As filed with the Securities and Exchange Commission on March 29, 2000
DEFINITIVE COPY
CONFIDENTIAL PURSUANT TO RULE 14a-6(e)(2), FOR THE USE OF THE COMMISSION ONLY
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
---------------
Filed by the Registrant |X| Filed by a Party other than the Registrant |_| Check
the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
|_| Confidential, for the use of the Commission only (as permitted by Rule
14a-6(e)(2))
---------------
eLEC COMMUNICATIONS CORP.
(Name of Registrant as Specified in Its Charter)
(Name of Person Filing Proxy Statement)
---------------
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-1l(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
eLEC COMMUNICATIONS CORP.
509 Westport Avenue
Norwalk, Connecticut 06851
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of eLEC Communications Corp.:
Notice is hereby given that the Annual Meeting of Shareholders of
eLEC Communications Corp., a New York corporation (the "Company"), will be held
at the offices of the Company's subsidiary, Essex Communications, Inc., at 48
South Service Road, Third Floor, Melville, New York 11747 on Wednesday, May 24,
2000 at 10:00 A.M., local time, for the following purposes:
1. To elect four (4) directors to the Board of Directors for
the ensuing year;
2. To approve and adopt a proposal to amend the Company's 1995
Stock Option Plan to increase the number of shares of Common
Stock that may be issued thereunder from 2,400,000 shares to
3,400,000 shares;
3. To amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock
from 20,000,000 shares to 50,000,000 shares; and
4. To consider and act upon such other business as may properly
come before the meeting.
Only shareholders of record at the close of business on March 27,
2000 will be entitled to vote at the Annual Meeting.
Whether or not you expect to attend the Annual Meeting, please
mark, sign and promptly return the enclosed proxy in the postpaid envelope
provided. If you receive more than one proxy because your shares are registered
in different names or addresses, each such proxy should be signed and returned
so that all your shares will be represented at the meeting.
Sincerely,
/s/Joel Dupre
-------------
Joel Dupre
Chairman of the Board
<PAGE>
eLEC COMMUNICATIONS CORP.
509 Westport Avenue
Norwalk, Connecticut 06851
PROXY STATEMENT
This Proxy Statement is furnished to shareholders of eLEC
Communications Corp., a New York corporation (the "Company"), in connection with
the solicitation, by order of the Board of Directors of the Company, of proxies
to be voted at the Annual Meeting of Shareholders to be held on Wednesday, May
24, 2000, at 10:00 A.M., New York City time, at the offices of the Company's
subsidiary, Essex Communications, Inc., at 48 South Service Road, Third Floor,
Melville, New York 11747 and at any adjournment or adjournments thereof (the
"Annual Meeting"). The accompanying proxy is being solicited on behalf of the
Board of Directors of the Company. This Proxy Statement and the enclosed proxy
card were first mailed to shareholders of the Company on or about April 5, 2000,
accompanied by the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1999, and the Company incorporates the contents of such
report herein by reference thereto.
At the Annual Meeting, the following matters will be considered
and voted upon:
1. Election of four (4) directors to the Board of Directors for
the ensuing year;
2. Approval and adoption of a proposal to amend the Company's
1995 Stock Option Plan to increase the number of shares of
Common Stock that may be issued thereunder from 2,400,000
shares to 3,400,000 shares;
3. An amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock
from 20,000,000 shares to 50,000,000 shares; and
4. Such other business as may properly come before the meeting.
Voting and Revocation of Proxies; Adjournment
All of the voting securities of the Company represented by valid
proxies, unless the shareholder otherwise specifies therein or unless revoked,
will be voted FOR the election of the persons nominated as directors, FOR the
other proposals set forth herein, and at the discretion of the proxy holders on
any other matters that may properly come before the Annual Meeting. The Board of
Directors does not know of any matters to be considered at the Annual Meeting
other than the election of directors and the other proposals set forth above.
If a shareholder has appropriately specified how a proxy is to be
voted, it will be voted accordingly. Any shareholder has the power to revoke
such shareholder's proxy at any time before it is voted. A proxy may be revoked
by delivery of a written statement to the Secretary of the Company stating that
the proxy is revoked, by a subsequent proxy executed by the person executing the
prior proxy and presented to the Annual Meeting, or by voting in person at the
Annual Meeting.
<PAGE>
A plurality of the votes cast at the Annual Meeting by the
shareholders entitled to vote in the election is required to elect the director
nominees, the approval of the holders of a majority of all outstanding shares of
Common Stock entitled to vote is required to approve the proposed increase in
the authorized capital stock of the Company, the approval of the holders of a
majority of the outstanding shares of Common Stock entitled to vote is required
to approve the proposed amendment to the Company's 1995 Stock Option Plan to
increase the number of shares of Common Stock that may be issued thereunder and
a majority of the votes cast by the shareholders entitled
2
<PAGE>
to vote at the meeting is required to take any other action. In the event that
sufficient votes in favor of any of the matters to come before the meeting are
not received by the date of the Annual Meeting, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the shares of Common Stock present in person or
by proxy at the Annual Meeting. The persons named as proxies will vote in favor
of any such proposed adjournment or adjournments.
Solicitation
The solicitation of proxies pursuant to this Proxy Statement will
be primarily by mail. In addition, certain directors, officers or other
employees of the Company may solicit proxies by telephone, telegraph, mail or
personal interviews, and arrangements may be made with banks, brokerage firms
and others to forward solicitation material to the beneficial owners of shares
held by them of record. No additional compensation will be paid to directors,
officers or other employees of the Company for such services. The total cost of
any such solicitation will be borne by the Company and will include
reimbursement of brokerage firms and other nominees.
Quorum and Voting Rights
The Board of Directors of the Company has fixed Monday, March 27,
2000 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting. Holders of
record of shares of Common Stock at the close of business on the Record Date
will be entitled to one vote for each share held. The presence, in person or by
proxy, of the holders of a majority of the outstanding voting securities
entitled to vote at the Annual Meeting is necessary to constitute a quorum at
the Annual Meeting.
Common Stock Owned by Directors, Officers and Other Beneficial Owners
The following table sets forth, as of March 15, 2000, the names,
addresses and number of shares of Common Stock beneficially owned by all persons
known to the management of the Company to be beneficial owners of more than 5%
of the outstanding shares of Common Stock, and the names and number of shares
beneficially owned by all directors of the Company and all executive officers
and directors of the Company as a group (except as indicated, each beneficial
owner listed exercises sole voting power and sole dispositive power over the
shares beneficially owned):
<TABLE>
<CAPTION>
Shares Beneficially Percent of Outstanding
Name and Address Owned Common Stock
- ---------------- ----- ------------
<S> <C> <C>
Joel Dupre.............................................. 1,084,668(1) 8.1%
c/o eLEC Communications Corp.
509 Westport Avenue
Norwalk, Connecticut 06851
Paul H. Riss............................................ 184,500(2) 1.4
Anthony Scalice......................................... 107,500(3) *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Eric M. Hellige......................................... 65,500(4) *
All directors and executive officers of the
Company as a group (four individuals)................. 1,442,168 10.5
</TABLE>
- ------------------
* Less than 1%.
3
<PAGE>
(1) Includes 310,000 shares of Common Stock subject to options which are
presently exercisable.
(2) Includes 179,500 shares of Common Stock subject to options that are
presently exercisable.
(3) Includes 50,000 shares of Common Stock subject to warrants that are
presently exercisable.
(4) Includes 32,500 shares of Common Stock subject to options and warrants that
are presently exercisable. Does not include 35,000 shares of Common Stock
subject to options that are presently exercisable held by Pryor Cashman
Sherman & Flynn LLP, of which Mr. Hellige is a member, as to which shares
Mr. Hellige disclaims beneficial ownership.
ELECTION OF DIRECTORS
(Proxy Item 1)
The Amended and Restated Bylaws of the Company provide that the
number of directors of the Company shall be at least three, except that where
all the shares are owned beneficially and of record by fewer than three
shareholders, the number of directors may be less than three but not less than
the number of shareholders. Subject to the foregoing limitation, such number may
be fixed from time to time by action of the Board of Directors or of the
shareholders, or, if the number of directors is not so fixed, the number shall
be five. In April 1998, the Board of Directors fixed the number of directors at
six. With the resignation of one director of the Company in connection with the
recent sale by the Company of substantially all of the assets of its luggage
division and the retirement of Barrie Sommerfield from the Board in November
1999, there are two vacancies on the Board of Directors. The Board has commenced
a search for qualified individuals to fill the existing vacancies on the Board.
In accordance with the By-Laws of the Company, the remaining vacancies will be
filled by the affirmative vote of a majority of the remaining directors who
shall serve until their respective successors are duly elected at next year's
annual meeting. The term of office of the directors is one year, expiring on the
date of the next annual meeting, or when their respective successors shall have
been elected and shall qualify, or upon their prior death, resignation or
removal.
Except where the authority to do so has been withheld, it is
intended that the persons named in the enclosed proxy will vote for the election
of the nominees to the Board of Directors listed below to serve until the date
of the next annual meeting and until their successors are duly elected and
qualified. Although the directors of the Company have no reason to believe that
the nominees will be unable or decline to serve, in the event that such a
contingency should arise, the accompanying proxy will be voted for a substitute
(or substitutes) designated by the Board of Directors.
The following table sets forth certain information regarding the
director nominees:
<TABLE>
<CAPTION>
Principal Occupation for Past Five Years and
Name Age Current Public Directorships or Trusteeships
- ---- --- --------------------------------------------
<S> <C> <C>
Joel Dupre 46 Director since 1990; Chairman of the Board since March 1995;
President of the Sirco Division of Interbrand L.L.C., a
manufacturer and distributor of apparel accessories and
luggage, from August 1999 to March 2000; Chief Executive
Officer of the Company from March 1995 to August 1999.
Eric M. Hellige 45 Director since 1995 and Secretary of the Company; Partner
for more than five years of Pryor Cashman Sherman & Flynn
LLP, counsel to the Company.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Paul H. Riss 44 Director since 1995, Chief Executive Officer of the Company
since August 1999 and Chief Financial Officer and Treasurer
of the Company since November 1996; Chief Financial Officer
of Sequins International Inc., a manufacturer of sequined
fabrics and trimmings, from June 1992 to November 1996.
Anthony Scalice 61 Director since 1998; President of Crescent Telephone
Company, Inc., a private payphone sales and servicing
company ("Crescent"), since September 1999; Vice President
of the Company, and President and Chief Executive Officer of
Essex Communications, Inc., a wholly-owned subsidiary of the
Company, from February 1998 to September 1999; President of
Pinnacle Telephone Consultants, Inc., a telecommunications
consulting firm specializing in the private payphone
industry, from June 1997 to February 1998; President of
Crescent from May 1995 to May 1997; Owner and President of
Pinnacle Telecommunications Consultants, Inc., a
telecommunications consulting firm specializing in the
private payphone industry from July 1991 to May 1995.
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities ("10%
Stockholders"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of common stock and other equity securities of the Company. Officers, directors
and 10% Stockholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such
reports received by the Company, the Company believes that for the fiscal year
1999, all Section 16(a) filing requirements applicable to its officers,
directors and 10% Stockholders were complied with, except for the late filing of
an Annual Statement of Beneficial Ownership of Securities on Form 5 by Paul H.
Riss, the Chief Executive Officer, Chief Financial Officer and Treasurer of the
Company.
Board Meetings and Committees; Management Matters
The Board of Directors held ten meetings during the fiscal year
ended November 30, 1999. Each director attended at least 75% of the Board and
Committee meetings of which he was a member during such time as he served as a
director. From time to time, the members of the Board of Directors act by
unanimous written consent pursuant to the laws of the State of New York. No fees
are paid to directors for attendance at meetings of the Board.
The Board of Directors has a Stock Option Committee, which met
one time during the fiscal year ended November 30, 1999 and currently consists
of Eric M. Hellige and Joel Dupre. The Stock Option Committee has exclusive
authority to grant options to the Company's executive officers under the 1995
Stock Option Plan. In October 1997, the Board of Directors established an Audit
Committee, which met one time during the fiscal year ended November 30, 1999.
The Audit Committee currently consists of Eric M. Hellige, Paul H. Riss and Joel
<PAGE>
Dupre. The Board of Directors does not have standing nominating or compensation
committees or, except in the case of the grant of stock options by the Stock
Option Committee, any committee performing similar functions.
The Directors recommend a vote FOR the election of each of the
director nominees.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years indicated,
all compensation awarded to, earned by or paid to Mr. Paul H. Riss, the Chief
Executive Officer of the Company, and to Mr. Joel Dupre, the Chairman of the
Board and former Chief Executive Officer of the Company (collectively referred
to as the "Named Executives"). No other executive officer of the Company
received more than $100,000 in compensation during fiscal 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary($) Bonus($) Compensation ($) Options(#)(3) Compensation
- ------------------ ---- --------- -------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre(1) 1999 $133,000 None None 150,000 None
Chairman of the 1998 223,323 None None 125,000 None
Board and former Chief 1997 240,000 None None 80,000 None
Executive Officer
Paul H. Riss(2) 1999 $121,492 None None 150,000 None
Chief Executive Officer, 1998 120,833 None None 50,000 None
Chief Financial Officer 1997 125,000 None None 20,000 None
And Treasurer
</TABLE>
- -----------------
(1) On August 11, 1999, Mr. Dupre resigned as the Chief Executive Officer of
the Company.
(2) Mr. Riss has been Chief Financial Officer and Treasurer of the Company
since November 1996 and was appointed Chief Executive Officer of the
Company in August 1999.
(3) Options have been adjusted to reflect a two-for-one stock split in May
1997.
Stock Option Grants
The following table sets forth individual grants of stock options and stock
appreciation rights ("SARs") made by the Company during fiscal 1999 to each of
the Named Executives.
6
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants In Last Fiscal Year
Potential Realizable
Value at Assumed Annual
Number of Percent of Total Rates of Stock Price
Securities Options/SARs Appreciation For Option
Underlying Granted to Exercise or Term(3)
Options/SARs Employees in Base Price Expiration -------
Name Granted (1) Fiscal Year(2) ($Share) Date 5%($) 10%($)
---- ----------- -------------- -------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre................. 150,000(4) 13.4% $1.485 9/10/04 $36,000 $103,000
Paul H. Riss............... 150,000(5) 13.4 1.350 9/10/04 56,000 124,000
</TABLE>
- ------------------
(1) No SARs were granted by the Company in fiscal 1999.
(2) In fiscal 1999, the Company granted to employees options to purchase an
aggregate of 1,121,500 shares.
(3) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates
of stock price appreciation are set by the Commission's executive
compensation disclosure rules and are not intended to forecast the future
appreciation of the Company's Common Stock.
(4) Options became excisable immediately.
(5) Options become exercisable on a quarterly basis only if the Company exceeds
certain revenue targets.
Stock Option Exercises
The following table contains information relating to the exercise of the
Company's stock options by the Named Executives in fiscal 1999, as well as the
number and value of their unexercised options as of November 30, 1999.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Money Options at Fiscal
Shares Year-End(#)(1) Year-End ($)(2)
Acquired on Value ------------------------------- -----------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre........... -- -- 310,000 -- $184,000 --
Paul H. Riss......... -- -- 179,500 125,000 $100,000 $109,000
</TABLE>
- -----------------
(1) The sum of the numbers under the Exercisable and Unexercisable column of
this heading represents each Named Executive's total outstanding options to
purchase shares of Common Stock.
(2) The dollar amounts shown under the Exercisable and Unexercisable columns of
the heading represent the number of exercisable and unexercisable Company
options, respectively, which were "In-the-Money" on November 30, 1999,
7
<PAGE>
multiplied by the difference between the closing price of the Common Stock
on November 30, 1999, which was $2.219 per share, and the exercise price of
the Company options. For purposes of these calculations, In-the-Money
options are those with an exercise price below $2.219 per share.
Repricing of Options
In March 1999, the Board of Directors approved the grant of all
remaining available employee stock options under the Company's 1995 Stock Option
Plan. In July 1999, the Company's Chairman, Joel Dupre, forfeited stock options
to purchase 125,000 shares of Common Stock that had been granted on January 29,
1998 and were exercisable at $3.13 per share, so that the Board of Directors
could grant options to other employees. In recognition of this forfeiture, on
September 10, 1999, the Board of Directors granted Mr. Dupre stock options to
purchase 150,000 shares of Common Stock, subject to shareholders' approval of
such grant, at a price of $1.49 per share, which represented an amount that was
10% higher than the market price at the time of the grant. The newly granted
options are considered "replacement options" and are therefore included on the
following table of repricing of options of executive officers.
The Board of Directors also considered and approved a proposal to
reprice certain stock options of employees of the Company's former luggage
division, in recognition of the effort they gave to the Company over many years
of service. In total stock options to purchase 67,000 shares of Common Stock
were repriced to $1.00 per share. The market price of the stock at the time of
the repricing was $1.31 per share.
The following table summarizes all repricings of options held of
record by the Named Executives during the last ten fiscal years.
<TABLE>
<CAPTION>
Number of Market Option Term
Securities Price Exercise Remaining at
Underlying of Stock at Price at Date of
Options Time of Time of New Repricing or
Repriced or Repricing or Repricing or Exercise Amendment
Name Date Amended Amendment($) Amendment($) Price($) (Years)
---- ---- ------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre.................. 9/10/99 125,000 $1.31 $3.13 $1.49 3.39
</TABLE>
Board of Directors Compensation
The Company does not currently compensate directors for service
on the Board of Directors.
Employee Retirement Plan
In June 1995, the Board of Directors of the Company determined to
discontinue benefit accruals under the Company's tax qualified Employee
Retirement Plan (the "Retirement Plan"). Pursuant to action taken by the Board
of Directors at such time, benefits ceased to accrue for all active participants
under the Retirement Plan on June 30, 1995. The Retirement Plan is administered
by the Board of Directors.
<PAGE>
Each of the Company's United States-based employees was eligible
to participate in the Retirement Plan. However, effective as of July 1, 1995 and
in connection with the Board's action, the Retirement Plan was amended to
provide that no additional eligible employees may participate in the Retirement
Plan and accrue benefits thereunder. The following table discloses estimated
annual benefits payable upon retirement in specified compensation and years of
service classification.
8
<PAGE>
<TABLE>
<CAPTION>
Projected Benefit at Retirement
Years of Service
- ----------------------------------------------------------------------------------------------------------------------
15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------------------
Salary(1)
---------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
25,000 4,625 6,250 7,313 9,375 10,938
30,000 5,625 7,500 9,375 11,250 13,125
35,000 6,563 8,750 10,938 13,125 15,313
40,000 7,500 10,000 12,500 15,000 17,500
50,000 9,980 12,604 15,625 18,750 21,875
75,000 17,105 22,104 26,948 31,986 37,249
100,000 24,730 31,604 38,873 46,236 53,874
125,000 31,355 41,104 50,698 60,406 70,499
150,000(2) 38,480 50,004 62,573 74,736 87,124
175,000 45,605 60,104 74,448 88,986 103,749
200,000 52,730 69,604 86,323 103,236 120,374(3)
</TABLE>
- -----------------
(1) The annual benefits shown in the Table are integrated with Social Security
benefits and there are no other offsets to benefits.
(2) In general, Section 401(a)(17) of the Internal Revenue Code provides that
for 1994, compensation used for computing benefits under a tax-qualified
employee pension plan cannot exceed $150,000 (as adjusted).
(3) Under current law, the maximum annual benefit payable under the Retirement
Plan cannot exceed $120,000 (as adjusted).
The Retirement Plan is funded by the Company on an actuarial
basis, and the Company contributes annually the minimum amount required to cover
the normal cost for current service and to fund supplemental costs, if any, from
the date each supplemental cost was incurred. Contributions were intended to
provide for benefits attributed to service to date, and also for those expected
to vest in the future. Based on the assumptions used in the actuarial valuation,
the Retirement Plan is fully funded.
The estimated credited years of service for each of the executive
officers named in the Summary Compensation Table is as follows: Joel Dupre (12
years) and Paul H. Riss (none). The frozen accrued monthly benefit for Mr. Dupre
is $1,678. $150,000 of Mr. Dupre's compensation shown in the Summary
Compensation Table was used to compute his projected benefit under the
Retirement Plan.
Benefits are computed on the basis of a straight-life annuity.
Benefits under the Retirement Plan are integrated with Social Security benefits.
The Retirement Plan will continue to comply with the applicable
sections of the Internal Revenue Code, the Employee Retirement Income Security
Act, and applicable Internal Revenue Services rules and regulations. In
accordance with the terms of the Retirement Plan, distributions will continue to
be made to retired and terminated employees who are participants in the
Retirement Plan.
9
<PAGE>
Comparison of Five-Year Cumulative Total Return
During the period December 1994 to November 30, 1999, the
Company's business activities primarily fell within the standard industrial
classification code 513 (apparel, piece goods and notions). Following the
disposition by the Company of substantially all of its luggage division in
August 1999, the Company's business activities primarily fall within the
standard industrial classification code 4813 (telephone communications).
The graph set forth below compares the cumulative total
shareholder return on the Common Stock for the period commencing December 1,
1994 and ending November 30, 1999 against the cumulative total return on the
NASDAQ Stock Market Index and a peer group comprised of those public companies
whose business activities fall within the same standard industrial
classification code as the Company during such period (513) and whose stock has
been publicly traded for at least five years. This graph assumes a $100
investment in the Common Stock and in each index on December 1, 1994 and that
all dividends paid by companies included in each index were reinvested.
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
--------------------------------FISCAL YEAR ENDING-------------------------
COMPANY/INDEX/MARKET 11/30/1994 11/30/1995 11/29/1996 11/28/1997 11/30/1998 11/30/1999
<S> <C> <C> <C> <C> <C> <C>
eLEC Communications Corp 100.00 72.00 116.00 208.00 62.00 144.00
Apparel, Piece Goods, Notions 100.00 156.53 174.74 127.50 144.21 132.13
NASDAQ Market Index 100.00 126.79 157.31 195.40 241.54 395.59
</TABLE>
10
<PAGE>
Report on Executive Compensation
The Board of Directors determines the compensation of the Chief
Executive Officer and sets policies for and reviews with the Chief Executive
Officer the compensation awarded to the other principal executives. The
compensation policies utilized by the Board of Directors are intended to enable
the Company to attract, retain and motivate executive officers to meet Company
goals using appropriate combinations of base salary and incentive compensation
in the form of stock options. Generally, compensation decisions are based on
contractual commitments, if any, as well as corporate performance, the level of
individual responsibility of the particular executive and individual
performance. During the fiscal year ended November 30, 1999, the Company's
executive officers consisted of Joel Dupre, Paul H. Riss, Eric Smith and Richard
Pyles. Messrs. Dupre, Smith and Pyles left the employ of the Company in
connection with the sale in August 1999 of substantially all of the assets of
the Company's luggage division.
Salaries. Base salaries for the Company's executive officers are
determined initially by evaluating the responsibilities of the position held and
the experience of the individual, and by reference to the competitive
marketplace for management talent, including a comparison of base salaries for
comparable positions at comparable companies within the Company's industry. The
Company believes that its salaries are below average as compared to its
competitors. Annual salary adjustments are determined by evaluating the
competitive marketplace, the performance of the Company, the performance of the
executive, particularly with respect to the ability to manage growth of the
Company, the length of the executive's service to the Company and any increased
responsibilities assumed by the executive.
Stock Incentives. Stock incentives may be granted under the 1995
Stock Option Plan, as amended, by the Board of Directors or the Compensation
Committee, in their sole discretion, to officers and employees of the Company to
reward outstanding performance during the prior fiscal year and as an incentive
to continued outstanding performance in future years. In evaluating the
performance of officers and employees other than the Chief Executive Officer,
the Compensation Committee consults with the Chief Executive Officer and others
in management, as applicable. In an effort to attract and retain highly
qualified officers and employees, stock incentives may also be granted by the
Compensation Committee, at its sole discretion, to newly-hired officers and
employees as an inducement to accept employment with the Company.
Compensation of Chief Executive Officer. Paul H. Riss, the Chief
Executive Officer of the Company, assumed the duties of Chief Executive Officer,
in addition to his duties as Chief Financial Officer and Treasurer, in September
1999 following the sale by the Company in August 1999 of substantially all of
the assets of the Company's luggage division. Mr. Riss' compensation for fiscal
1999 was largely based upon the terms of his employment agreement, which expired
in November 1999. In connection with the assumption by Mr. Riss of the
additional duties and responsibilities of Chief Executive Officer, in September
1999, the Board of Directors increased the base salary of Mr. Riss from $125,000
to $150,000 per annum.
In an effort to incent Mr. Riss to grow the telecommunications
business of the Company and to further align the compensation of Mr. Riss with
the interests of stockholders, in September 1999, the Board of Directors granted
incentive stock options to Mr. Riss that will vest only upon the Company's
achievement of certain revenue goals for its telecommunications and internet
division.
<PAGE>
Board of Directors Interlocks and Insider Participation in Compensation
Decisions
The following former and present members of the Board of
Directors were officers of the Company or a subsidiary of the Company during the
fiscal year ended November 30, 1999: Joel Dupre, Eric Smith, Eric M. Hellige and
Paul H. Riss. Such members participated in deliberations of the Company's Board
of Directors concerning executive officer compensation during the fiscal year
ended November 30, 1999.
11
<PAGE>
Certain Relationships and Related Transactions
In December 1998 and February 1999, Joel Dupre, a director of the
Company, lent the Company $110,000 and $225,000, respectively. Such loans were
for a term of two years, bore interest at the rate of 8% per annum and were
convertible into shares of Common Stock. In September 1999, Mr. Dupre assumed
corporate debt of approximately $153,000, and converted $204,000 of the
outstanding principal and accrued interest on such loans into 272,000 shares of
Common Stock. The outstanding balance owed to Mr. Dupre by the Company at March
15, 2000 was $20,000.
Paul H. Riss, a director, the Chief Executive Officer and Chief
Financial Officer of the Company, is a member of the Board of Directors of
Access One Communications Corp. ("Access One"), an affiliate of the Company. Mr.
Riss owns options to purchase 100,000 shares of common stock of Access One. The
Company's Chairman, Joel Dupre, owns 306,000 shares of common stock of Access
One, or approximately 2.42% of the outstanding shares, and owns options to
purchase an additional 150,000 shares. On March 27, 2000 Access One announced
that it has signed a definitive merger agreement pursuant to which it has agreed
to be acquired, subject to shareholder approval, by TALK.com Inc., an e-commerce
telecommunications provider. The Company also owns approximately 18 percent of
Access One. Mr. Riss is also a member of the Board of Directors of RiderPoint,
Inc., an affiliate of the Company. Mr. Riss owns options to purchase 100,000
shares of common stock of RiderPoint.
Eric M. Hellige, a director of the Company, is a member of Pryor
Cashman Sherman & Flynn LLP, counsel to the Company ("Pryor Cashman"). Fees paid
by the Company to Pryor Cashman for legal services rendered during the fiscal
year ended November 30, 1999 did not exceed 5% of such firm's or the Company's
revenues. Mr. Hellige owns 25,000 shares of common stock of Access One, an
affiliate of the Company.
The Company believes that all purchases from or transactions with
affiliated parties were on terms and at prices substantially similar to those
available from unaffiliated third parties.
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<PAGE>
AMENDMENT TO THE 1995 STOCK OPTION PLAN
(Proxy Item 2)
Proposed Amendment
On March 3, 2000, the Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's 1995 Stock Option Plan, as
amended (the "Option Plan") to increase the number of shares of Common Stock
that may be issued thereunder from 2,400,000 shares to 3,400,000 shares. At
March 15, 2000, options with respect to an aggregate of 1,476,000 shares of
Common Stock were outstanding and approximately 245,000 shares were available
for grant under the Option Plan.
The Option Plan
The purpose of the Option Plan, which was adopted in June 1995,
is to enable the Company to compete successfully in attracting, motivating and
retaining directors and key employees with outstanding abilities by making it
possible for them to purchase shares of Common Stock on terms that will give
them a more direct and continuing interest in the future success of the
Company's business. The Option Plan is intended to provide a method whereby
directors and key employees and others who are making and are expected to
continue to make substantial contributions to the successful growth and
development of the Company may be offered additional incentives thereby
advancing the interests of the Company and its shareholders. The Board believes
that the Option Plan increases the Company's flexibility in furthering such
purposes.
Terms of the Option Plan
The Option Plan provides for the grant of incentive stock options
("ISO"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options, tandem stock appreciation
rights and stock appreciation rights exercisable in conjunction with stock
options. The purchase price of shares of Common Stock covered by an ISO must be
at least 100% of the fair market value of such shares of Common Stock on the
date the option is granted and, for all options is payable in either cash or
shares of Common Stock, or any combination thereof. No ISO will be granted to
any employee who immediately after the grant would own more than 10% of the
total combined voting power or value of all classes of capital stock of the
Company, or any subsidiary of the Company, unless the option price is at least
110% of the fair market value of the shares of Common Stock subject to the
option, and the option on the date of grant shall expire not later than five
years from the date the option is granted. In addition, the aggregate fair
market value of the shares of Common Stock, determined at the date of grant,
with respect to which ISOs are exercisable for the first time by an optionee
during any calendar year, shall not exceed $100,000. No ISO may be granted under
the Option Plan to any director who is not an employee of the Company and no
option or stock appreciation right may be granted under the Option Plan after
July 1, 2005.
Administration of the Option Plan
The Option Plan is administered by the Board of Directors of the
Company. The Board will have full authority, in its sole discretion, to
interpret the Option Plan, to establish from time to time regulations for the
administration of the Option Plan and to determine the directors and key
<PAGE>
employees to whom options will be granted and the terms of the options. The term
"employees," as defined under the Option Plan, encompasses employees, including
officers, regularly employed on a salary basis by the Company or any subsidiary
of the Company. The Board may delegate all or part of its authority to
administer the Option Plan to a committee appointed by the Board and consisting
of not less than two members thereof. No director may serve as a member of such
committee unless such director is a "disinterested person" within the meaning of
Rule 16(b)(3) ("Rule 16(b)(3)") under the Securities Exchange Act of 1934, as
amended (the "1934 Act").
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<PAGE>
Exercise of Options and Rights
Under the Option Plan, an option or stock appreciation right may
be exercised in such installments as are specified in the terms of its grant,
but not sooner than one year from the date of its grant, unless otherwise
provided at the time of its grant. Each option or stock appreciation right shall
expire ten years after the date granted (or five years in the case of an ISO
granted to any person who owns more than 10% of the Company's voting stock).
Tandem stock appreciation rights and stock appreciation rights
granted in conjunction with options may be exercised only to the extent, during
the period and on the conditions that their related options are exercisable and
may not be exercised after the expiration or termination of their related
options.
Options and stock appreciation rights are not transferable by the
option holder otherwise than by will or the laws of descent and distribution and
are exercisable during the option holder's lifetime only by such person.
If an option holder ceases to be continuously employed by the
Company or any of its subsidiaries for any reason other than death or for cause,
such holder may exercise the option and/or any stock appreciation rights at any
time within three months after such termination (provided it shall not have
first expired by its own terms), but only to the extent that such holder was
entitled to do so at the date employment terminated. If an option holder dies
while employed by the Company or within a period of three months after
termination of employment for any reason other than cause, the option and/or any
stock appreciation right may be exercised at any time within one year after the
date of such death (provided it shall not have first expired by its own terms),
but only to the extent the decedent was entitled to do so at the date of death.
If an option holder's employment is terminated for cause as determined by the
Board, the option and/or any stock appreciation right terminates concurrently
with the termination of such employment.
Amendment of the Option Plan
The Board of Directors may alter, amend or terminate the Option
Plan at any time with respect to shares of Common Stock not subject at such time
to options or stock appreciation rights, but such amendments shall not adversely
affect the rights of any person under any option or stock appreciation right
theretofore granted without such person's consent. The Board may not, without
the approval of the shareholders of the Company, increase the aggregate number
of shares of Common Stock to be issued pursuant to options or stock appreciation
rights granted (except as permitted by section 3 of the Option Plan); decrease
the minimum option price; increase the maximum amount a holder of a stock
appreciation right may receive upon its exercise; extend the option period with
respect to any option or stock appreciation right; permit the granting of
options or stock appreciation rights to anyone other than as provided in the
Option Plan; or provide for the administration of the Option Plan by the Board
or a committee appointed by the Board unless such administration meets the
requirements for exemption provided by Rule 16b-3.
Federal Income Tax Consequences
The Company has been advised that ISOs, non-qualified stock
options and stock appreciation rights granted under the Option Plan are subject
to the following Federal income tax treatment:
<PAGE>
Incentive Stock Options. An employee will recognize no taxable
income and no deduction is available to the Company upon either the grant or
exercise of an ISO.
In general, if Common Stock acquired upon the exercise of an ISO
is subsequently sold, the realized gain or loss, if any, will be measured by the
difference between the exercise price of the option and the amount realized on
the sale. Any such gain or loss on the sale will generally be treated as
long-term capital gain or loss if the holding period requirements have been
satisfied. The holding period requirements will be satisfied if the shares are
not sold within two years of the date of grant of the option pursuant to which
such shares were transferred or within the one-year period beginning on the day
of the transfer of such shares pursuant to the exercise of the option.
14
<PAGE>
If Common Stock acquired upon the exercise of an ISO is
subsequently sold and the holding period requirements noted above are not
satisfied (a "disqualifying disposition"), the employee will recognize ordinary
income for the year in which the disqualifying disposition occurs in an amount
equal to the excess of the fair market value of such Common Stock on the date
the option was exercised (or, if lower, the amount realized on the sale) over
the exercise price of the option. Any additional gain recognized on the sale
will be a capital gain, and will be long-term or short-term depending upon
whether the sale occurs more than one year after the date of exercise. The
amount recognized by the employee as ordinary income will be treated as
compensation and the Company will receive a corresponding deduction. The Company
may be required to withhold additional taxes from the wages of the employee with
respect to the amount of ordinary income taxable to the employee.
The excess of the fair market value of the Common Stock acquired
by exercise of an ISO (determined on the date of exercise) over the exercise
price is in effect an item of tax preference which must be taken into account
for purposes of calculating the "alternative minimum tax" of Section 55 of the
Code. If a disqualifying disposition is made of such Common Stock, however,
during the same year acquired, there will be no tax preference item for
alternative minimum tax purposes.
Non-qualified Stock Options and Stock Appreciation Rights.
Non-qualified stock options granted under the Option Plan do not result in any
income to the optionee at the time of grant or any tax deduction to the Company
at that time. Except as stated below with respect to officers, upon exercise of
a non-qualified option, the excess of the fair market value of the Common Stock
acquired (determined at the time of exercise) over its cost to the optionee (i)
is taxable to the optionee as ordinary income and (ii) is deductible by the
Company, subject to general rules relating to the reasonableness of
compensation; and the optionee's tax basis for the shares is the fair market
value at the time of exercise.
Gain or loss recognized upon disposition of shares acquired
pursuant to the exercise of a non-qualified option will generally be reportable
as short or long-term gain or loss depending on the length of time the shares
were held by the optionee as of the date of disposition.
The exercise of a stock appreciation right by an employee results
in taxable compensation to such employee in the amount of the cash received plus
an amount equal to the fair market value (determined at the time of exercise) of
any shares received.
The Company believes that compensation received by participants
on the exercise of nonqualified stock options or the disposition of shares
acquired upon the exercise of ISOs will be considered performance-based
compensation and thus not subject to the $1,000,000 limit of Section 162(m) of
the Code.
Vote Required
The proposed amendment to the Option Plan will become effective
only upon approval by the holders of a majority of the outstanding shares of
Common Stock.
The Board of Directors recommends a vote FOR approval of the
proposed amendment to the Option Plan.
15
<PAGE>
INCREASE THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
(Proxy Item #3)
The Company's Board of Directors has proposed an amendment to
Article Fourth of the Company's Certificate of Incorporation. This amendment
would increase the Company's authorized Common Stock from 20,000,000 shares to
50,000,000 shares. On March 15, 2000, 13,156,414 shares of the Company's Common
Stock were outstanding and an aggregate of 2,052,500 shares of Common Stock were
reserved for issuance under the Company's 1995 Stock Option Plan and the
Company's 1996 Restricted Stock Award Plan. In addition, 1,443,889 shares of
Common Stock were reserved for issuance upon the exercise of outstanding
warrants and contingent stock. Approval of the proposed increase would give the
Company approximately 33,347,000 shares of Common Stock for future issuance.
The Company also has 1,000,000 authorized shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), of which 116 shares
were outstanding at March 15, 2000. No increase in the authorized number of
shares of Preferred Stock is requested.
The Company has no specific plans for the issuance of additional
shares of Common Stock. However, the Board of Directors believes that the
proposed increase is desirable so that, as the need may arise, the Company will
have more financial flexibility and be able to issue additional shares of Common
Stock without the expense and delay associated with a special shareholders'
meeting, except where shareholder approval is required by applicable law or
stock exchange regulations. The additional shares of Common Stock might be used,
for example, in connection with an expansion of the Company's business through
investments or acquisitions, sold in a financing transaction or issued under an
employee stock option, savings, or other benefit plan or in a stock split or
dividend to shareholders. The Board does not intent to issue any shares except
on terms that it considers to be in the best interests of the Company and its
shareholders.
The additional shares of Common stock for which authorization is
sought would be a part of the existing class of Common Stock. If and when
issued, these shares would have the same rights and privileges as the shares of
Common Stock presently outstanding. No holder of Common Stock has any preemptive
rights to acquire additional shares of Common Stock.
The issuance of additional shares could reduce existing
shareholders percentage ownership and voting power in the Company and, depending
on the transaction in which they are issued, could affect the per share book
value or other per share financial measures.
Although the proposed amendment is not intended to be an
anti-takeover measure, shareholders should note that, under certain
circumstances, the additional shares of Common Stock could be used to make any
attempt to gain control to the Company or the Board of Directors more difficult
or time-consuming. Any of the additional shares of Common Stock could be
privately placed with purchasers who might side with the Board in opposing a
hostile takeover bid. It is possible that such shares could be sold with or
without an option, on the part of the Company, to repurchase such shares, or on
the part of the purchaser, to put such shares to the Company.
The amendment to increase the authorized Common Stock might be
considered to have the effect of discouraging an attempt by another person or
entity, through the acquisition of a substantial number of shares of the
Company's capital stock, to acquire control of the Company, since the issuance
of the additional shares of Common Stock would dilute the stock ownership of a
<PAGE>
person or entity seeking to obtain control and to increase the cost to a person
or entity seeking to acquire a majority of the voting power of the Company. If
so used, the effect of the additional authorized shares of Common Stock might be
(i) to deprive shareholders of an opportunity to sell their stock at a
temporarily higher price as a result of a tender offer or the purchase of shares
by a person or entity seeking to obtain control of the Company or (ii) to assist
incumbent management in retaining its present position.
Text of Proposed Amendment
The first paragraph of Article Fourth of the Company's
Certificate of Incorporation is proposed to be amended to read as follows:
16
<PAGE>
"Fourth: A. Authorized Shares. The total number of
shares of all classes of stock which the Company
shall have the authority to issue is Fifty-One
Million (51,000,000), of which Fifty Million
(50,000,000) shall be common stock, par value $.10
per share, and One Million (1,000,000) shall be
preferred stock par value $.01 per share."
Vote Required for Approval
For this amendment to be approved, a majority of the holders of
all outstanding shares entitled to vote must vote for approval.
The Company's Board of Directors recommends that the shareholders
vote FOR adoption of the proposed amendment to the Company' Certificate of
Incorporation.
INDEPENDENT PUBLIC ACCOUNTANTS
Nussbaum Yates & Wolpow, P.C. ("Nussbaum"), served as the
Company's independent public accountants for the fiscal year ended November 30,
1999. A representative of Nussbaum is expected to attend the Annual Meeting, and
such representative will have the opportunity to make a statement if he so
desires and will be available to respond to appropriate questions from
shareholders.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended for presentation at the 2000
Annual Meeting of Shareholders and intended to be included in the Company's
Proxy Statement and form of proxy relating to that meeting must be received at
the offices of the Company by February 2, 2001.
OTHER BUSINESS
Other than as described above, the Board of Directors knows of no
matters to be presented at the Annual Meeting, but it is intended that the
persons named in the proxy will vote your shares according to their best
judgment if any matters not included in this Proxy Statement do properly come
before the meeting or any adjournment thereof.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the year ended
November 30, 1999, including financial statements, is being mailed herewith. If,
for any reason you do not receive your copy of the Report, please contact Mr.
Paul H. Riss, Chief Executive Officer, eLEC Communications Corp., 509 Westport
Avenue, Norwalk, Connecticut 06851, and another will be sent to you.
By Order of the Board of Directors
/s/JOEL DUPRE
-------------
Joel Dupre
Chairman of the Board
Dated: April 5, 2000
Norwalk, Connecticut
17
<PAGE>
REVOCABLE PROXY
eLEC COMMUNICATIONS CORP.
[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
The undersigned hereby appoint(s) Joel Dupre and Paul Riss, or any of
them, lawful attorneys and proxies of the undersigned with full power of
substitution, for and in the name, place and stead of the undersigned to attend
the Annual Meeting of Shareholders of eLEC Communications Corp. to be held at
the offices of Essex Communications, Inc., at 48 South Service Road, Third
Floor, Melville, New York 11747 on Wednesday, May 24, 2000 at 10:00 a.m., local
time, and any adjournment(s) or postponement(s) thereof, with all powers the
undersigned would possess if personally present and to vote the number of votes
the undersigned would be entitled to vote if personally present.
The Board of Directors recommends a vote "FOR" the proposals set forth
below.
PROPOSAL 1:
The Election of Directors:
With- For All
For hold Except
[ ] [ ] [ ]
Joel Dupre, Eric M. Hellige, Paul H. Riss and Anthony M. Scalice
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
For Against Abstain
[ ] [ ] [ ]
PROPOSAL 2: Proposal to increase the number of shares authorized for issuance
under the Company's 1995 Stock Option Plan from 2,400,000 to 3,400,000.
For Against Abstain
[ ] [ ] [ ]
PROPOSAL 3: Proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 20,000,000 shares
to 50,000,000.
In accordance with their discretion, said Attorneys and Proxies are
authorized to vote upon such other matters or proposals not known at the time of
solicitation of this proxy which may properly come before the meeting.
This proxy when properly executed will be voted in the manner described
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for each of the Proposals set forth herein. Any prior proxy is hereby
revoked.
<PAGE>
Please be sure to sign and date Date this Proxy in the box below.
_________________________________________
Date
_________________________________________
Stockholder sign above
_________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
eLEC COMMUNICATIONS CORP.
Please sign exactly as your name appears on this proxy card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or corporation, please sign in full corporate name by
president or other authorized person. If a partnership, please sign in
partnership name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
