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 November 30, 2008 (the "Maturity Date") if not sooner paid.
This Secured Convertible Term Note (the "Note") is intended to be a
registered obligation within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i) and the Borrower (or its agent) shall register this Note (and
thereafter shall maintain such registration) as to both principal and any stated
interest. Notwithstanding any document, instrument or agreement relating to this
Note to the contrary, transfer of this Note (or the right to any payments of
principal or stated interest thereunder) may only be effected by (i) surrender
of this Note and either the reissuance by the Borrower of this Note to the new
holder or the issuance by the Borrower of a new instrument to the new holder, or
(ii) transfer through a book entry system maintained by the Borrower (or its
agent), within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
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 two percent (2%). 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 January 1, 2006 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 this 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, 2006 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 $33,333.33, 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
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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 $0.61 [which has been determined on the date of this
Note as an amount equal to 140% of the average closing price of the Common Stock
for the three (3) trading days immediately prior to the date of this Note].
(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 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
following the date of this Note, one hundred five percent (105%), 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
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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.
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 Conversion Shares limitation described
in this Section 3.2 shall automatically become null and void following notice to
the Borrower upon the occurrence and during the continuance of an Event of
Default, upon 75 days prior notice to the Borrower, or upon receipt by the
Holder of a Notice of Redemption. Notwithstanding anything contained herein to
the contrary, the provisions of this Section 3.2 are irrevocable and may not be
waived by the Holder or the Borrower.
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
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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 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. 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.
3.5 Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to this Note shall be subject to adjustment from time to time upon the
occurrence of certain events during the period that this conversion right
remains outstanding, as follows:
(a) Reclassification. 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 (i) immediately prior to or (ii) immediately after,
such reclassification or other change at the sole election of the Holder.
(b) 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 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
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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.
(c) Share Issuances. Subject to the provisions of this Section
3.6, 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 Sections 3.5(a) or (b) above; (ii) pursuant to options, warrants, or
other obligations to issue shares outstanding on the date hereof as disclosed to
the Holder in writing (including shares issuable under the circumstances set
forth on Schedule 4.2 to the Purchase Agreement); 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 pursuant to the formula below. 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 upon
the issuance of such securities.
If the Borrower issues any additional shares of Common Stock
for a consideration per share less than the then-applicable Fixed Conversion
Price pursuant to this Section 3.6 then, and thereafter successively upon each
such issue, the Fixed Conversion Price shall be adjusted by multiplying the then
applicable Fixed Conversion Price by the following fraction:
---------------------------------
A + B
---------------------------------
(A + B) + [((C - D) x B) / C]
---------------------------------
A = Total amount of shares convertible pursuant to this Note
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offer Price
(d) Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Section 3.6(c) above, the
following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction
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be made for any commissions, discounts or other expenses incurred by the
Borrower for any underwriting of the issue or otherwise in connection
therewith;
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Borrower
(irrespective of the accounting treatment thereof); and
(iii) upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration
received by the Borrower for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Borrower
upon the conversion or exchange thereof (the consideration in each case to
be determined in the same manner as provided in subsections (i) and (ii)
of this Section 3.6(d)).
3.5 Reservation of Shares. 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 Conversion Shares
upon the full conversion of this Note and the Warrant. The Borrower represents
that upon issuance, the Conversion 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 the Conversion Shares upon the
conversion of this Note.
3.6 Registration Rights. The Holder has been granted registration rights
with respect to the Conversion Shares as set forth in the Registration Rights
Agreement.
3.7 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 Events of Default. The occurrence of any of the following events set
forth in subparagraphs (a) through (i), inclusive, is an "Event of Default":
(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)
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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 Borrower 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
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
8
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 (including, without limitation,
indebtedness evidenced by the Securities Purchase Agreement, dated as of
February 8, 2005 between the Borrower and the Holder together with the
Related Agreements referred to therein), 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 Default Payment. Following the occurrence and during the continuance
of an Event of Default, the Holder, at its option, may demand repayment in full
of all obligations and liabilities
9
owing by Borrower to the Holder under this Note, the Purchase Agreement and/or
any other Related Agreement and/or may elect, in addition to all rights and
remedies of the Holder under the Purchase Agreement and the other Related
Agreements and all obligations and liabilities of the Borrower under the
Purchase Agreement and the other Related Agreements, to require the Borrower to
make a Default Payment ("Default Payment"). The Default Payment shall be 125% of
the outstanding principal amount of the Note, plus accrued but unpaid interest,
all other fees then remaining unpaid, and all other amounts payable hereunder.
The Default Payment shall be applied first to any fees due and payable to the
Holder pursuant to this Note, the Purchase Agreement, and/or the other Related
Agreements, then to accrued and unpaid interest due on this Note and then to the
outstanding principal balance of this Note. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 4.3.
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.
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
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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
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.
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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.]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 30th day of November 2005.
eLEC COMMUNICATIONS CORP.
By: /s/ Paul H. Riss
----------------
Name: Paul H. Riss
Title: Chief Executive Officer
WITNESS:
/s/ Rita Kovalsky
- ---------------------------
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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 November 30, 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:____________________________
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