THE SECURITIES DESCRIBED IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE
144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE
REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.
SUBSCRIPTION AGREEMENT
This Subscription Agreement is made by and between GTC TELECOM CORP. (the
"Company") and THE RAPAPORT FAMILY TRUST (the "Investor").
WHEREAS, the Company and Investor previously entered into various Subscription
Agreements (the "Prior Agreements"), including but not limited to, a
Subscription Agreement dated August 18, 2004, wherein the Company issued
Investor a note payable of $816,395;
WHEREAS, the Company and Investor have agreed that the securities offered
pursuant to this current Subscription Agreement shall serve as an accord and
satisfaction of all amounts due under any such Prior Agreements.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledge, the parties hereto agree as follows:
Article 1
The Securities
Section 1.01. THE SECURITIES. The securities offered hereby the
("Offering") shall consist of one (1) Unit, purchase price of $1,020,000
consisting of: one 12% Convertible Note, 1,200,000 principal amount (the "Note")
and TWO MILLION FOUR HUNDRED THOUSAND (2,400,000) shares of the Company's common
stock (the "Shares").
The Note shall be in substantially the form attached hereto as Exhibit A, the
terms of which are hereby incorporated herein as if such Note were fully set
forth herein.
Set forth below is a brief summary of the terms and conditions of the Units
and their constituent Note and Shares. This summary is qualified in its
entirety by the precise terms and conditions set forth in the Company's Articles
of Incorporation, the Note and in this Subscription Agreement, and is provided
only for convenience and is not to be utilized in interpreting any of the terms
and conditions set forth herein.
THE NOTE
Principal
Amount - $1,200,000
Maturity - November 13, 2006
Interest - 12% Simple Interest Per Annum
Repayment
Terms - Accrued Interest payable monthly; Principal paid upon
Maturity.
Conversion
Feature - Holder shall have the option, on the date of
Maturity, to convert outstanding Principal and
Interest into shares of the Company's common
stock at the rate of $0.13 per share.
Events of
Default - Insolvency, material breach of representations
and warranties, failure to perform other covenants
herein or in the Note, nonpayment of principal
and/or interest on a timely basis.
THE SHARES
Amount - Two Million Four Hundred Thousand (2,400,000)
shares of the "restricted" common stock of the
Company, par value $0.001.
Section 1.02. LEGENDS; REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Note and Shares (collectively, the "Unit Securities") have not been registered
under the Securities Act of 1933, as amended (the "Act"). Each of the Unit
Securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE
144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE
REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.
This offering is not a public offering and is intended to be made pursuant
to Section 4(2) of the Act and Regulation D as promulgated by the Securities and
Exchange Commission ("SEC") under the Act. This offering is also intended to be
exempt from the registration requirements of various state securities laws. A
substantial number of state securities commissions and securities industry
associations have established investor suitability standards for marketing
private offerings of securities within their respective jurisdictions. Some have
also established minimum dollar levels for purchases in their states.
Section 1.03. CLOSING DATE. The purchase and sale of the Securities will
take place at one or more closings (each referred to herein as the "Closing") at
the offices of the Company, 0000 Xxxxxx Xxx., Xxxxx X-0, Xxxxx Xxxx, XX 00000 at
10:00 a.m., on a date as soon as practicable after all the conditions set forth
herein have been satisfied (each, a "Closing Date"), or at such other location
as the Investor and the Company shall agree.
Section 1.04. DELIVERY. At the Closing, the Company shall deliver to the
Investor the Note and Shares that such Investor is purchasing against payment of
the purchase price therefore by check, wire transfer, cancellation of
indebtedness, or such other form of payment as shall be mutually agreed upon by
such Investor and the Company.
Section 1.06. EXPENSES. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery, and performance of this Agreement and the
transactions contemplated hereby, including without limitation, the cost of any
required filings under the Act, the Exchange Act or any "blue sky" laws, rules
and regulations.
Article II
Representations and Warranties
Section 2.01. INVESTOR REPRESENTATIONS AND WARRANTIES. Investor hereby
represents, warrants and agrees as follows:
(a) The Shares are being purchased by Investor and not by any other
person, with Investor's own funds and not with the funds of any other person,
and for the account of Investor, not as a nominee or agent and not for the
account of any other person. On acceptance of this Subscription Agreement by
the Company, no other person will have any interest, beneficial or otherwise, in
the Note or the Shares. Investor is not obligated to transfer the Note or the
Shares to any other person nor does Investor have any agreement or understanding
to do so. Investor is purchasing the Shares for investment for an indefinite
period not with a view to the sale or distribution of any part or all thereof by
public or private sale or other disposition. Investor has no present intention
of selling, granting any participation in, or otherwise distributing or
disposing of any Shares. Investor does not intend to subdivide Investor's
purchase of Shares with any person.
(b) Investor has been advised that the Note and the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act"), or
qualified under the securities law of any state, on the ground, among others,
that no distribution or public offering of the Shares is to be effected and the
Shares will be issued by the Company in connection with a transaction that does
not involve any public offering within the meaning of section 4(2) of the Act
and/or Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission under the Act, and/or section 25102(f) of the California Corporate
Securities Law of 1968 (the "Law") or under the laws of any applicable state
blue sky authority. Investor understands that the Company is relying in part on
Investor's representations as set forth herein for purposes of claiming such
exemptions and that the basis for such exemptions may not be present if,
notwithstanding Investor's representations, Investor has in mind merely
acquiring Shares for resale on the occurrence or nonoccurrence of some
predetermined event. Investor has no such intention.
(c) Investor has such knowledge and experience in financial and
business matters that Investor is capable of evaluating the merits and risks of
an investment in Note and the Shares; and (iii) has the capacity to protect
Investor's own interests in connection with Investor's proposed investment.
Either (Please Initial or Check All That May Apply):
_X___ Investor has a preexisting personal or business relationship with one
or more of the founding shareholders and directors of the Company who control
the Company, consisting of personal or business contacts of a nature and
duration sufficient to enable Investor, as a reasonably prudent investor, to be
aware of the character, business acumen and general business and financial
circumstances of the persons with whom such relationship exists; or
__X__ By reason of Investor's business and financial experience or the
business or financial experience of Investor's professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate or
selling agent of the Company, directly or indirectly, Investor has the capacity
to protect Investor's own interests in connection with Investor's investment; or
___X_ Investor is an "accredited individual" An "accredited individual" is
an individual who either (i) has a net worth of at least $1,000,000 (including
home and personal property), OR (ii) had an individual income of more than
$200,000 in each of the two most recent calendar years, and reasonably expects
to have an individual income in excess of $200,000 in the current calendar year;
or along with Investor's spouse had joint income in excess of $300,000 in each
of the two most recent calendar years, and reasonably expects to have a joint
income in excess of $300,000 in the current calendar year.
as that term is defined by Regulation D of the Securities Act of 1933.
(d) Investor acknowledges that Investor has been furnished with such
financial and other information concerning the Company, the directors and
officers of the Company, and the business and proposed business of the Company
as Investor considers necessary in connection with Investor's investment. As a
result, Investor is thoroughly familiar with the proposed business, operations,
properties and financial condition of the Company and has discussed with
officers of the Company any questions Investor may have had with respect
thereto. Investor understands:
(i) The risks involved in this investment, including the speculative nature
of the investment;
(ii) The financial hazards involved in this investment, including the risk
of losing Investor's entire investment;
(iii) The lack of liquidity and restrictions on transfers of the Note and
the Shares; and
(iv) The tax consequences of this investment.
Investor has consulted with Investor's own legal, accounting, tax,
investment and other advisers with respect to the tax treatment of an investment
by Investor in the Shares and the merits and risks of an investment in the Note
and the Shares. Understanding that the investment is highly speculative,
Investor is able to bear the economic risk of such investment.
(e) If Investor is an individual, Investor is over 21 years of
age; and if Investor is an unincorporated association, all of its members are of
such age.
(f) If Investor is a corporation, trust, partnership, employee benefit
plan or XXX, Investor was either:
(i) not formed for the purpose of investing in the Shares, has or will
have other substantial business or investments, and is either (please
Initial or Check one if applicable):
____ an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, provided that the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such Act, and the plan
fiduciary is a bank, savings and loan association, insurance company or
registered investment adviser; or
_____ an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 that has total assets in excess of
$5,000,000; or
_____ a non-revocable trust that has total assets in excess of $5,000,000
wherein this investment is begin directed by a sophisticated person that is
capable of evaluating the merits and risks of this investment; or
__X__ a revocable trust which may be amended or revoked at any time by the
grantors thereof and all of the grantors are accredited investors.
_____ each of its shareholders, partners, or beneficiaries is an Accredited
Investor; or
_____ the plan is a self directed employee benefit plan and the investment
decision is made solely by a person that is an Accredited Investor; or
_____ a corporation, a partnership, or a Massachusetts or similar business
trust with total assets in excess of $5,000,000.
(ii) formed for the specific purpose of investing in the Shares, and is an
Accredited Investor because each of its shareholders or beneficiaries is an
Accredited Investor.
(g) Investor, if not an individual, is empowered and duly authorized to
enter into this Subscription Agreement under any governing document, partnership
agreement, trust instrument, pension plan, charter, certificate of
incorporation, bylaw provision or the like; this Subscription Agreement
constitutes a valid and binding agreement of Investor enforceable against
Investor in accordance with its terms; and the person signing this Subscription
Agreement on behalf of Investor is empowered and duly authorized to do so by the
governing document or trust instrument, pension plan, charter, certificate of
incorporation, bylaw provision, board of directors or stockholder resolution, or
the like.
(h) The Social Security Number or taxpayer identification shown in this
Subscription Agreement is correct, and Investor is not subject to backup
withholding because (i) Investor has not been notified that he or she is subject
to backup withholding as a result of a failure to report all interest and
dividends or ii) the Internal Revenue Service has notified Investor that he or
she is not longer subject to backup withholding.
(i) Investor hereby acknowledges and agrees that this Subscription
Agreement is an offer by Investor to purchase the Shares, which offer may be
accepted or declined by the Company. Investor hereby further acknowledges that
this Subscription Agreement does not constitute an offer by the Company to sell
securities or a solicitation of an offer to buy securities.
(j) Investor is aware of the requirements of Rule 13d-1 and Section 16 of
the Securities Exchange Act of 1934. Investor understands that depending on the
number of shares of the Company held either directly or indirectly by Investor,
Investor may be required to file certain documents with the Securities and
Exchange Commission, including for example, Schedule 13d or 13g, Form 3 and Form
4. Investor understands that it is Investor's obligation to determine the
applicability of, and comply with, any such or similar requirement as it
pertains to Investor.
(k) Investor hereby agrees that the principal amount of the Note and the
Shares offered hereby represents all principal and accrued interest due under
that certain subscription agreement and note, as amended dated August 18, 2004
and all other subscription agreements or notes dated prior to this Agreement and
shall serve as full satisfaction of all such prior subscription agreements and
notes. Investor agrees to waive payment under any and all prior agreement,
written or oral, and accepts the Securities offered hereby as full satisfaction
of all amounts currently due and owing to Investor by GTC, its affiliates and
subsidiaries, under any and all Prior Agreements and / or notes or other
instruments of indebtedness.
Article III
Conditions to the Investor's Obligations
Section 3.01. CONDITIONS. The obligation of the Investor to purchase the
Note and Shares at the Closing is subject to the following conditions:
(a) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining the sale or purchase of the Note
and Shares.
(b) The Subscription Agreement, the Shares, and the Note and each of
the Exhibits thereto respectively, shall have been fully executed and delivered
to the Investor.
Article IV
Conditions to the Company's Obligations
Section 4.01. CONDITIONS. The obligation of the Company to sell the Note
and Shares at the Closing is subject to the following conditions:
(a) The representations and warranties of each of the Investors
contained herein shall be true and correct in material respects on and as of the
Closing Date.
(b) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining the sale or purchase of the
Shares and Note.
Article V
Indemnification
Section 5.01. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless each Investor
against any and all losses, claims, damages or liabilities to which such
Investor may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise from a
claim by a third-party and arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained herein, in the Note
or in any statement made to or in any filing with the SEC or to or with any
state securities commission, bureau or office (including any amendments
thereto), or arise out of or based upon the omission or alleged omission to
state herein or therein a material fact required to be stated herein or therein
or necessary to make the statements herein or therein not misleading (unless
such statements are made or omitted in reliance upon and in conformity with
written information furnished to the Company with respect to such Investor by
such Investor expressly for use herein or therein or any amendment hereof or
supplement hereto), or any breach by the Company of its obligations,
representations or warranties hereunder or under the Note and will reimburse
such Investor for any legal or other expenses reasonably incurred by such
Investor in connection with investigating or defending any such loss, claim,
damage, liability or action.
(b) Each Investor hereby agrees to indemnify and hold harmless the Company
and its respective stockholders, directors, employees, agents and each person,
if any, who controls any of the foregoing within the meaning of the Act, against
any and all losses, claims, damages or liabilities, to which the Company or any
of the Company's stockholders, directors, employees, agents or controlling
persons may become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any authorized written statement with respect to the offering
made by the Investor, partners, agents or employees, or any breach by such
Investor of its obligations, representations or warranties hereunder, and will
reimburse the Company or such stockholders, directors, employees, agents or
controlling persons for any legal or other expenses reasonably incurred by the
Company or such employees, agents or controlling persons in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under either
subparagraph (a) or (b), as the case may be, of the notice of commencement of
any action covered by subparagraph (a) or (b), such indemnified party shall
within five (5) business days notify the indemnifying party of the commencement
thereof; the omission by one indemnified party to so notify such indemnified
party except to the extent such indemnifying party has been materially
prejudiced by such omission, shall not relieve the indemnifying party of its
obligation to indemnify any other indemnified party that has given such notice
and shall not relieve the indemnifying party of any liability outside of this
indemnification. In the event that any action is brought against the indemnified
party, and it shall notify the indemnifying party in a timely manner, the
indemnifying party will be entitled to participate in such action and, to the
extent it may desire, to assume and control the defense thereof with counsel
chosen by it. After notice from the indemnifying party to such indemnified party
of its election to so assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under such subparagraph for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof, but the indemnified party may, at its own expenses,
participate in such defense by counsel chosen by it without, however, impairing
the indemnifying party's control of the defense. Notwithstanding anything to the
contrary contained herein, the indemnified party shall have the right to choose
its own counsel and control the defense of any action, all at the reasonable
expense of the indemnifying party, if (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with the
defense of such action at the expense of the indemnifying party, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party shall have reasonably conclude that there may be defenses
available to such indemnified party that differ from the defenses available to
the indemnifying party (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party),
in any of which events such reasonable fees and expenses of one additional
counsel shall be borne by the indemnifying party. No settlement of any action or
proceeding against an indemnified party shall be made without the consent of the
indemnified party, which consent shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution under the
Act in any case in which (i) any indemnified party makes a claim for
indemnification pursuant to this paragraph but it is judicially determined (by
entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of the time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact the this paragraph provides for indemnification in such case, or (ii)
contribution under the Act is required on the part of any such person in
circumstances for which indemnification is provided under this paragraph, then,
in each such case, the relevant Investor shall contribute to the aggregate
losses, claims, damages or liabilities to which it may be subject (after any
contributions from others) in the same proportion as the amount of the Unit
purchased by such Investor pursuant to the Subscription Agreement bears to the
aggregate offering, and the Company shall be responsible for the remaining
portion thereof; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Article VI
Notices
Section 6.01. NOTICES. All notices provided for in this Agreement shall
be in writing signed by the party giving such notice, and delivered personally
or sent by overnight courier or messenger or sent by registered or certified
mail (air mail if overseas), return receipt requested, or by telex, facsimile
transmission, telegram or similar means of communication. Notices shall be
deemed to have been received on the date of personal delivery, telex, facsimile
transmission, telegram or similar means of communication, or if sent by
overnight courier or messenger, shall be deemed to have been received on the
next delivery day after deposit with the courier or messenger, or if sent by
certified or registered mail, return receipt requested, shall be deemed to have
been received on the third business day after the date of mailing. Notices
shall be sent to the addresses set forth below:
If to the Company:
GTC Telecom Corp.
0000 Xxxxxx Xxx., Xxxxx X-0
Xxxxx Xxxx, XX 00000
If to the Investor:
At the address set forth on the signature page hereto.
Article VII
Miscellaneous
Section 7.01.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES OF
CONFLICTS OF LAW.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(c) This Agreement represents the entire agreement between the parties
relating to the subject matter hereof, superseding any and all prior to
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing signed by the party against whom the modification or waiver is sought to
be enforced.
(c) The captions and headings contained herein are solely for
convenience of reference and do not constitute a part of this Agreement.
(d) Each of the Exhibits attached hereto is hereby incorporated herein
as if each of such Exhibits were fully set forth herein in its entirety. Each
of such Exhibits is hereby expressly made a part of this Agreement.
(e) The terms of the offering and of the Note may only be amended or
modified by the written mutual agreement of Investor and Company.
(f) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
executed this Agreement and this Agreement has been delivered in Costa Mesa,
California as of the 12TH DAY OF MAY 2005.
GTC TELECOM CORP.
By: /s/ Xxxx Xxxxxxx
Xxxx Xxxxxxx, President
INVESTOR:
THE RAPAPORT FAMILY TRUST
/s/ Xxxxxxx X. Xxxxxxxx
by: Xxxxxxx X. Xxxxxxxx M.D.
Its: Trustee
Address: 000 Xxx Xxxxx
Xxxxx Xxxxxx Xxxxxxxxx, XX 00000
Telephone No.: (_____)___________________
Facsimile No.: (_____)___________________
EXHIBIT INDEX
Exhibit A Note - $1,200,000
A-5
EXHIBIT "A"
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH TRANSFER.
GTC TELECOM CORP.
12% CONVERTIBLE NOTE
$1,200,000 Costa Mesa, California
No. UNCV-FY05-01 MAY 12, 2005
FOR VALUE RECEIVED, the undersigned, GTC TELECOM CORP., a Nevada
corporation, its assigns, and successors (the "Company"), hereby promises to pay
to the order of THE RAPAPORT FAMILY TRUST (the"Purchaser"), in lawful money of
the United States of America, and in immediately available funds, the principal
sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000). The principal
hereof and any unpaid accrued interest thereon shall be due and payable on or
before 5:00 PM PACIFIC TIME ON NOVEMBER 13, 2006 (unless such payment date is
accelerated as provided in Section 5 hereof, extended as provided in Section 2
hereof, or unless this Note is converted as set forth in paragraph 1 hereof)
("Maturity"). Payment of all amounts due hereunder shall be made at the address
of the Purchaser provided for in Section 6 hereof. The Company further promises
to pay simple interest at the rate of twelve percent (12%) per annum on the
outstanding principal balance hereof, such interest to be paid monthly, on the
fifteenth of each month (unless such day falls on a holiday or weekend,
whereupon such date shall be extended to the next business day).
This Note has been issued pursuant to a Subscription Agreement dated of
even date herewith, between the Company and the Holder (the "Subscription
Agreement"), which contains representations, warranties and additional covenants
of the Company with respect to the Note. Capitalized terms not otherwise
defined herein shall have the meaning set forth in the Subscription Agreement.
THE PROVISIONS OF THE SUBSCRIPTION AGREEMENT ARE INCORPORATED HEREIN BY
REFERENCE.
1) CONVERSION. The Purchaser of this Note is en-titled, at its option, on
the date of Maturity, and only on such date (as may be extended by Purchaser
pursuant to Section 2), and in whole or in part, to convert the then outstanding
principal amount of this Note, plus any accrued but unpaid interest, or any
portion thereof, -into Shares of the Com-mon Stock of the Company at a
conversion price for each share of Common Stock equal to $0.13. Such conversion
shall be effectuated by surrendering the Note to be converted to the Company,
with the form of Conversion Notice attached hereto as Exhibit A, executed by the
Purchaser of this Note evidencing such Purchaser's intention to convert this
Note -or a specified portion hereof (as above provided).
The Company agrees to take whatever steps are necessary, prior to Maturity,
to authorize and reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of its authorized but
unissued shares of its Common Stock to satisfy the rights of conversion of the
holder of this Note.
Any certificates representing Conversion Shares transferred to Purchaser
which are not registered for resale without restriction under the Securities Act
or applicable state securities laws shall be endorsed with the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (1)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH
APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
TRANSFER.
2) EXTENSION OF MATURITY DATE. Purchaser shall have the right, in its
sole discretion, to extend the maturity of this Note for up to five six-month
periods, each such extension exercisable only by the Purchaser by delivering to
the Company written notice of such extension at any time prior to the maturity
date then in effect.
3) PREPAYMENT. The Company may, at its option, at any time and from
time to time, prepay all or any part of the principal balance of this Note,
without penalty or premium, provided that concurrently with each such prepayment
the Company shall pay any unpaid accrued interest on the principal so prepaid to
the date of such prepayment.
4) TRANSFERABILITY. This Note shall not be transferred, pledged,
hypothecated, or assigned by the Holder without the express written consent of
the Company.
6) DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
(a) The non-payment, when due, of any principal or interest pursuant to
this Note;
(b) The material breach of any representation or warranty in this Note.
In the event the Purchaser becomes aware of a breach of this Section 5(b), the
Purchaser shall notify the Company in writing of such breach and the Company
shall have ten business days after notice to cure such breach;
(c) The breach of any covenant or undertaking, not otherwise provided
for in this Section 5;
(d) The commencement by the Company of any voluntary proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, dissolution, or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or the adjudication of the Company as
insolvent or bankrupt by a decree of a court of competent jurisdiction; or the
petition or application by the Company for , acquiescence in, or consent by the
Company to, the appointment of any receiver or trustee for the Company or for
all or a substantial part of the property of the Company; or the assignment by
the Company for the benefit of creditors; or the written admission of the
Company of its inability to pay its debts as they mature; or
(e) The commencement against the Company of any proceeding relating to the
Company under any bankruptcy, reorganization, arrangement, insolvency,
adjustment of debt, receivership, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, provided, however, that
the commencement of such a proceeding shall not constitute an Event of Default
unless the Company consents to the same or admits in writing the material
allegations of same, or said proceeding shall remain undismissed for 20 days; or
the issuance of any order, judgment or decree for the appointment of a receiver
or trustee for the Company or for all or a substantial part of the property of
the Company, which order, judgment or decree remains undismissed for 20 days; or
a warrant of attachment, execution, or similar process shall be issued against
any substantial part of the property of the Company.
Upon the occurrence of any Default or Event of Default, the Purchaser, may,
by written notice to the Company, declare all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
immediately due and payable, in which event it shall immediately be and become
due and payable.
7) NOTICES. Notices to be given hereunder shall be in writing and
shall be deemed to have been sufficiently given if delivered personally or sent
by overnight courier or messenger or sent by registered or certified mail (air
mail if overseas), return receipt requested, or by telex, facsimile
transmission, telegram or similar means of communication. Notice shall be
deemed to have been received on the date of personal delivery, telex, facsimile
transmission, telegram or similar means of communication, or if sent by
overnight courier or messenger, shall be deemed to have been received on the
next delivery day after deposit with the courier or messenger, or if sent by
certified or registered mail, return receipt requested, shall be deemed to have
been received on the third business day after the date of mailing. The address
of the Company and the Holder is as set forth in the Subscription Agreement.
8) REPRESENTATIONS AND WARRANTIES. The Company hereby makes the following
representations and warranties to the Purchaser:
a. Organization, Good Standing and Power3a. Organization, Good
Standing and Power. The Company is a corporation duly incorporated, validly
exiting and in good standing under the laws of the State of Nevada and has the
requisite corporate power to own, lease and operate its properties and assets
and to conduct its business as it is now being conducted.
b. Authorization; Enforcement3b. Authorization; Enforcement.
The Company has the requisite corporate power and authority to enter into and
perform this Note and to issue and sell this Note, and the Conversion Shares in
accordance with the terms hereof. The execution, delivery and performance of
this Note, by the Company and the consummation by it of the Transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and that the Company hereby warrants that it will
take whatever action is necessary to authorize and reserve, free of preemptive
rights and other similar contractual rights of stockholders, a sufficient number
of its authorized but unissued shares of its Common Stock to satisfy the rights
of conversion of the holder of this note. This Note when executed and
delivered, will constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
c. Issuance of Note. The Note issued hereunder and the Conversion
Shares to be issued upon conversion of the Note have been duly authorized by all
necessary corporate action and, when paid for or issued in accordance with the
terms hereof, will be validly issued and outstanding, fully paid and
non-assessable and entitled to the rights and preferences set forth herein.
d. Disclosure3d. Disclosure. Neither this Note nor any other
document, certificate or instrument furnished to the Purchaser by or on behalf
of the Company in connection with the transactions contemplated by this Note
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
e. Representations. Purchaser hereby makes, in addition to those
representations made in the Subscription Agreement, the following
representations and warranties to the Company:
i. Acquisition for Investment. Purchaser is purchasing the Note solely
for its own account for the purpose of investment and not with a view to or
for sale in connection with a distribution. Purchaser does not have a
present intention to sell the Note, or the Conversion Shares nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Note or the Conversion Shares to or through any person
or entity; provided. however. that by making the representations herein,
such Purchaser does not agree to hold the Note or the Conversion Shares for
any minimum or other specific term and reserves the right to dispose of the
Note or the Conversion Shares at any time in accordance with Federal
securities laws applicable to such disposition. Such Purchaser acknowledges
that it is able to bear the financial risks associated with an investment
in the Note or Conversion Shares and that it has been given full access to
such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries as it has deemed necessary and appropriate to
conduct its due diligence investigation.
ii. Accredited Purchasers. Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
9) CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Company
consents to the jurisdiction of any court of the State of California and of any
federal court located in California.
10) GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN COSTA MESA,
CALIFORNIA AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES OR PRINCIPLES OF
CONFLICTS OF LAW.
11) ATTORNEYS FEES. In the event the Purchaser or any holder hereof
shall refer this Note to an attorney for collection, the Company agrees to pay
all the costs and expenses incurred in attempting or effecting collection
hereunder or enforcement of the terms of this Note, including reasonable
attorney's fees, whether or not suit is instituted.
12) CONFORMITY WITH LAW. It is the intention of the Company and of the
Purchaser to conform strictly to applicable usury and similar laws.
Accordingly, notwithstanding anything to the contrary in this Note, it is agreed
that the aggregate of all charges which constitute interest under applicable
usury and similar laws that are contracted for, chargeable or receivable under
or in respect of this Note, shall under no circumstances exceed the maximum
amount of interest permitted by such laws, and any excess, whether occasioned by
acceleration or maturity of this Note or otherwise, shall be canceled
automatically, and if theretofore paid, shall be either refunded to the Company
or credited on the principal amount of this Note.
IN WITNESS WHEREOF, the Company has signed and sealed this Note and
delivered it in Costa Mesa, California as of the date first set forth above.
No. UNCV-FY05-01 GTC TELECOM CORP.
By: /s/ Xxxx Xxxxxxx
Xxxx Xxxxxxx
President
CONVERSION NOTICE
(To be executed upon Conversion of Note)
To: GTC Telecom Corp. (the "Company")
The undersigned hereby irrevocably elects to exercise the right, represented by
that certain Convertible Note dated May 12, 2005 (the "Note"), attached hereto,
to convert $____________ in outstanding principal amount of the Note and/or
accrued but unpaid interest on the Note into ________ shares (the "Shares") of
Common Stock of the Company a price equal to $0.13 per share and herewith
authorizes the Company to reduce the principal amount of the Note and/or accrued
but unpaid interest on such Note in such amount. The undersigned requests that
certificates for such Shares be registered in the name of the undersigned whose
address is as set forth in the Subscription Agreement between the Company and
the undersigned dated May 12, 2005. If said number of Shares is less than all
of the Shares issuable upon conversion in full of the Note, the remaining
principal and interest due under the Note be paid according to the terms of the
Note.
Dated: Signature:________________________
(Signature must conform in all respects to
name of holder as specified on a the face of the Note)
