Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE 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.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, eLEC COMMUNICATIONS CORP., a New York corporation (the
"Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or
its registered assigns or successors in interest, on order, the sum of Two
Million Dollars ($2,000,000), together with any accrued and unpaid interest
hereon, on February 8, 2006 (the "Maturity Date") if not sooner paid; provided,
however, if the Borrower shall enter into a service provider agreement in form
and substance satisfactory to the Holder (the "Service Provider Agreement") with
a service provider satisfactory to the Holder and such Service Provider
Agreement shall be effective on or before August 1, 2005, the Maturity Date
shall be February 8, 2008.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (as amended, modified or
supplemented from time to time, the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 (a) Interest Rate. Subject to Sections 1.1(b), 4.2 and 5.6 hereof,
interest payable on this Note shall accrue at a rate per annum (the "Interest
Rate") equal to the "prime rate" published in The Wall Street Journal from time
to time, plus three percent (3%). The prime rate shall be increased or decreased
as the case may be for each increase or decrease in the prime rate in an amount
equal to such increase or decrease in the prime rate; each change to be
effective as of the day of the change in such rate. Interest shall be (i)
calculated on the basis of a 360 day year, and (ii) payable monthly, in arrears,
commencing on March 1, 2005 and on the first business day of each consecutive
calendar month thereafter until the Maturity Date (and on the Maturity Date),
whether by acceleration or otherwise (each, a "Repayment Date").
1.1 (b) Interest Rate Adjustment. The Interest Rate shall be calculated on
the last
business day of each month hereafter until the Maturity Date (each a
"Determination Date") and shall be subject to adjustment as set forth herein. If
(i) the Borrower shall have registered the shares of the Borrower's common stock
issuable upon the conversion of the Note and the exercise of that certain
warrant issued to Holder on a registration statement declared effective by the
Securities and Exchange Commission (the "SEC"), and (ii) the average market
price (the "Market Price") of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market (as defined below) for the five (5) consecutive trading
days immediately preceding a Determination Date exceeds the then applicable
Fixed Conversion Price (as defined below) by at least twenty five percent (25%),
the Interest Rate for the succeeding calendar month shall automatically be
reduced by 200 basis points (200 b.p.) (2.0.%) for each incremental twenty five
percent (25%) increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything
to the contrary contained in herein), in no event shall the Interest Rate be
less than zero percent (0%).
1.2 Minimum Monthly Principal Payments. Amortizing payments of the
aggregate principal amount outstanding under this Note at any time (the
"Principal Amount") shall begin on May 1, 2005 and shall recur on the first
business day of each succeeding month thereafter until the Maturity Date (each,
an "Amortization Date"). Subject to Article 3 below, beginning on the first
Amortization Date, the Borrower shall make monthly payments to the Holder on
each Repayment Date, each in the amount of $60,606.06, together with any accrued
and unpaid interest to date on such portion of the Principal Amount plus any and
all other amounts which are then owing under this Note, the Purchase Agreement
or any other Related Agreement but have not been paid (collectively, the
"Monthly Amount"). Any Principal Amount that remains outstanding on the Maturity
Date shall be due and payable on the Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Monthly Amount in Cash or Common Stock. If the Monthly
Amount (or a portion thereof of such Monthly Amount if such portion of the
Monthly Amount would have been converted into shares of Common Stock but for
Section 3.2) is required to be paid in cash pursuant to Section 2.1(b), then the
Borrower shall pay the Holder an amount equal to 102% of the Monthly Amount due
and owing to the Holder on the Repayment Date in cash. If the Monthly Amount (or
a portion of such Monthly Amount if not all of the Monthly Amount may be
converted into shares of Common Stock pursuant to Section 3.2) is required to be
paid in shares of Common Stock pursuant to Section 2.1(b), the number of such
shares to be issued by the Borrower to the Holder on such Repayment Date (in
respect of such portion of the Monthly Amount converted into in shares of Common
Stock pursuant to Section 2.1(b)), shall be the number determined by dividing
(x) the portion of the Monthly Amount converted into shares of Common Stock, by
(y) the then applicable Fixed Conversion Price. For purposes hereof, the initial
"Fixed Conversion Price" means $0.63.
(b) Monthly Amount Conversion Guidelines. Subject to Sections 2.1(a), 2.2
and 3.2 hereof, the Holder shall convert into shares of Common Stock all or a
portion of the Monthly
2
Amount due on each Repayment Date according to the following guidelines (the
"Conversion Criteria"): (i) the average closing price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for the five (5) consecutive
trading days immediately preceding such Repayment Date shall be greater than or
equal to 115% of the Fixed Conversion Price and (ii) the amount of such
conversion does not exceed twenty five percent (25%) of the aggregate dollar
trading volume of the Common Stock for the twenty two (22) day trading period
immediately preceding the applicable Repayment Date. If the Conversion Criteria
are not met, the Holder shall convert only such part of the Monthly Amount that
meets the Conversion Criteria. Any part of the Monthly Amount due on a Repayment
Date that the Holder is not required to convert into shares of Common Stock due
to failure to meet the Conversion Criteria, shall be paid by the Borrower in
cash at the rate of 102% of the Monthly Amount otherwise due on such Repayment
Date, within three (3) business days of the applicable Repayment Date.
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, no amount outstanding hereunder or under the Purchase Agreement or the
other Related Agreements may be converted into Common Stock unless (i) either
(x) an effective current Registration Statement (as defined in the Registration
Rights Agreement) covering the shares of Common Stock to be issued in
satisfaction of such obligations exists or (y) an exemption from registration of
the Common Stock is available pursuant to Rule 144 of the Securities Act and
(ii) no Event of Default hereunder exists and is continuing, unless such Event
of Default is cured within any applicable cure period or is otherwise waived in
writing by the Holder in whole or in part at the Holder's option.
2.3 Optional Redemption in Cash. The Borrower will have the option of
prepaying this Note in whole or in part ("Optional Redemption") by paying to the
Holder a sum of money (the "Redemption Amount") equal to (x) if redeemed during
the first year following the date of this Note, one hundred twenty percent
(120%), (y) if redeemed during the second year following the date of this Note,
one hundred twenty percent (125%) and (z) if redeemed during the third year
following the date of this Note, one hundred twenty percent (130%), in each
case, of the principal amount of this Note together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, the Purchase Agreement or any Related Agreement
outstanding on the Redemption Payment Date (as defined below). The Borrower
shall deliver to the Holder a written notice of redemption (the "Notice of
Redemption") specifying the date for such Optional Redemption (the "Redemption
Payment Date"), which date shall be ten (10) business days after the date of the
Notice of Redemption (the "Redemption Period"), and the principal amount of this
Note to be redeemed. A Notice of Redemption shall not be effective with respect
to any portion of this Note for which the Holder has a pending election to
convert pursuant to Section 3.1, or for conversions initiated or made by the
Holder pursuant to Section 3.1 during the Redemption Period. The relevant
Redemption Amount shall be determined as if such Holder's conversion elections
had been completed immediately prior to the date of the Notice of Redemption. On
the Redemption Payment Date, the relevant Redemption Amount must be paid in good
funds to the Holder. In the event the Borrower fails to pay the relevant
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
3
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. The Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate outstanding
principal amount of this Note, together with interest and fees due hereon, into
shares of Common Stock subject to the terms and conditions set forth in this
Article III. The Holder may exercise such right by delivery to the Borrower of a
written notice of conversion not less than one (1) business day prior to the
date upon which such conversion shall occur. The shares of Common Stock to be
issued upon such conversion are herein referred to as the "Conversion Shares."
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between 4.99% of the outstanding shares
of Common Stock of the Borrower and the number of shares of Common Stock
beneficially owned by such Holder or issuable upon exercise of warrants held by
such Holder. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.2 upon 75 days prior notice to the
Borrower or without any notice requirement upon an Event of Default.
3.3 Mechanics of Holder's Conversion. (a) In the event that the Holder
elects to convert any amount outstanding under this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed and
completed notice of conversion (a "Notice of Conversion") to the Borrower, which
Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees being converted. On each Conversion
Date (as hereinafter defined) and in accordance with its Notice of Conversion,
the Holder shall make the appropriate reduction to the Principal Amount, accrued
interest and fees as entered in its records and shall provide written notice
thereof to the Borrower within two (2) business days after the Conversion Date.
Each date on which a Notice of Conversion is delivered or telecopied to the
Borrower in accordance with the provisions hereof shall be deemed a "Conversion
Date". A form of Notice of Conversion to be employed by the Holder is annexed
hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the Borrower
(i) will use its best efforts to issue instructions to the transfer agent
accompanied by an opinion of counsel, if so required by the Borrower's transfer
agent, within one (1) business day of the date of the delivery to Borrower of
the Notice of Conversion and (ii) shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting the
account of the Holder's designated broker with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within
three (3) business days after receipt by the Borrower of the Notice of
Conversion (the "Delivery Date"). In the case of the exercise of the conversion
rights set forth herein the conversion privilege shall be deemed to have been
exercised and the Conversion Shares issuable upon such conversion shall be
deemed to have been issued upon the date
4
of receipt by the Borrower of the Notice of Conversion. The Holder shall be
treated for all purposes as the record holder of such shares of Common Stock,
unless the Holder provides the Borrower written instructions to the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal and interest and fees to be converted, if any, by the then applicable
Fixed Conversion Price. In the event of any conversions of outstanding principal
amount under this Note in part pursuant to this Article III, such conversions
shall be deemed to constitute conversions of outstanding principal amount
applying to Monthly Amounts for the remaining Repayment Dates in chronological
order.
(b) The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion is subject to adjustment from time
to time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number
of shares of Common Stock, or if a dividend is paid on the Common Stock or
any preferred stock issued by the Borrower in shares of Common Stock, the
Fixed Conversion Price or the Conversion Price, as the case may be, shall
be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total
number of shares of Common Stock outstanding immediately prior to such
event.
B. During the period the conversion right exists, the Borrower
will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. The
Borrower agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are charged
with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.
C. Share Issuances. Subject to the provisions of this Section
3.4, if the Borrower shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common Stock
or securities convertible into Common Stock to a person other than the
Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to
options, warrants or other obligations to issue shares
5
outstanding on the date hereof as disclosed to Holder in writing; or (iii)
pursuant to options that may be issued under any employee incentive stock
option and/or any qualified stock option plan adopted by the Borrower) for
a consideration per share (the "Offer Price") less than the Fixed
Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset to such lower Offer Price at
the time of issuance of such securities. For purposes hereof, the issuance
of any security of the Borrower convertible into or exercisable or
exchangeable for Common Stock shall result in an adjustment to the Fixed
Conversion Price at the time of issuance of such securities.
D. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or
a different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the
result of such change with respect to the Common Stock immediately prior
to such reclassification or other change.
3.5 Issuance of New Note. Upon any partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at the written
request of the Holder, be issued by the Borrower to the Holder for the principal
balance of this Note and accrued interest which shall not have been converted or
paid. Subject to the provisions of Article IV, the Borrower will pay no costs,
fees or any other consideration to the Holder for the production and issuance of
a new Note.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period, the Holder may make all sums of principal, interest and
other fees then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable. In the event of such an acceleration, the amount
due and owing to the Holder shall be 125% of the outstanding principal amount of
the Note (plus accrued and unpaid interest and fees, if any) (the "Default
Payment"). If, with respect to any Event of Default capable of being cured at
the reasonable discretion of Holder, the Borrower cures such Event of Default,
such Event of Default will be deemed to no longer exist and any rights and
remedies of the Holder pertaining to such Event of Default will be of no further
force or effect. The Default Payment shall be applied first to any fees due and
payable to Holder pursuant to this Note or the Related Agreements, then to
accrued and unpaid interest due on this Note and then to outstanding principal
balance of this Note.
The occurrence of any of the following events set forth in
subparagraphs (a) through (i), inclusive, is an "Event of Default":
6
(a) Failure to Pay Principal, Interest or other Fees. The Borrower
fails to pay when due any installment of principal, interest or other fees
hereon in accordance herewith, and in any such case, such failure shall
continue for a period of three (3) days following the date upon which any
such payment was due.
(b) Breach of Covenant. The Borrower breaches any covenant or any
other term or condition of this Note or the Purchase Agreement in any
material respect, or the Borrower or any of its Subsidiaries breaches any
covenant or any other term or condition of any Related Agreement in any
material respect and, in any such case, such breach, if subject to cure,
continues for a period of fifteen (15) days after the occurrence thereof.
(c) Breach of Representations and Warranties. Any representation or
warranty made by the Borrower in this Note or the Purchase Agreement, or
by the Borrower or any of its Subsidiaries in any Related Agreement,
shall, in any such case, be false or misleading in any material respect on
the date that such representation or warranty was made or deemed made.
(d) Receiver or Trustee. The Borrower or any of its Subsidiaries
shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business; or such a receiver or
trustee shall otherwise be appointed.
(e) Judgments. Any money judgment, writ or similar final process
shall be entered or filed against the Borrower or any of its Subsidiaries
or any of their respective property or other assets for more than
$250,000, and shall remain unvacated, unbonded or unstayed for a period of
sixty (60) days.
(f) Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any
bankruptcy law or any law for the relief of debtors, voluntary or
involuntary, shall be instituted by or against the Borrower or any of its
Subsidiaries and, only in the case of an involuntary case commenced
against the Borrower or any of its Subsidiaries, the petition is not
controverted within ten (10) days, or is not dismissed within sixty (60)
days after commencement of the case, or the Company or any of its
Subsidiaries shall (i) become insolvent, cease operations, dissolve and/or
terminate its business existence, (ii) apply for, consent to, or suffer to
exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or other fiduciary of itself or of all or a
substantial part of its property, (iii) make a general assignment for the
benefit of creditors or (iv) take any action for the purpose of effecting
any of the foregoing.
(g) Stop Trade. An SEC stop trade order or Principal Market trading
7
suspension of the Common Stock shall be in effect for five (5) consecutive
days or five (5) days during a period of ten (10) consecutive days,
excluding in all cases a suspension of all trading on a Principal Market,
provided that the Borrower shall not have been able to cure such trading
suspension within thirty (30) days of the notice thereof or list the
Common Stock on another Principal Market within sixty (60) days of such
notice. The "Principal Market" for the Common Stock shall include the NASD
OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System,
American Stock Exchange, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the
Common Stock).
(h) Failure to Deliver Common Stock or Replacement Note. The
Borrower shall fail (i) to timely deliver Common Stock to the Holder
pursuant to and in the form required by this Note and Section 9 of the
Purchase Agreement, if such failure to timely deliver Common Stock shall
not be cured within two (2) business days or (ii) to deliver a replacement
Note to Holder within seven (7) business days following the required date
of such issuance pursuant to this Note, the Purchase Agreement or any
Related Agreement (to the extent required under such agreements).
(i) Default Under Related Agreements or Other Agreements. The
occurrence and continuance of any Event of Default (as defined in the
Purchase Agreement or any Related Agreement) or any event of default (or
similar term) under any other indebtedness, provided that it shall not be
an Event of Default under this Section 4.1(i) unless the aggregate
outstanding principal amount of all such other indebtedness as described
above is at least $50,000.00.
(j) Change in Control. (i) Any "Person" or "group" (as such terms
are defined in Sections 13(d) and 14(d) of the Exchange Act, as in effect
on the date hereof) is or becomes the "beneficial owner" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly,
of 35% or more on a fully diluted basis of the then outstanding voting
equity interest of the Borrower or (ii) the Board of Directors of the
Borrower shall cease to consist of a majority of the Board of Directors of
the Borrower on the date hereof (or directors appointed by a majority of
the Board of Directors in effect immediately prior to such appointment).
4.2 Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, the Borrower shall pay additional interest
on this Note in an amount equal to one percent (1%) per month, and all
outstanding obligations under this Note, including unpaid interest, shall
continue to accrue such additional interest from the date of such Event of
Default until the date such Event of Default is cured or waived.
4.3 Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
8
4.4 Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, with a copy to Pryor Cashman Sherman & Flynn LLP, 410 Park
Avenue, New York, New York 10022, Attention: Eric M. Hellige, Esq., facsimile
number (212) 798-6380 and to the Holder at the address provided in the Purchase
Agreement for such Holder, with a copy to John E. Tucker, Esq., 825 Third
Avenue, 14th Floor, New York, New York 10022, facsimile number (212) 541-4434,
or at such other address as the Borrower or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion shall
be deemed given when made to the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. This Note shall not be assigned by the
Borrower without the consent of the Holder.
5.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the State of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. 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 Note is
9
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
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.6 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Borrower and its Subsidiaries as
more fully described in the Master Security Agreement dated as of the date
hereof and (ii) pursuant to the Stock Pledge Agreement dated as of the date
hereof. The obligations of the Borrower under this Note are guaranteed by
certain Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated
as of the date hereof.
5.8 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note 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 Note to favor any party
against the other.
5.9 Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
5.10 Business Day. If any Repayment Date is a Saturday, Sunday or a day on
which banking institutions in New York City are not required to be open for
business (each, a "Legal Holiday"), payment of any Monthly Amount due on such
day may be made on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue in respect of such payment for the intervening period.
[Balance of page intentionally left blank; signature page follows.]
10
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this __ day of February, 2005. eLEC COMMUNICATIONS CORP.
By: /s/Paul H. Riss
----------------------------
Name: Paul H. Riss
--------------------------
Title: Chief Executive Officer
-------------------------
WITNESS:
/s/ Lauri J. Vertrees
- -------------------------------
11
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by eLEC
COMMUNICATIONS CORP. dated February 8, 2005 by delivery of Shares of Common
Stock of eLEC COMMUNICATIONS CORP. on and subject to the conditions set forth in
Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:________________________________
Name:______________________________
Title:_____________________________
12