exhibit104.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

EX-10 5 exhibit104.htm exhibit104.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

Exhibit 10.4

FUNDS ESCROW AGREEMENT

This Funds Escrow Agreement (this “Agreement”) is dated as of September 28, 2007

among eLEC Communications Corp., a New York corporation (the “Company”), LV

Administrative Services, Inc., as administrative and collateral agent for the Purchasers (as

defined in the Purchase Agreement referred to below) (the “Agent”), and Loeb & Loeb LLP (the

“Escrow Agent”).

W I T N E S S E T H:

WHEREAS, the Agent has advised the Escrow Agent that (a) the Company, the Agent

and the Purchasers have entered into a Securities Purchase Agreement (the “Purchase

Agreement”) for the sale by the Company to the Purchasers of secured term notes (the “Term

Notes”) and (b) the Company has issued to the Purchasers common stock purchase warrants (the

“Warrants”) in connection with the issuance of the Term Notes;

WHEREAS, the Company and the Agent wish to deliver to the Escrow Agent copies of

the Documents (as hereafter defined) and, following the satisfaction of all closing conditions

relating to the Documents, the Purchasers to deliver the Escrowed Payment (as hereafter

defined), in each case, to be held and released by Escrow Agent in accordance with the terms and

conditions of this Agreement; and

WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms

and conditions of this Agreement;

NOW THEREFORE, the parties agree as follows:

ARTICLE I

INTERPRETATION

1.1. Definitions. Whenever used in this Agreement, the following terms shall have the

meanings set forth below.

(a) “Agreement” means this Agreement, as amended, modified and/or

supplemented from time to time by written agreement among the parties hereto.

(b) “Closing Payments” means, collectively, (i) the closing payment to be

paid to Valens Capital Management, LLC, an investment manager of the Creditor Parties,

in the amount of $9,000 and (ii) the closing payment to be paid to Laurus Capital

Management, L.L.C., an investment manager of the Creditor Parties, in the amount of

$119,000.

(d) “Disbursement Letter” means that certain letter delivered to the Escrow

Agent by the Company, acceptable in form and substance to the Agent, setting forth wire

instructions and amounts to be funded at the Closing.

(e) “Documents” means copies of the Disbursement Letter, the Purchase

Agreement, the Term Notes and the Warrants.

(f) “Escrowed Payment” means $4,000,000.

1.2. Entire Agreement. This Agreement constitutes the entire agreement among the

parties hereto with respect to the arrangement with the Escrow Agent and supersedes all prior

agreements, understandings, negotiations and discussions of the parties, whether oral or written

with respect to the arrangement with the Escrow Agent. There are no warranties, representations

and other agreements made by the parties in connection with the arrangement with the Escrow

Agent except as specifically set forth in this Agreement.

1.3. Extended Meanings. In this Agreement words importing the singular number

include the plural and vice versa; words importing the masculine gender include the feminine

and neuter genders. The word “person” includes an individual, body corporate, partnership,

trustee or trust or unincorporated association, executor, administrator or legal representative.

1.4. Waivers and Amendments. This Agreement may be amended, modified,

superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived,

in each case only by a written instrument signed by all parties hereto, or, in the case of a waiver,

by the party waiving compliance. Except as expressly stated herein, no delay on the part of any

party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor

shall any waiver on the part of any party of any right, power or privilege hereunder preclude any

other or future exercise of any other right, power or privilege hereunder.

1.5. Headings. The division of this Agreement into articles, sections, subsections and

paragraphs and the insertion of headings are for convenience of reference only and shall not

affect the construction or interpretation of this Agreement.

1.6. Law Governing this Agreement; Consent to Jurisdiction. THIS AGREEMENT

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. With respect to any suit, action or proceeding relating to this Agreement or to the

transactions contemplated hereby (“Proceedings”), each party hereto irrevocably submits to the

exclusive jurisdiction of the courts of the County of New York, State of New York and the

United States District court located in the county of New York in the State of New York. Each

party hereto hereby irrevocably and unconditionally (a) waives trial by jury in any Proceeding

relating to this Agreement and for any related counterclaim and (b) waives any objection which

it may have at any time to the laying of venue of any Proceeding brought in any such court,

waives any claim that such Proceedings have been brought in an inconvenient forum and further

waives the right to object, with respect to such Proceedings, that such court does not have

jurisdiction over such party. As between the Company and the Agent, the prevailing party shall

be entitled to recover from the other party its reasonable attorneys’ fees and costs. In the event

that any provision of this Agreement is determined by a court of competent jurisdiction to be

invalid or unenforceable, then the remainder of this Agreement shall not be affected and shall

remain in full force and effect.

1.7. Construction. Each party acknowledges that its legal counsel participated in the

preparation of this Agreement 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 Agreement to favor any party against the other.

ARTICLE II

APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT

2.1. Appointment. The Company and the Agent hereby irrevocably designate and

appoint the Escrow Agent as their escrow agent for the purposes set forth herein, and the Escrow

Agent by its execution and delivery of this Agreement hereby accepts such appointment under

the terms and conditions set forth herein.

2.2. Copies of Documents to Escrow Agent. On or about the date hereof, the Agent

and the Company shall deliver to the Escrow Agent copies of the Documents executed by such

parties.

2.3. Delivery of Escrowed Payment to Escrow Agent. Following the satisfaction of all

closing conditions relating to the Documents (other than the funding of the Escrowed Payment),

the Purchasers shall deliver to the Escrow Agent the Escrowed Payment. At such time, the

Escrow Agent shall hold the Escrowed Payment as agent for the Company, subject to the terms

and conditions of this Agreement.

2.4. Intention to Create Escrow Over the Escrowed Payment. The Agent and the

Company intend that the Escrowed Payment shall be held in escrow by the Escrow Agent and

released from escrow by the Escrow Agent only in accordance with the terms and conditions of

this Agreement.

ARTICLE III

RELEASE OF ESCROW

3.1. Release of Escrow. Subject to the provisions of Section 4.2, the Escrow Agent

shall release the Escrowed Payment from escrow as follows:

(a) Upon receipt by the Escrow Agent of (i) oral instructions from David Grin

and/or Eugene Grin (each of whom is an officer of the Agent) consenting to the release of

the Escrowed Payment from escrow in accordance with the Disbursement Letter

following the Escrow Agent’s receipt of the Escrowed Payment, (ii) the Disbursement

Letter, and (iii) the Escrowed Payment, the Escrowed Payment shall promptly be

disbursed in accordance with the Disbursement Letter. The Disbursement Letter shall

include, without limitation, Escrow Agent’s authorization to retain from the Escrowed

Payment Escrow Agent’s fee for acting as Escrow Agent hereunder and the Closing

Payments for delivery to Valens Capital Management, LLC and Laurus Capital

Management, L.L.C. in accordance with the Disbursement Letter.

(b) Upon receipt by the Escrow Agent of a final and non-appealable

judgment, order, decree or award of a court of competent jurisdiction (a “Court Order”)

relating to the Escrowed Payment, the Escrow Agent shall remit the Escrowed Payment

in accordance with the Court Order. Any Court Order shall be accompanied by an

opinion of counsel for the party presenting the Court Order to the Escrow Agent (which

opinion shall be satisfactory to the Escrow Agent) to the effect that the court issuing the

Court Order is a court of competent jurisdiction and that the Court Order is final and non-

appealable.

3.2. Acknowledgement of Company and Agent; Disputes. The Company and the

Agent acknowledge that the only terms and conditions upon which the Escrowed Payment are to

be released from escrow are as set forth in Sections 3 and 4 of this Agreement. The Company

and the Agent reaffirm their agreement to abide by the terms and conditions of this Agreement

with respect to the release of the Escrowed Payment. Any dispute with respect to the release of

the Escrowed Payment shall be resolved pursuant to Section 4.2 or by written agreement

between the Company and Agent.

ARTICLE IV

CONCERNING THE ESCROW AGENT

4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent’s duties and

responsibilities shall be subject to the following terms and conditions:

(a) The Agent and the Company acknowledge and agree that the Escrow

Agent (i) shall not be required to inquire into whether the Agent, the Company or any

other party is entitled to receipt of any Document or all or any portion of the Escrowed

Payment; (ii) shall not be called upon to construe or review any Document or any other

document, instrument or agreement entered into in connection therewith; (iii) shall be

obligated only for the performance of such duties as are specifically assumed by the

Escrow Agent pursuant to this Agreement; (iv) may rely on and shall be protected in

acting or refraining from acting upon any written notice, instruction, instrument,

statement, request or document furnished to it hereunder and believed by the Escrow

Agent in good faith to be genuine and to have been signed or presented by the proper

person or party, without being required to determine the authenticity or correctness of any

fact stated therein or the propriety or validity or the service thereof; (v) may assume that

any person purporting to give notice or make any statement or execute any document in

connection with the provisions hereof has been duly authorized to do so; (vi) shall not be

responsible for the identity, authority or rights of any person, firm or company executing

or delivering or purporting to execute or deliver this Agreement or any Document or any

funds deposited hereunder or any endorsement thereon or assignment thereof; (vii) shall

not be under any duty to give the property held by Escrow Agent hereunder any greater

degree of care than Escrow Agent gives its own similar property; and (viii) may consult

counsel satisfactory to Escrow Agent (including, without limitation, Loeb & Loeb LLP or

such other counsel of Escrow Agent’s choosing), the opinion of such counsel to be full

and complete authorization and protection in respect of any action taken, suffered or

omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of

such counsel.

(b) The Agent and the Company acknowledge that the Escrow Agent is acting

solely as a stakeholder at their request and that the Escrow Agent shall not be liable for

any action taken by Escrow Agent in good faith and believed by Escrow Agent to be

authorized or within the rights or powers conferred upon Escrow Agent by this

Agreement. The Agent and the Company hereby, jointly and severally, indemnify and

hold harmless the Escrow Agent and any of Escrow Agent’s partners, employees, agents

and representatives from and against any and all actions taken or omitted to be taken by

Escrow Agent or any of them hereunder and any and all claims, losses, liabilities, costs,

damages and expenses suffered and/or incurred by the Escrow Agent arising in any

manner whatsoever out of the transactions contemplated by this Agreement and/or any

transaction related in any way hereto, including the fees of outside counsel and other

costs and expenses of defending itself against any claims, losses, liabilities, costs,

damages and expenses arising in any manner whatsoever out the transactions

contemplated by this Agreement and/or any transaction related in any way hereto, except

for such claims, losses, liabilities, costs, damages and expenses incurred by reason of the

Escrow Agent’s gross negligence or willful misconduct. The Escrow Agent shall owe a

duty only to the Agent and the Company under this Agreement and to no other person.

Escrow Agent for its reasonable out-of-pocket expenses (including counsel fees (which

counsel may be Loeb & Loeb LLP or such other counsel of the Escrow Agent’s

choosing) incurred in connection with the performance of its duties and responsibilities

hereunder, which shall not (subject to Section 4.1(b)) exceed $2,000.

(d) The Escrow Agent may at any time resign as Escrow Agent hereunder by

giving five (5) business days prior written notice of resignation to the Agent and the

Company. Prior to the effective date of resignation as specified in such notice, the Agent

and Company will issue to the Escrow Agent a joint instruction authorizing delivery of

the Documents and the Escrowed Payment to a substitute Escrow Agent selected by the

Agent and the Company. If no successor Escrow Agent is named by the Agent and the

Company, the Escrow Agent may apply to a court of competent jurisdiction in the State

of New York for appointment of a successor Escrow Agent, and deposit the Documents

and the Escrowed Payment with the clerk of any such court, and/or otherwise commence

an interpleader or similar action for a determination of where to deposit the same.

(e) The Escrow Agent does not have and will not have any interest in the

Documents and the Escrowed Payment, but is serving only as escrow agent, having only

possession thereof.

(f) The Escrow Agent shall not be liable for any action taken or omitted by it

in good faith and reasonably believed by it to be authorized hereby or within the rights or

powers conferred upon it hereunder, nor for action taken or omitted by it in good faith,

and in accordance with advice of counsel (which counsel may be Loeb & Loeb LLP or

such other counsel of the Escrow Agent’s choosing), and shall not be liable for any

mistake of fact or error of judgment or for any acts or omissions of any kind except to the

extent any such liability arose from its own willful misconduct or gross negligence.

(g) This Agreement sets forth exclusively the duties of the Escrow Agent with

respect to any and all matters pertinent thereto and no implied duties or obligations shall

be read into this Agreement.

(h) The Escrow Agent shall be permitted to act as counsel for the Creditor

Parties or the Company, as the case may be, in any dispute as to the disposition of the

Documents and the Escrowed Payment, in any other dispute between the Creditor Parties

and the Company, whether or not the Escrow Agent is then holding the Documents

and/or the Escrowed Payment and continues to act as the Escrow Agent hereunder.

(i) The provisions of this Section 4.1 shall survive the resignation of the

Escrow Agent or the termination of this Agreement.

4.2. Dispute Resolution; Judgments. Resolution of disputes arising under this

Agreement shall be subject to the following terms and conditions:

(a) If any dispute shall arise with respect to the delivery, ownership, right of

possession or disposition of the Documents and/or the Escrowed Payment, or if the

Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the

Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking

any action other than to continue to hold the Documents and the Escrowed Payment

pending receipt of a joint instruction from the Agent and the Company, (ii) commence an

interpleader or similar action, suit or proceeding for the resolution of any such dispute;

and/or (iii) deposit the Documents and the Escrowed Payment with any court of

competent jurisdiction in the State of New York, in which event the Escrow Agent shall

give written notice thereof to the Agent and the Company and shall thereupon be relieved

and discharged from all further obligations pursuant to this Agreement. The Escrow

Agent may, but shall be under no duty to, institute or defend any legal proceedings which

relate to the Documents and the Escrowed Payment. The Escrow Agent shall have the

right to retain counsel if it becomes involved in any disagreement, dispute or litigation on

account of this Agreement or otherwise determines that it is necessary to consult counsel

which such counsel may be Loeb & Loeb LLP or such other counsel of the Escrow

Agent’s choosing.

(b) The Escrow Agent is hereby expressly authorized to comply with and

obey any Court Order. In case the Escrow Agent obeys or complies with a Court Order,

the Escrow Agent shall not be liable to the Creditor Parties, the Company or any other

person, firm, company or entity by reason of such compliance.

ARTICLE V

GENERAL MATTERS

5.1. Termination. This escrow shall terminate upon disbursement of the Escrowed
Payment in accordance with the terms of this Agreement or earlier upon the agreement in writing
of the Agent and the Company or resignation of the Escrow Agent in accordance with the terms
hereof.

5.2. Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly given one (1) day
after being sent by telecopy (with copy delivered by overnight courier, regular or certified mail):

If to the Company, to:				eLEC Communications Corp.
				75 South Broadway, Suite 302
				White Plains, NY 10601
				Attention: Chief Financial Officer
				Facsimile: 914-682-0820

With a copy to:				Pryor Cashman LLP
				410 Park Avenue
				New York, NY 10022
				Attention: Eric M. Hellige, Esq.
				Facsimile: 212-798-6380

If to the Agent, to:				LV Administrative Services Corp.
				335 Madison Avenue, 10th Floor
				New York, New York 10017
				Attention: Portfolio Services
				Fax: 212-581-5037

If to the Escrow Agent, to:				Loeb & Loeb LLP
				345 Park Avenue
				New York, New York 10154
				Attention: Scott J. Giordano, Esq.
				Fax: (212) 407-4990

or to such other address as any of them shall give to the others by notice made pursuant to this
Section 5.2.

5.3. Interest. The Escrowed Payment shall not be held in an interest bearing account
nor will interest be payable in connection therewith.

5.4. Assignment; Binding Agreement. Neither this Agreement nor any right or
obligation hereunder shall be assignable by any party without the prior written consent of the
other parties hereto. This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns.


7

5.5. Invalidity. In the event that any one or more of the provisions contained herein,

or the application thereof in any circumstance, is held invalid, illegal, or unenforceable in any

respect for any reason, the validity, legality and enforceability of any such provision in every

other respect and of the remaining provisions contained herein shall not be in any way impaired

thereby, it being intended that all of the rights and privileges of the parties hereto shall be

enforceable to the fullest extent permitted by law.

5.6. Counterparts/Execution. This Agreement may be executed in any number of

counterparts and by different signatories hereto on separate counterparts, each of which, when so

executed, shall be deemed an original, but all such counterparts shall constitute but one and the

same agreement. This Agreement may be executed by facsimile or electronic transmission.

[Signature Page to Follow]

IN WITNESS WHEREOF, the parties hereto have executed this Funds Escrow

Agreement as of the date and year first above written.

COMPANY:

eLEC COMMUNICATIONS CORP.

By: /s/ Paul H. Riss

Name: Paul H. Riss

Title: Chief Executive Officer

AGENT:

LV ADMINISTRATIVE SERVICES CORP.,

as Agent

By: Valens Capital Management, LLC, its

investment manager

By: /s/ Pat Regan

Name: Pat Regan

Title: Senior Managing Director

ESCROW AGENT:

LOEB & LOEB LLP

By: /s/ Loeb & Loeb

Name:

Title:

SIGNATURE PAGE TO

FUNDS ESCROW AGREEMENT