SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of report: February 8, 2005
(Date of earliest event reported)
eLEC COMMUNICATIONS CORP.
(Exact name of Registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation)
0-4465 13-2511270
(Commission File No.) (I.R.S. Employer
Identification No.)
75 South Broadway, Suite 302
White Plains, New York 10601
(Address of principal executive offices; zip code)
(914) 682-0214
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13-4(e) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
Item 1.01. Entry into a Material Definitive Agreement.
On February 8, 2005, the Company consummated a private placement with
Laurus Master Fund, Ltd., a Cayman Islands corporation ("Laurus"), pursuant to
which the Company issued a secured convertible term note in the principal amount
of $2,000,000 (the "Note"), and the Company issued a common stock purchase
warrant (the "Warrant"), entitling Laurus to purchase up to 793,650 shares of
the Company's common stock, par value $.10 per share (the "Common Stock"). The
Note and the Warrant were sold to Laurus, an "accredited investor" (as such term
is defined in the rules promulgated under the Securities Act of 1933, as amended
(the "Act")), for a purchase price of $2,000,000.
The following describes certain of the material terms of the financing
transaction with Laurus. The description below is not a complete description of
the material terms of the transaction and is qualified in its entirety by
reference to the agreements entered into in connection with the transaction,
copies of which are included as exhibits to this Current Report on Form 8-K:
Note Maturity Date and Interest Rate. Absent earlier redemption by the
Company or earlier conversion by Laurus, as described below, the Note matures on
February 8, 2006; provided, however, that if the Company enters into a service
provider agreement with a wholesale telephone service provider satisfactory to
Laurus on or before August 1, 2005, the maturity date of the Note will be
extended to February 8, 2008. Interest will accrue on the unpaid principal and
interest on the Note at a rate per annum equal to the "prime rate" published in
The Wall Street Journal from time to time, plus three percent (3%).
Payment of Interest and Principal. Interest on the Note is payable monthly
on the first day of each month during the term of the Note, commencing March 1,
2005. Commencing May 1, 2005, the Company is required to make monthly principal
payments of $60,606.06 per month (together, with any accrued and unpaid interest
payable on such date, the "Monthly Payment Amount").
Note Conversion Rights. All or a portion of the outstanding principal and
interest due under the Note shall be converted into shares of Common Stock upon
satisfaction of certain conditions. The Note is initially convertible into
shares of Common Stock at a price of $0.63 per share (together with any
adjustments, the "Fixed Conversion Price"). The Fixed Conversion Price is
subject to anti-dilution protection adjustments, on a weighted average basis,
upon the Company's issuance of additional shares of Common Stock at a price that
is less than the then-current Fixed Conversion Price.
Laurus may, at any time, convert the outstanding indebtedness of the Note
into shares of Common Stock at the then-applicable Fixed Conversion Price.
Subject to the restrictions on conversion described below, Laurus shall be
required to convert the Monthly Payment Amount due on any date into shares of
Common Stock in the event (i) the average closing price of the Common Stock for
the five consecutive trading days preceding such due date is greater than 115%
of the Fixed Conversion Price, and (ii) the amount of such conversion does not
exceed 25% of the aggregate dollar trading volume of the Common Stock for the
22-day trading period immediately preceding the due date of a Monthly Payment
Amount.
In the event all or any portion of any Monthly Payment Amount is paid in
cash, the Company shall be required to pay Laurus an amount equal to 102% of
such Monthly Payment Amount.
Right to Redeem Note. The Company has the option of prepaying the
outstanding principal amount of the Note in whole or in part by paying an amount
equal to (i) if such payment is made during the first year following the date of
issuance of the Note, 120% of such principal amount; (ii) if such payment is
made during the second year following the date the of issuance of Note, 125% of
such principal amount; and (iii) if such payment is made during the third year
following the date of issuance of the Note, 130% of such principal amount. The
Company much give Laurus at least ten business days prior written notice of its
intention to redeem any portion of the principal amount of the Note.
Security for Note. The Note is secured by a blanket lien on substantially
all of the Company's assets pursuant to the terms of a security agreement
executed by the Company and its subsidiaries in favor of Laurus. In addition,
the Company has pledged its ownership interests in its subsidiaries pursuant to
a stock pledge agreement executed by the Company in favor of Laurus securing its
obligations under the Note. If an event of default occurs under the security
agreement, the stock pledge agreement or the Note, Laurus has the right to
accelerate payments under the Note and, in addition to any other remedies
available to it, to foreclose upon the assets securing the Note.
Warrant Terms. The Warrant grants Laurus the right to purchase for cash up
to 793,650 shares of Common Stock at an exercise price of (i) $0.72 per share
for the first 264,550 shares acquired; (ii) $0.79 per share for the next 264,550
shares acquired and (iii) $0.95 per share for the remaining shares acquired. The
Warrant expires on February 8, 2012
Restrictions on Conversion of Note and Exercise of Warrant. The Company
may pay amounts due under the Note in shares of Common Stock only so long as
there is an effective registration statement under Act covering the resale of
such shares or an exemption from such registration is available under Rule 144
of the Act. In addition, Laurus is not entitled to receive shares of Common
Stock upon exercise of the Warrant, upon payment of principal or interest on the
Note, or upon conversion of the Note if such receipt would cause Laurus to be
deemed to beneficially own in excess of 4.99% of the outstanding shares of
Common Stock on the date of issuance of such shares. Such provision may be
waived by Laurus upon 75 days prior written notice to the Company.
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Registration Rights. Pursuant to the terms of a Registration Rights
Agreement between Laurus and the Company, the Company is obligated to file a
registration statement on Form SB-2 or Form S-3 (or if such forms are not
available, another appropriate form) registering the resale of the shares of
Common Stock issuable upon payment or conversion of the Note and exercise of the
Warrant. The Company is required to file the registration statement on or prior
to March 25, 2005 and have the registration statement declared effective by the
Securities and Exchange Commission on or prior to June 8, 2005. If the
registration statement is not timely filed or declared effective within the
timeframe described, or if the registration is suspended other than as permitted
in the registration rights agreement, the Company will be obligated to pay
Laurus a fee equal to 1.5% of the outstanding principal amount of the Note for
each 30-day period (pro rated for partial periods) that such registration
obligations are not satisfied.
SECTION 2 - FINANCIAL INFORMATION
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Please see Item 1.01 of this Current Report on Form 8-K, which Item is
incorporated herein by reference, for a description of the terms of the sale of
the Note to Laurus.
SECTION 3 - SECURITIES AND TRADING MARKETS
Item 3.02. Unregistered Sales of Equity Securities.
(a) Please see Item 1.01 of this Current Report on Form 8-K, which Item is
incorporated herein by reference, for a description of the terms of the issuance
of the Note and the Warrant and their associated conversion or excersisability
features. The Note and the Warrant were issued in reliance on the exemption from
registration provided by Section 4(2) of the Act, on the basis that their
issuance did not involve a public offering, no underwriting fees or commissions
were paid by us in connection with such sale and Laurus represented to us that
it is an "accredited investor," as defined in the Act.
(b) On February 8, 2005, the Company paid to Source Capital Group, Inc.
("Source Capital"), in consideration of the introduction made by Source Capital
of Laurus to the Company, a finder's fee in the amount of $160,000 and issued to
or at the direction of Source Capital common stock purchase warrants (the
"Source Warrants") to purchase up to an aggregate of 253,968 shares of Common
Stock at an exercise price of $0.63 per share. The Source Warrants expire on
February 8, 2009. The Source Warrants were issued in reliance on the exemption
from registration provided by Section 4(2) of the Act, on the basis that their
issuance did not involve a public offering and satisfied the conditions of Rule
506 of the Act, and Source Capital represented to us that it is an "accredited
investor," as defined in the Act.
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SECTION 8 - OTHER EVENTS
Item 8.01 Other Events.
On February 9, 2005, the Company issued a press release announcing the
sale of the Note and the Warrant to Laurus. A copy of the press release is
attached hereto as Exhibit 99.1.
SECTION 9 - FINANCIAL STATEMENT AND EXHIBITS
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Number Documents
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10.1 Securities Purchase Agreement, dated as of February 8, 2005,
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.2 Secured Convertible Term Note, dated as of February 8, 2005,
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.3 Master Security Agreement, dated as of February 8, 2005, among
eLEC Communications Corp., New Rochelle Telephone Corp.,
Telecarrier Services, Inc., Vox Communications Corp., Line One,
Inc., AVI Holding Corp. and TelcoSoftware.com Corp. in favor of
Laurus Master Fund, Ltd.
10.4 Stock Pledge Agreement, dated as of February 8, 2005, executed
by eLEC Communications Corp. in favor of Laurus Master Fund,
Ltd.
10.5 Subsidiary Guaranty, dated as of February 8, 2005, executed by
New Rochelle Telephone Corp., Telecarrier Services, Inc., Vox
Communications Corp., Line One, Inc., AVI Holding Corp. and
TelcoSoftware.com Corp.
10.6 Registration Rights Agreement, dated as of February 8, 2005,
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.7 Common Stock Purchase Warrant, dated as of February 8, 2005,
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.8 Form of Common Stock Purchase Warrant, dated as of February 8,
2005, issued by eLEC Communications Corp. to or on the order of
Source Capital Group, Inc.
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99.1 Press release of eLEC Communications Corp. dated February 9,
2005.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
eLEC COMMUNICATIONS CORP.
Date: February 14, 2005 By: /s/ Paul H. Riss
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Paul H. Riss
Chief Executive Officer