Exhibit 10.2
SECURED TERM NOTE
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FOR VALUE RECEIVED, ELEC COMMUNICATIONS CORP., a New York corporation
(the "Company"), 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, the sum of One Million Seven
Hundred Thousand Dollars ($1,700,000), together with any accrued and unpaid
interest hereon, on May 31, 2009 (the "Maturity Date") if not sooner paid. The
original principal amount of this Secured Term Note subject to amortizing
payments pursuant to Section 1.3 hereof is hereinafter referred to as the
"Amortizing Principal Amount" and the remaining original principal amount of
this Secured Term Note is hereinafter referred to as the "Non-Amortizing
Principal Amount." The Amortizing Principal Amount and the Non-Amortizing
Principal Amount are collectively referred to herein as the "Principal Amount".
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 by and between the Company and the Holder (as
amended, modified and/or supplemented from time to time, the "Purchase
Agreement").
The Principal Amount of this Secured Term Note that is contained in the
Restricted Account (as defined in the Restricted Account Agreement referred to
in the Purchase Agreement) on the date of the issuance of this Secured Term Note
is $1,050,000.
The following terms shall apply to this Secured Term Note (this "Note"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 3.2 and 4.10, interest
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payable on the outstanding Principal Amount of this Note shall accrue
at a rate per annum equal to the "prime rate" published in The Wall
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Street Journal from time to time (the "Prime Rate"), plus two percent
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(2.0%) (the "Contract Rate"). The Contract 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 the Prime
Rate. Interest shall be calculated on the basis of a 360 day year.
Interest on the Amortizing Principal Amount shall be payable monthly,
in arrears, commencing on July 1, 2006, on the first business day of
each consecutive calendar month thereafter through and including the
Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise. Accrued interest on the Non-Amortizing Principal Amount
shall be payable only on the Maturity Date or, in the event of the
redemption of all or any portion of the Non-Amortizing Principal
Amount, accrued interest on the amount so redeemed shall be paid on the
date of redemption or conversion, as the case may be.
1.2 Contract Rate Payments. The Contract Rate shall be
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calculated on the last business day of each calendar month hereafter
(other than for increases or decreases in the Prime Rate which shall be
calculated and become effective in accordance with the terms of Section
1.1) until the Maturity Date.
1.3 Principal Payments. Amortizing payments of the aggregate
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Principal Amount outstanding under this Note at any time and not
contained in the Restricted Account (as defined in the Restricted
Account Agreement) shall be made by the Company on June 1, 2007 and on
the first business day of each succeeding month thereafter through and
including the Maturity Date (each, an "Amortization Date"). Commencing
on the first Amortization Date, the Company shall make monthly payments
to the Holder on each Amortization Date, each such payment in the
amount of $27,083.33 (the "Monthly Principal Amount"), together with
any accrued and unpaid interest on such portion of the Amortizing
Principal Amount plus any and all other unpaid amounts which are then
owing under this Note, the Purchase Agreement and/or any other Related
Agreement (collectively, the "Monthly Amount"); provided that,
following a release of an amount of funds from the Restricted Account
(as defined in the Restricted Account Agreement) for the purposes set
forth in the Restricted Account Side Letter (each, a "Release Amount"),
each Monthly Principal Amount due on any Repayment Date following any
such release shall be increased by an amount equal to (x) such Release
Amount divided by (y) the sum of (I) the number of Amortization Dates
remaining until the Maturity Date plus (II) one (1). Any outstanding
Principal Amount together with any accrued and unpaid interest and any
and all other unpaid amounts which are then owing by the Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement shall be due and payable on the Maturity Date.
ARTICLE II
REDEMPTION
2.1 Optional Redemption of Amortizing Principal Amount. The
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Company may prepay outstanding Amortizing Principal Amount, in whole or
in part, (the "Optional Amortizing Redemption") by paying to the Holder
a sum of money equal to one hundred percent (100%) of the Amortizing
Principal Amount to be redeemed 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 other
Related Agreement (the "Amortizing Redemption Amount") outstanding on
the Amortizing Redemption Payment Date (as defined below). The Company
shall deliver to the Holder a written notice of redemption (the "Notice
of Amortizing Redemption") specifying the date for such Optional
Amortizing Redemption (the "Amortizing Redemption Payment Date"), which
date shall be seven (7) business days after the date of the Notice of
Amortizing Redemption (the "Redemption Period"). On the Amortizing
Redemption Payment Date, the Amortizing Redemption Amount must be paid
in good funds to the Holder. In the event the Company fails to pay the
Amortizing Redemption Amount on the Amortizing Redemption Payment Date
as set forth herein, then such Notice of Amortizing Redemption will be
null and void.
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2.2 Optional Redemption of Non-Amortizing Principal Amount.
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The Borrower will have the option of repaying the outstanding
Non-Amortizing Principal Amount ("Optional Non-Amortizing Redemption"),
in whole or in part, by paying the Holder a sum of money equal to one
hundred percent (100%) of the Non-Amortizing Principal Amount to be
redeemed, together with accrued but unpaid interest thereon (the
"Non-Amortizing Redemption Amount") on the Non-Amortizing Redemption
Date (as defined below). The Borrower shall deliver to the Holder a
written notice of redemption (the "Notice of Non-Amortizing
Redemption") specifying the date for such Optional Non-Amortizing
Redemption (the "Non-Amortizing Redemption Date"), which date shall be
not less than seven (7) business days after the date of the Notice of
Non-Amortizing Redemption (the "Non-Amortizing Redemption Period"). On
the Non-Amortizing Redemption Date, the Non-Amortizing Redemption
Amount shall be paid (i) in good funds to the Holder, (ii) by
furnishing the Holder written direction to notify the bank holding the
Restricted Account to release from the Restricted Account and deliver
to the Holder a sum of money equal to the Non-Amortizing Redemption
Amount, or (iii) if the amount on deposit in the Restricted Account is
less than the Non-Amortizing Redemption Amount, by furnishing the
Holder written direction to notify the bank holding the Restricted
Account to release all amounts on deposit in the Restricted Account to
the Holder and delivering to the Holder good funds in an amount equal
to the balance of the Non-Amortizing Redemption Amount.
ARTICLE III
EVENTS OF DEFAULT
3.1 Events of Default. The occurrence of any of the following
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events set forth in this Section 3.1 shall constitute an event of
default ("Event of Default") hereunder:
(a) Failure to Pay. The Company fails to pay when due
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any installment of principal, interest or other fees hereon in
accordance herewith, or the Company fails to pay any of the other
Obligations (under and as defined in the Master Security Agreement)
when due, 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 Company or any of its
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Subsidiaries breaches any covenant or any other term or condition of
this Note in any material respect and 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
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representation, warranty or statement made or furnished by the
Company or any of its Subsidiaries in this Note, the Purchase
Agreement or any other Related Agreement shall at any time be false
or misleading in any material respect on the date as of which made
or deemed made.
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(d) Default Under Other Agreements. The occurrence of
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any default (or similar term) in the observance or performance of
any other agreement or condition relating to any indebtedness or
contingent obligation of the Company or any of its Subsidiaries
beyond the period of grace (if any), the effect of which default is
to cause, or permit the holder or holders of such indebtedness or
beneficiary or beneficiaries of such contingent obligation to cause,
such indebtedness to become due prior to its stated maturity or such
contingent obligation to become payable;
(e) Bankruptcy. The Company or any of its Subsidiaries
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shall (i) apply for, consent to or suffer to exist the appointment
of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated
a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi)
acquiesce to, without challenge within ten (10) days of the filing
thereof, or failure to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
(f) Judgments. Attachments or levies in excess of
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$250,000 in the aggregate are made upon the Company or any of its
Subsidiary's assets or a judgment is rendered against the Company's
property involving a liability of more than $250,000 which shall not
have been vacated, discharged, stayed or bonded within thirty (30)
days from the entry thereof;
(g) Insolvency. The Company or any of its Subsidiaries
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shall admit in writing its inability, or be generally unable, to pay
its debts as they become due or cease operations of its present
business;
(h) Change of Control. A Change of Control (as defined
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below) shall occur with respect to the Company, unless Holder shall
have expressly consented to such Change of Control in writing. A
"Change of Control" shall mean any event or circumstance as a result
of which (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), other than the Holder, 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 Company
[(other than a "Person" or "group" that beneficially owns 35% or
more of such outstanding voting equity interests of the Company on
the date hereof)], (ii) the Board of Directors of the Company shall
cease to consist of a majority of the Company's board of directors
on the date hereof (or directors appointed by a majority of the
board of directors in effect immediately prior to such appointment)
or (iii) the Company or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets
to, any other person or entity;
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(i) Indictment; Proceedings. The indictment or
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threatened indictment of the Company or any of its Subsidiaries or
any executive officer of the Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened
commencement of criminal or civil proceeding against the Company or
any of its Subsidiaries or any executive officer of the Company or
any of its Subsidiaries pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any
of the property of the Company or any of its Subsidiaries;
(j) The Purchase Agreement and Related Agreements. (i)
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An Event of Default shall occur under and as defined in the Purchase
Agreement or any other Related Agreement, (ii) the Company or any of
its Subsidiaries shall breach any term or provision of the Purchase
Agreement or any other Related Agreement in any material respect and
such breach, if capable of cure, continues unremedied for a period
of fifteen (15) days after the occurrence thereof, (iii) the Company
or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under, the Purchase Agreement or any
Related Agreement, (iv) any proceeding shall be brought to challenge
the validity, binding effect of the Purchase Agreement or any
Related Agreement or (v) the Purchase Agreement or any Related
Agreement ceases to be a valid, binding and enforceable obligation
of the Company or any of its Subsidiaries (to the extent such
persons or entities are a party thereto);
(k) Stop Trade. An SEC stop trade order or Principal
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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 Company 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; or
3.2 Default Interest. Following the occurrence and during the
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continuance of an Event of Default, the Company shall pay additional
interest on this Note in an amount equal to one percent (1%) per month,
and all outstanding obligations under this Note, the Purchase Agreement
and each other Related Agreement, including unpaid interest, shall
continue to accrue interest at such additional interest rate from the
date of such Event of Default until the date such Event of Default is
cured or waived.
3.3 Default Payment. Following the occurrence and during the
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continuance of an Event of Default, the Holder, at its option, may
demand repayment in full of all obligations and liabilities owing by
Company 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 Company
under the Purchase Agreement and the other Related Agreements, to
require the Company to make a Default Payment ("Default Payment"). 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
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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
3.3.
ARTICLE IV
MISCELLANEOUS
4.1 Issuance of New Note. Upon any partial redemption of this
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Note, a new Note containing the same date and provisions of this Note
shall, at the request of the Holder, be issued by the Company to the
Holder for the principal balance of this Note and interest which shall
not have been converted or paid. Subject to the provisions of Article
III of this Note, the Company shall not pay any costs, fees or any
other consideration to the Holder for the production and issuance of a
new Note.
4.2 Cumulative Remedies. The remedies under this Note shall be
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cumulative.
4.3 Failure or Indulgence Not Waiver. No failure or delay on
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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.
4.4 Notices. Any notice herein required or permitted to be
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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 Company at the address provided in the Purchase Agreement
executed in connection herewith, with a copy to Eric M. Hellige, Esq.,
Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York
10022, 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 Company 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 Company pursuant to the Purchase
Agreement.
4.5 Amendment Provision. The term "Note" and all references
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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 as such successor
instrument may be amended or supplemented.
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4.6 Assignability. This Note shall be binding upon the Company
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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.
The Company may not assign any of its obligations under this Note
without the prior written consent of the Holder, any such purported
assignment without such consent being null and void.
4.7 Cost of Collection. In case of any Event of Default under
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this Note, the Company shall pay the Holder reasonable costs of
collection, including reasonable attorneys' fees.
4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
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(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF
NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE
HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE
OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE
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COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE
OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL
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BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF
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THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND THAT
SERVICE SO MADE SHALL BE
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DEEMED COMPLETED UPON THE COMPANY'S ACTUAL RECEIPT THEREOF.
(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY
A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER
AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS NOTE, ANY OTHER RELATED AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
4.9 Severability. In the event that any provision of this Note
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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.
4.10 Maximum Payments. Nothing contained herein shall be
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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 rate permitted by such law, any
payments in excess of such maximum rate shall be credited against
amounts owed by the Company to the Holder and thus refunded to the
Company.
4.11 Security Interest and Guarantee. The Holder has been
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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.
4.12 Construction. Each party acknowledges that its legal
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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.
4.13 Registered Obligation. This Note is intended to be a registered
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obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Company (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
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by the Company of this Note to the new holder or the issuance by the Company of
a new instrument to the new holder, or (ii) transfer through a book entry system
maintained by the Company (or its agent), within the meaning of Treasury
Regulation Section 1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Secured Term Note to be
signed in its name effective as of this 31st day of May, 2006.
eLEC Communications Corp.
By: /s/ Paul H. Riss
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Name: Paul H. Riss
Title: Chief Executive Officer
WITNESS:
/s/ Lauri Vertrees
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Lauri Vertrees
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