SECURITIES AND EXCHANGE COMMISSION | ||||
Washington, D.C. 20549 | ||||
FORM 8-K | ||||
CURRENT REPORT | ||||
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
Date of report: October 4, 2007 | ||||
(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 (seeGeneral 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 October 4, 2007, eLEC Communications Corp. (the “Company”) consummated a | ||
private placement pursuant to which the Company issued to Calliope Capital Corporation, | ||
a subsidiary of Laurus Master Fund, Ltd ("Laurus") and Valens Offshore SPV II, Corp. | ||
(the “Investors”), secured term notes in the aggregate principal amount of $4,000,000 (the | ||
“Notes”). In connection with the private placement, the Company also amended and restated two | ||
existing secured term notes issued to Laurus in the principal amounts of $1,966,667 (“Amended | ||
Note 1”) and $1,428,000 (“Amended Note 2”), and issued common stock purchase warrants (the | ||
“Warrants”) that entitle the Investors to purchase in the aggregate up to 126,296,096 shares of the | ||
Company’s common stock, par value $.10 per share (the “Common Stock”). The Notes and the | ||
Warrants were sold to the Investors, each of which is an “accredited investor” (as such term is | ||
defined in the rules promulgated under the Securities Act of 1933, as amended (the “Act”)), for a | ||
total purchase price of $4,000,000. | ||
The following describes certain of the material terms of the financing transaction with the | ||
Investors and 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: | ||
Notes Maturity Date and Interest Rate. Absent earlier redemption with no redemption | ||
premium by the Company as described below, the Notes mature on September 30, 2010 (the | ||
“Maturity Date”). Interest will accrue on the unpaid principal and interest on the Notes at a rate | ||
per annum equal to the “prime rate” published inThe Wall Street Journalfrom time to time, plus | ||
two percent (2%), subject to a minimum per annum rate of nine and three-quarters percent (9.75%). | ||
Payment of Interest and Principal. Interest on the Notes is payable monthly on the first | ||
day of each month during the term of the Notes, commencing November 1, 2007. Payments for | ||
the first twelve months of interest have been deposited into an escrow account that is to be used | ||
solely for interest payments on the Notes. Principal payments on the Notes in the aggregate | ||
amount of $100,000 per month shall be made by the Company commencing on October 1, 2009 | ||
and on the first business day of each succeeding month thereafter through and including the | ||
Maturity Date. Any principal amount that remains outstanding on September 30, 2010 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) that certain $2,000,000 Secured Term Note made by | ||
the Company in favor of Laurus on November 30, 2005. The principal changes effected in | ||
Amended Note 1 were the elimination of monthly principal payments prior to maturity and the | ||
change in the maturity date from November 30, 2008 to September 30, 2010. Interest payments | ||
must still be paid monthly at a rate per annum equal to the “prime rate” published inThe Wall | ||
Street Journalfrom time to time, plus two percent (2%). |
Amended Note 2.Amended Note 2 amends and restates in its entirety (and is given in |
substitution for and not in satisfaction of) that certain $1,700,000 Secured Term Note made by |
the Company in favor of Laurus on May 31, 2006. The principal changes effected in Amended |
Note 2 were the elimination of monthly principal payments prior to maturity and the change in |
the maturity date from May 31, 2009 to September 30, 2010. Interest payments must still be paid |
monthly at a rate per annum equal to the “prime rate” published inThe Wall Street Journalfrom |
time to time, plus two percent (2%). |
Security for Notes. The Notes, Amended Note 1 and Amended Note 2 are secured by a |
blanket lien on substantially all of the Company’s assets pursuant to the terms of security |
agreements executed by the Company and its subsidiaries in favor of Laurus and a collateral |
agent for the Investors. In addition, the Company has pledged its ownership interests in its |
subsidiaries pursuant to stock pledge agreements executed by the Company in favor of Laurus |
and a collateral agent for the Investors securing their obligations under the Notes. If an event of |
default occurs under the security agreement, the stock pledge agreement or the promissory notes |
issued to Laurus or the Investors, the secured parties have the right to accelerate payments |
under such promissory notes and, in addition to any other remedies available to them, to |
foreclose upon the assets securing such promissory notes. |
Warrant Terms. Three sets of warrants that contain no registration requirements have been |
issued to the Investors (the “A Warrants,” “B Warrants” and “C Warrants”). The A Warrants grant to |
the Investors the right to purchase for cash up to 94,722,072 shares of Common Stock at an exercise |
price of $0.10 per share. The B Warrants grant the Investors the right to purchase for cash up to |
7,893,506 shares of Common Stock at an exercise price of $0.10 per share. The C Warrants grant the |
Investors the right to purchase for cash up to 23,680,518 shares of Common Stock at an exercise price |
of $0.10 per share. All of such warrants expire on September 30, 2017. If the Company repays the |
Notes, Amended Note 1 and Amended Note 2 in full prior to September 30, 2009, then the C Warrants |
shall be cancelled and terminated. If the Company’s operating cash flow for any two consecutive |
months during the thirteen (13) month period ending October 31, 2008 is greater than $0, then |
the B Warrants shall be cancelled and terminated. The Warrants do not contain registration |
rights and require the Investors to limit the selling of any Common Stock of the Company issued |
upon the exercise of the Warrants to a maximum of twenty-five percent (25%) of the aggregate |
number of shares of the Common Stock traded on such trading day. |
Restrictions on Exercise of Warrant.Neither Investor is entitled to receive shares of |
Common Stock upon exercise of the Warrants if such receipt would cause such Investor to |
beneficially own in excess of 9.99% of the outstanding shares of Common Stock on the date of |
exercise of such warrants. Such provision may be waived by the Investors upon 61 days prior |
written notice to the Company. |
Restricted Cash Agreement.In conjunction with the funding, the Company, North Fork |
Bank (the “Bank”) and LV Administrative Services, Inc., as agent (the “Agent”) for the |
Investors, have executed an agreement under which $2,664,468 from the proceeds of the Notes |
has been deposited into an interest-bearing account (the “Account”) at the Bank. No funds may |
be released from the Account except upon the written direction of the Agent. Following the |
receipt of a release notice from the Agent, the Bank has agreed to promptly disburse the amount |
of cash specified in such release notice to such account as the Agent shall determine in its sole |
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discretion. It is expected that the Agent will release such funds on a regular basis to provide cash | ||
to the Company for sales and marketing expenditures to grow its business, to cover its net | ||
operating losses and for working capital. Interest earned on funds deposited in the Account is for | ||
the benefit of 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 Notes to the Investors. | ||
SECTION 3 – SECURITIES AND TRADING MARKETS | ||
Item 3.02. | Unregistered Sales of Equity Securities. | |
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 the Warrants and the associated | ||
excersisability features. The Notes and the 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, no underwriting fees or commissions were paid by us in connection | ||
with such sale and the Investors represented to us that each was an “accredited investor,” as | ||
defined in the Act. |
SECTION 8 – OTHER EVENTS | ||
Item 8.01 | Other Events. | |
On October 10, 2007, the Company issued a press release announcing the sale of the | ||
Notes and the Warrants to the Investors. 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 | |||||
10.1 | Securities Purchase Agreement dated as of September 28, 2007, among | |||||
eLEC Communications Corp., LV Administrative Services, Inc., | ||||||
Calliope Capital Corporation and Valens Offshore SPV II, Corp. | ||||||
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10.2 | Secured Term Note, dated as of September 28, 2007, of eLEC | |||
Communications Corp. to Calliope Capital Corporation. | ||||
10.3 | Secured Term Note, dated as of September 28, 2007, of eLEC | |||
Communications Corp. to Valens Offshore SPV II, Corp. | ||||
10.4 | Funds Escrow Agreement, dated as of September 28, 2007, among eLEC | |||
Communications Corp., Loeb & Loeb LLP and LV Administrative | ||||
Services, Inc., as agent. | ||||
10.5 | Form of Common Stock Purchase Warrant, dated as of September 28, | |||
2007 of eLEC Communications Corp. | ||||
10.6 | Third Amended and Restated Secured Term Note, dated as of September | |||
28, 2007 of eLEC Communications Corp. to Laurus Master Fund, Ltd. | ||||
10.7 | Amended and Restated Secured Term Note, dated as of September 28, | |||
2007 of eLEC Communications Corp. to Laurus Master Fund, Ltd. | ||||
10.8 | Reaffirmation and Ratification Agreement, dated as of September 28, | |||
2007, executed eLEC Communications Corp., Vox Communications | ||||
Corp., Line One, Inc. AVI Holding Corp. and TelcoSoftware.com Corp. | ||||
10.9 | Subsidiary Guarantee dated as of September 28, 2007 by Vox | |||
Communications Corp., AVI Holding Corp., Telcosoftware.com Corp. and | ||||
Line One, Inc. | ||||
10.10 | Restricted Account Agreement, dated as of September 28, 2007 by and | |||
among North Fork Bank, eLEC Communications Corp. and LV | ||||
Administrative Services, Inc., as agent. | ||||
10.11 | Master Security Agreement dated as of September 28, 2007 among eLEC | |||
Communications Corp., Vox Communications Corp., Line One, Inc., AVI | ||||
Holding Corp., TelcoSoftware.com Corp. and LV Administrative Services | ||||
Inc., as agent. | ||||
10.12 | Stock Pledge Agreement dated as of September 28, 2007 among LV | |||
Administrative Services Inc., as agent, eLEC Communications Corp., Vox | ||||
Communications Corp., Line One, Inc., AVI Holding Corp. and | ||||
TelcoSoftware.com Corp. | ||||
99.1 | Press release of eLEC Communications Corp. dated October 10, 2007. | |||
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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: October 10, 2007 | By: | /s/ Paul H. Riss | ||
Paul H. Riss | ||||
Chief Executive Officer | ||||
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