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: May 31, 2006
(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.
Effective May 31, 2006 eLEC Communications Corp. (the "Company")
consummated a private placement with Laurus Master Fund, Ltd., a Cayman Islands
corporation ("Laurus"), pursuant to which the Company issued to Laurus a secured
term note in the principal amount of $1,700,000 (the "Note"), an amended and
restated secured term note that amended and restated the Company's secured
convertible term note in the original principal amount of $2,000,000 issued to
Laurus on February 8, 2005 ("Amended Note 1"), an amended and restated secured
term note that amended and restated the Company's secured convertible term note
in the original principal amount of $2,000,000 issued to Laurus on November 30,
2005 ("Amended Note 2") and a common stock purchase warrant (the "Warrant") that
entitles Laurus to purchase up to 3,359,856 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 $1,700,000.
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 as described below, the Note matures on May 31, 2009. Interest will
accrue on the unpaid principal amount of the Note at a rate per annum equal to
the "prime rate" published in The Wall Street Journal from time to time, plus
two percent (2%). Initially, interest will accrue only on $650,000 principal
amount of the Note (the "Amortizing Principal Amount"). The remaining $1,050,000
principal amount of the Note (the "Non-Amortizing Principal Amount") does not
begin to accrue interest until it is disbursed, with the written approval of
Laurus, from a restricted cash account in conjunction with the Company's
proposed acquisition of Liberty Bell Telecom, LLC.
Payment of Interest and Principal. Interest on the Amortizing Principal
Amount of the Note is payable monthly on the first day of each month during the
term of the Note, commencing on July 1, 2006. The Non-Amortizing Principal
Amount does not require interest payments until interest begins to accrue on
such amount. Commencing June 1, 2007, the Company is required to make monthly
principal payments of $27,083.33 on the Amortizing Principal Amount. In addition
to the $27,083.33 principal payment, the Company will also make an amortizing
principal payment for the Non-Amortizing Principal Amount if such amount has
been released from the restricted cash account. Any principal amount that
remains outstanding on May 31, 2009 shall be due and payable at that time.
Amended Note 1. Amended Note 1 amends and restates in its entirety (and
is given in substitution for and not in satisfaction of) the $2,000,000 Secured
Convertible Term Note made by the Company in favor of Laurus on February 8, 2005
note. The principal amendments to the February 8, 2005 note in Amended Note 1
are the elimination of the conversion features that permitted the conversion of
unpaid principal and interest on the February 8, 2005 note into Common Stock of
the Company and the reduction in the interest rate payable on the outstanding
principal amount of the February 8, 2005 note from the "prime rate" plus three
percent (3%) to the "prime rate" plus two percent (2%). The remaining principal
and interest payments on this note, which the Company continues to make in
monthly amounts of $60,606.06, is no longer convertible.
Amended Note 2. Amended Note 2 amends and restates in its entirety (and
is given in substitution for and not in satisfaction of) the $2,000,000 Secured
Convertible Term Note made by the Company in favor of Laurus on the November 30,
2005 note. The principal amendment to the November 30, 2005 note in Amended Note
2 is the elimination of the conversion features that permitted the conversion of
unpaid principal and interest on the November 30, 2005 note into Common Stock of
the Company. The remaining principal and interest payments on this note, which
the Company continues to make in monthly amounts of $33,333.33, is no longer
convertible.
Security for Notes. Each of the Note, Amended Note 1 and Amended Note 2
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 such
promissory notes. If an event of default occurs under the security agreement,
the stock pledge agreement or any promissory note payable to Laurus, Laurus has
the right to accelerate payments under such promissory notes and, in addition to
any other remedies available to it, to foreclose upon the assets securing such
promissory notes.
Warrant Terms. The Warrant grants Laurus the right to purchase for cash
up to 3,359,856 shares of Common Stock at an exercise price of $0.10 per share.
The Warrant expires on May 31, 2020. If the Company repays the Note in full
prior to May 31, 2007, and pays Laurus an additional amount of $100,000, the
Company has the right to reduce the number of shares originally issuable upon
exercise of the Warrant by 1,175,950 shares, such that the maximum number of
shares that may be purchased upon exercise of the Warrant shall be reduced to
2,183,906 shares. The Warrant does not contain registration rights and requires
Laurus to limit the sale on any trading day of any shares of Common Stock issued
upon the exercise of the Warrant to a maximum of ten percent (10%) of the
aggregate number of shares of Common Stock traded on such trading day.
Restrictions on Exercise of Warrant. Laurus is not entitled to receive
shares of Common Stock upon exercise of the Warrant 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
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issuance of such shares. Such provision may be waived by Laurus upon 75 days
prior written notice to the Company.
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 and the Warrant 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 Warrant and its associated 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 the
Company in connection with such sale and Laurus represented to the Company that
it is an "accredited investor," as defined in the Act.
(b) In connection with the transactions described in Item 1.01 of this
Current Report on Form 8-K, 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 $52,000 and issued to
or at the direction of Source Capital common stock purchase warrants (the
"Source Warrants") to purchase up to an aggregate of 148,571 shares of Common
Stock at an exercise price of $0.35 per share. The Source Warrants expire on May
31, 2010. 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 the Company that it is an
"accredited investor," as defined in the Act.
SECTION 8 - OTHER EVENTS
Item 8.01 Other Events.
On June 8, 2006, 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.
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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 May 31, 2006,
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.2 Secured Term Note, dated as of May 31, 2005, between eLEC
Communications Corp. and Laurus Master Fund, Ltd.
10.3 Reaffirmation and Ratification Agreement, dated as of May 31,
2006, executed by eLEC Communications Corp., New Rochelle
Telephone Corp., Telecarrier Services, Inc., Vox
Communications Corp., Line One, Inc., AVI Holding Corp. and
TelcoSoftware.com Corp.
10.4 Funds Escrow Agreement, dated as of May 31, 2006, between eLEC
Communications Corp., Loeb & Loeb LLP and Laurus Master Fund,
Ltd.
10.5 Restricted Account Agreement dated as of May 31, 2006 among
North Fork Bank, eLEC Communications Corp. and Laurus Master
Fund, Ltd.
10.6 Letter Agreement dated as of May 31, 2006 between eLEC
Communications Corp. and Laurus Master Fund, Ltd.
10.7 Common Stock Purchase Warrant, dated as of May 31, 2006
between eLEC Communications Corp. and Laurus Master Fund, Ltd.
10.8 Form of Common Stock Purchase Warrant issued by eLEC
Communications Corp. to or on the order of Source Capital
Group, Inc.
10.9 Amended and Restated Secured Term Note, dated as of May 31,
2006 between eLEC Communications Corp. and Laurus Master Fund,
Ltd. amending and restating the Secured Convertible Term Note
dated February 8, 2005.
10.10 Amended and Restated Secured Term note, dated as of May 31,
2006 between eLEC Communications Corp. and Laurus Master Fund,
Ltd. amending and restating the Secured Convertible Term Note
dated November 30, 2005.
99.1 Press release of eLEC Communications Corp. dated June 7, 2006.
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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: June 8, 2006 By: /s/ Paul H. Riss
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Paul H. Riss
Chief Executive Officer
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