to 1,683,928 fully paid and nonassessable shares of
Common Stock (as hereinafter defined), at the applicable Exercise Price (as
defined below) per share. The number and character of such shares of Common
Stock and the applicable Exercise Price per share are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include ELEC and any corporation which
shall succeed, or assume the obligations of, ELEC hereunder.
(b) The term "Common Stock" includes (i) the Company's Common Stock,
par value $0.10 per share; and (ii) any other securities into which or for
which any of the securities described in the preceding clause (i) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the Holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange
for or in replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall be a
price of $0.10 per share acquired hereunder.
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the Holder shall
be entitled to receive, upon exercise of this Warrant in whole or in
part, by delivery of an original or fax copy of an exercise notice
in the form attached hereto as Exhibit A (the "Exercise Notice"), up
to 1,683,928 shares of Common Stock of the Company, subject to
adjustment pursuant to Section 4.
1.2 Fair Market Value. For purposes hereof, the "Fair Market Value" of a
share of Common Stock as of a particular date (the "Determination
Date") shall mean:
(a) If the Company's Common Stock is traded on the American Stock
Exchange or another national exchange or is quoted on the National or
SmallCap Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the
closing or last sale price, respectively, reported for the last business
day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on the American
Stock Exchange or another national exchange or on the Nasdaq but is traded
on the NASD OTC Bulletin Board, then the mean of the average of the
closing bid and asked prices reported for the last business day
immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules
then in effect of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up,
plus all other amounts to be payable per share in respect of the Common
Stock in liquidation under the charter, assuming for the purposes of this
clause (d) that all of the shares of Common Stock then issuable upon
exercise of the Warrant are outstanding at the Determination Date.
1.3 Company Acknowledgment. The Company will, at the time of the
exercise of this Warrant, upon the request of the Holder hereof
acknowledge in writing its continuing obligation to afford to such
Holder any rights to which such holder shall continue to be entitled
after such exercise in accordance with the provisions
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of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the
Company to afford to such Holder any such rights.
1.4 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of this
Warrant pursuant to Subsection 3.2, such bank or trust company shall
have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the
Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, Etc., on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares in accordance herewith. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Fair Market Value of one full
share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise.
2.2 Exercise. Payment may be made in cash or by certified or official bank
check payable to the order of the Company equal to the applicable aggregate
Exercise Price for the number of Common Shares specified in such Exercise Notice
(as such exercise number shall be adjusted to reflect any adjustment in the
total number of shares of Common Stock issuable to the Holder per the terms of
this Warrant). Upon receipt by the Company of any Exercise Notice and proper
payment of the aggregate Exercise Price, the Holder shall thereupon be entitled
to receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, Etc. In case at any time or
from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer
all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution
of the Company, then, in each such case, as a condition to the
consummation of such a transaction, proper and adequate provision
shall be made
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by the Company whereby the Holder of this Warrant, on the exercise
hereof as provided in Section 1 at any time after the consummation
of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu
of the Common Stock (or Other Securities) issuable on such exercise
prior to such consummation or such effective date, the stock and
other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection
with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties
or assets, the Company, concurrently with any distributions made to
holders of its Common Stock, shall at its expense deliver or cause
to be delivered to the Holder the stock and other securities and
property (including cash, where applicable) receivable by the Holder
of this Warrant pursuant to Section 3.1, or, if the Holder shall so
instruct the Company, to a bank or trust company specified by the
Holder and having its principal office in New York, NY as trustee
for the Holder of this Warrant (the "Trustee").
3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full
force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such
reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and
shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of
the Company, whether or not such person shall have expressly assumed
the terms of this Warrant as provided in Section 4. In the event
this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then
the Company's securities and property (including cash, where
applicable) receivable by the Holders of the Warrant will be
delivered to Holder or the Trustee as contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares
of the Common Stock into a smaller number of shares of the Common Stock,
then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Exercise
Price by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price,
as so adjusted, shall be readjusted in the same manner upon the happening
of any
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successive event or events described herein in this Section 4. The number
of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be adjusted to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction
of which (a) the numerator is the Exercise Price that would otherwise (but
for the provisions of this Section 4) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or readjustment
in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause
its Chief Financial Officer or other appropriate designee to compute such
adjustment or readjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based, including a statement of (a) the consideration received or
receivable by the Company for any additional shares of Common Stock (or
Other Securities) issued or sold or deemed to have been issued or sold,
(b) the number of shares of Common Stock (or Other Securities) outstanding
or deemed to be outstanding, and (c) the Exercise Price and the number of
shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will
forthwith mail a copy of each such certificate to the Holder of this
Warrant and any Warrant agent of the Company (appointed pursuant to
Section 11 hereof).
6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will
at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
7. Company Redemption Option. Upon ten (10) business days prior notice to
Holder, the Company shall have the right to redeem any unexercised portion
of the Warrant in cash for a price of $0.10 per warrant if (i) the
Company's obligations to the Holder under the Note have been irrevocably
repaid in full; (ii) the closing price of the Company's Common Stock has
closed above three hundred percent (300%) of the then applicable Exercise
Price for twenty (20) consecutive trading days and (iii) the Company has
filed a registration statement on Form SB-2 with the Securities Exchange
Commission covering the shares of the Company's Common Stock to be issued
upon the full exercise of this Warrant, and such registration statement
has been declared and remains effective on the date of such notice.
8. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") in whole or
in part. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall
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include, without limitation, if requested in writing by the Company, the
provision of a legal opinion from the Transferor's counsel (at the
Company's expense) that such transfer is exempt from the registration
requirements of applicable securities laws, and with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to or
on the order of the Transferor thereof a new Warrant of like tenor, in the
name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor.
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Registration Rights. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set
forth in a Registration Rights Agreement entered into by the Company and
Holder dated as of even date of this Warrant.
11. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant
on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on such
exercise date, and (ii) the number of shares of Common Stock issuable upon
the exercise of this Warrant with respect to which the determination of
this proviso is being made on such exercise date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99%
of the outstanding shares of Common Stock of the Company on such date. For
the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. The limitation described in this Section 10 shall
automatically become null and void following notice to the Company upon
the occurrence and during the continuance of an Event of Default under the
Note made by the Company to the Holder dated the date hereof (as amended,
modified or supplemented from time to time, the "Note"), upon 75 days
prior notice to the Company, or upon receipt by the Holder of a Notice of
Redemption (as defined in the Note). Notwithstanding anything contained
herein to the contrary, the provisions of this Section 10 are irrevocable
and may not be waived by the Holder or the Company.
12. Warrant Agent. The Company may, by written notice to the Holder of this
Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
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13. Transfer on the Company's Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
14. Notices, Etc. All notices and other communications from the Company to the
Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or, until any such
Holder furnishes to the Company an address, then to, and at the address
of, the last Holder of this Warrant who has so furnished an address to the
Company.
15. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to principles
of conflicts of laws. Any action brought concerning the transactions
contemplated by this Warrant shall be brought only in the state courts of
New York or in the federal courts located in the state of New York;
provided, however, that the Holder may choose to waive this provision and
bring an action outside the State of New York. The individuals executing
this Warrant on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of this Warrant. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other
provision hereof. The Company acknowledges that legal counsel participated
in the preparation of this Warrant and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Warrant
to favor any party against the other party.
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SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
eLEC COMMUNICATIONS CORP.
WITNESS:
By: /s/ Paul H. Riss
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Name: Paul H. Riss
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/s/ Rita Kovalsky Title: Chief Executive Officer
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EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: eLEC Communications Corp.
75 South Broadway, Suite 302
White Plains, New York 10601
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase ________ shares of the
Common Stock covered by such Warrant.
The undersigned herewith makes payment of the full Exercise Price for such
shares at the price per share provided for in such Warrant, which is
$___________, in lawful money of the United States.
The undersigned requests that the certificates for such shares be issued
in the name of, and delivered to ___________________________ whose address is
___________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:
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(Signature must conform to name of
holder as specified on the face of the
Warrant)
Address:
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A-1
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of eLEC Communications Corp. into which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of eLEC Communications Corp. with full power of substitution in the premises.
Percentage Number
Transferees Address Transferred Transferred
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Dated:
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(Signature must conform to name of
holder as specified on the face of the
Warrant)
Address:
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SIGNED IN THE PRESENCE OF:
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(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
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(Name)
B-1