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
<PAGE>
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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<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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 a
