FUNDS ESCROW AGREEMENT
This Agreement is dated as of the 18th day of May, 2005 among GTC Telecom
Corp., a Nevada corporation (the "Company"), MCI Worldcom Network Services, Inc.
("MCI"), the Subscribers identified on Schedule A hereto (each a "Subscriber"
and collectively "Subscribers"), and Grushko & Mittman, P.C. (the "Escrow
Agent"):
W I T N E S S E T H:
WHEREAS, The Company, MCI and Subscribers have entered into a Subscription
Agreement calling for the sale by the Company to the Subscriber of secured
promissory notes ("Notes"), shares of Common Stock ("Initial Shares") and
Warrants in the amounts set forth on Schedule A hereto; and
WHEREAS, the parties hereto require the Company to deliver the Notes,
Initial Shares and Warrants against payment therefor, with such Notes, Initial
Shares, Warrants and the Escrowed Funds to be delivered to the Escrow Agent to
be held in escrow and released by the Escrow Agent in accordance with the terms
and conditions of this Agreement;
WHEREAS, the in addition, the parties require that MCI deliver to the
Escrow Agent, certain UCC releases relating to assets of the Company; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Subscription Agreement shall have the meanings
given to such terms in the Subscription Agreement. Whenever used in this
Agreement, the following terms shall have the following respective meanings:
(a) "Agreement" means this Agreement and all amendments made hereto and
thereto by written agreement between the parties;
(b) "Broker" shall have the meaning set forth in Section 8(a) of the
Subscription Agreement;
(c) "Broker's Fee" shall have the meaning set forth in Section 8(a) of the
Subscription Agreement;
(d) "Closing Date" shall have the meaning set forth in Section 1 of the
Subscription Agreement;
(e) "Collateral Agent Agreement" shall have the meaning set forth in
Section 2 of the Subscription Agreement;
(f) "Escrowed Payment" means aggregate payments of up to $1,000,000;
(g) "Initial Shares" shall have the meaning set forth in the preamble
to the Subscription Agreement;
(h) "Legal Fees" shall have the meaning set forth in Section 8(b) of the
Subscription Agreement;
(i) "Legal Opinion" means the original signed legal opinion referred to in
Section 6 of the Subscription Agreement;
(j) "MCI Settlement Amount" shall mean $760,000 plus interest at the rate
of $187.50 per day from April 1, 2005 through the Closing Date, as provided for
by that certain Settlement Agreement, as amended, entered into by and between
the Company and MCI dated February 18, 2005. In the event that the Closing Date
shall occur after May 18, 2005, MCI shall be entitled to an additional
$10,000.00 further, interest shall continue to accrue at the rate of $187.50 per
day.
(k) "Notes" shall have the meaning set forth in Section 1 of the
Subscription Agreement;
(l) "Purchase Price" shall mean up to $1,176,470;
(m) "Security Agreement" shall have the meaning set forth in Section 2 of
the Subscription Agreement and shall refer to the Security Agreements to be
executed by the Company and each Subsidiary (as defined in Section 5(a) of the
Subscription Agreement) and the Guarantees to be delivered by the Subsidiaries;
(n) "Subscription Agreement" means the Subscription Agreement (and the
exhibits thereto) entered into or to be entered into by the Company and
Subscribers in reference to the sale and purchase of the Notes and Warrants;
(o) "UCC Release" means documents releasing all security interest held by
MCI in, or relating to, property or assets held by the Company, pursuant to that
certain Settlement Agreement by and between the Company and MCI dated February
18, 2005.
(p) "Warrants" shall have the meaning set forth in Section 3 of the
Subscription Agreement;
(q) Collectively, the executed Subscription Agreement, Notes, Initial
Shares, Legal Opinion, UCC Releaes, Warrants, Collateral Agent Agreement, and
Security Agreements are referred to as "Company Documents"; and
(r) Collectively, the Escrowed Payment and the executed Subscription
Agreement are referred to as "Subscriber Documents".
1.2. Entire Agreement. This Agreement along with the Company Documents
and the Subscriber Documents constitute the entire agreement between the parties
hereto pertaining to the Company Documents and Subscriber Documents and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. There are no warranties,
representations and other agreements made by the parties in connection with the
subject matter hereof except as specifically set forth in this Agreement, the
Company Documents and the Subscriber Documents.
1.3. Extended Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.
1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
1.6. Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party (which shall be the party which receives an award
most closely resembling the remedy or action sought) shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
1.7. Specific Enforcement, Consent to Jurisdiction. The Company, MCI
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of The Company, MCI and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
1.8 Notwithstanding anything that is set forth in this Agreement, the
Company Documents and Subscriber Documents, MCI shall not be responsible for
payment of any Escrow Fees, Broker's Fee, Legal Fees or otherwise. This
Agreement is intended as an accomodation to the Subcribers and does not obligate
MCI to perform beyond Deliveries set forth in paragraph 2.3.
ARTICLE II
DELIVERIES TO THE ESCROW AGENT
2.1. Company Deliveries. On or before the Closing Date, the Company
shall deliver the Company Documents to the Escrow Agent.
2.2. Subscriber Deliveries. On or before the Closing Date, each
Subscriber shall deliver to the Escrow Agent such Subscriber's portion of the
Escrowed Payment and the executed Subscription Agreement. The Escrowed Payment
will be delivered pursuant to the following wire transfer instructions:
Citibank, N.A.
1155 6th Avenue
New York, NY 10036, USA
ABA Number:
For Credit to: Grushko & Mittman, IOLA Trust Account
Account Number:
2.3. MCI Deliveries. On or before the May 31, 2005 MCI shall deliver
the UCC Releases to the Escrow Agent. The Escrow Agent is expressly, not
authorized to deliver the UCC Releases after May 31, 2005.
2.4. Intention to Create Escrow Over Company Documents and Subscriber
Documents. The Subscriber, MCI and Company intend that the Company Documents
and Subscriber Documents shall be held in escrow by the Escrow Agent pursuant to
this Agreement for their benefit as set forth herein.
2.5. Escrow Agent to Deliver Company Documents and Subscriber
Documents. The Escrow Agent shall hold and release the Company Documents and
Subscriber Documents only in accordance with the terms and conditions of this
Agreement.
ARTICLE III
RELEASE OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:
(a) On the Closing Date, the Escrow Agent will simultaneously
release the Company Documents to the Subscriber, and release the Subscriber
Documents to the Company except that: (i) the amounts designated on Schedule
9(e) to the Subscription Agreement will be released to the designated
recipients, (ii) the Broker's Fee will be released to the Broker; (iii) the
Legal Fees will be released to the Subscriber's attorneys; (iv) the MCI
Settlement Fee is released to MCI; and (v) the UCC Releases, Security Agreements
and Collateral Agent Agreement will be released to the Collateral Agent.
(b) All funds to be delivered to the Company shall be delivered
pursuant to the wire instructions to be provided in writing by the Company to
the Escrow Agent.
(c) All funds to be delivered to MCI shall sent in the form of a
certified check payable to: "MCI WorldCom Network Services, Inc" via priority
overnight to:
Bank One
525 West Moneoe Street, 8th Floor Mailroom,
Attention:
Chicago, Illinois, 60661
(d) Notwithstanding the above, upon receipt by the Escrow Agent of
joint written instructions ("Joint Instructions") signed by the Company, MCI and
the Subscriber, it shall deliver the Company Documents and Subscriber Documents
in accordance with the terms of the Joint Instructions.
(e) Notwithstanding the above, upon receipt by the Escrow Agent of
a final and non-appealable judgment, order, decree or award of a court of
competent jurisdiction (a "Court Order"), the Escrow Agent shall deliver the
Company Documents and Subscriber Documents in accordance with the Court Order.
Any Court Order shall be accompanied by an opinion of counsel for the party
presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the Court
Order has competent jurisdiction and that the Court Order is final and
non-appealable.
3.2. Acknowledgement of Company, MCI and Subscriber; Disputes. The
Company, MCI and the Subscriber acknowledge that the only terms and conditions
upon which the Company Documentsand Subscriber Documents are to be released are
set forth in Sections 3 and 4 of this Agreement. The Company, MCI and the
Subscriber reaffirm their agreement to abide by the terms and conditions of this
Agreement with respect to the release of the Company Documents and Subscriber
Documents. Any dispute with respect to the release of the Company Documents and
Subscriber Documents shall be resolved pursuant to Section 4.2 or by agreement
between the Company, MCI and Subscriber.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow
Agent's duties and responsibilities shall be subject to the following terms and
conditions:
(a) The Company, MCI and Subscriber acknowledge and agree that the
Escrow Agent (i) shall not be responsible for or bound by, and shall not be
required to inquire into whether either the Subscriber or Company is entitled to
receipt of the Company Documents and Subscriber Documents pursuant to, any other
agreement or otherwise; (ii) shall be obligated only for the performance of such
duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iii) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or
party, without being required to determine the authenticity or correctness of
any fact stated therein or the propriety or validity or the service thereof;
(iv) may assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
(b) The Company, MCI and Subscriber acknowledge that the Escrow Agent
is acting solely as a stakeholder at their request and that the Escrow Agent
shall not be liable for any action taken by Escrow Agent in good faith and
believed by Escrow Agent to be authorized or within the rights or powers
conferred upon Escrow Agent by this Agreement. The Company, MCI and Subscriber,
jointly and severally, agree to indemnify and hold harmless the Escrow Agent and
any of Escrow Agent's partners, employees, agents and representatives for any
action taken or omitted to be taken by Escrow Agent or any of them hereunder,
including the fees of outside counsel and other costs and expenses of defending
itself against any claim or liability under this Agreement, except in the case
of gross negligence or willful misconduct on Escrow Agent's part committed in
its capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a
duty only to The Company, MCI and Subscriber under this Agreement and to no
other person.
(c) The Company, MCI and Subscriber jointly and severally agree to
reimburse the Escrow Agent for outside counsel fees, to the extent authorized
hereunder and incurred in connection with the performance of its duties and
responsibilities hereunder.
(d) The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving five (5) days prior written notice of resignation to the
Subscriber and the Company. Prior to the effective date of the resignation as
specified in such notice, The Company, MCI and Subscriber will issue to the
Escrow Agent a Joint Instruction authorizing delivery of the Company Documents
and Subscriber Documents to a substitute Escrow Agent selected by The Company,
MCI and Subscriber. If no successor Escrow Agent is named by The Company, MCI
and Subscriber, the Escrow Agent may apply to a court of competent jurisdiction
in the State of New York for appointment of a successor Escrow Agent, and to
deposit the Company Documents and Subscriber Documents with the clerk of any
such court.
(e) The Escrow Agent does not have and will not have any interest
in the Company Documents and Subscriber Documents, but is serving only as escrow
agent, having only possession thereof. The Escrow Agent shall not be liable for
any loss resulting from the making or retention of any investment in accordance
with this Escrow Agreement.
(f) This Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent thereto and no implied
duties or obligations shall be read into this Agreement.
(g) The Escrow Agent shall be permitted to act as counsel for the
Subscriber in any dispute as to the disposition of the Company Documents and
Subscriber Documents, in any other dispute between The Company, MCI and
Subscriber, whether or not the Escrow Agent is then holding the Company
Documents and Subscriber Documents and continues to act as the Escrow Agent
hereunder.
(h) The provisions of this Section 4.1 shall survive the
resignation of the Escrow Agent or the termination of this Agreement.
4.2. Dispute Resolution: Judgments. Resolution of disputes arising
under this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Company Documents and
Subscriber Documents, or if the Escrow Agent shall in good faith be uncertain as
to its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Company Documents and Subscriber Documents pending receipt
of a Joint Instruction from The Company, MCI and Subscriber, or (ii) deposit the
Company Documents and Subscriber Documents with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give written notice thereof to the Subscriber and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Company Documents and
Subscriber Documents. The Escrow Agent shall have the right to retain counsel
if it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.
(b) The Escrow Agent is hereby expressly authorized to comply with
and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order, the Escrow Agent shall not be liable to The Company, MCI and
Subscriber or to any other person, firm, corporation or entity by reason of such
compliance.
ARTICLE V
GENERAL MATTERS
5.1. Termination. This escrow shall terminate upon the release of all
of the Company Documents and Subscriber Documents or at any time upon the
agreement in writing of The Company, MCI and Subscriber.
5.2. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
(a) If to the Company, to:
GTC Telecom Corp.
3151 Airway Avenue, Suite P-3
Costa Mesa, CA 92626
Attn: Vi Bui, Esq.
Fax: (714) 549-7707
(b) If to the Subscribers, to: the addresses and fax numbers listed on
Schedule A hereto
(c) If to the Escrow Agent, to:
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, New York 10176
Fax: 212-697-3575
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
5.3. Interest. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith. In the
event the Escrowed Payment is deposited in an interest bearing account, each
Subscriber shall be entitled to receive its pro rata portion of any accrued
interest thereon, but only if the Escrow Agent receives from such Subscriber the
Subscriber's United States taxpayer identification number and other requested
information and forms.
5.4. Assignment; Binding Agreement. Neither this Agreement nor any
right or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile transmission and delivered by facsimile
transmission.
5.7. Agreement. Each of the undersigned states that he has read the
foregoing Funds Escrow Agreement and understands and agrees to it.
GTC TELECOM CORP.
the "Company"
By: /s/ S. Paul Sandhu
S. Paul Sandhu, CEO
/s/ Signature Illegible /s/ Jeffrey M. Haas
______________________________________ ______________________________
ALPHA CAPITAL AKTIENGESELLSCHAFT DCOFI MASTER LDC
"Subscriber" "Subscriber"
/s/ Steven Geduld
_______________________________________
SCG CAPITAL, LLC
"Subscriber"
/s/ Murry Todd Welhelm Unger, Officer
_______________________________________ _______________________________
SILVER OAK INVESTMENTS, INC. ELLIS INTERNATIONAL LTD.
"Subscriber" "Subscriber"
"MCI" ESCROW AGENT:
/s/ Catherine Bollinger /s/ Grushko & Mittman
_____________________________________ ___________________________________
By: Catherine Bollinger, GRUSHKO & MITTMAN, P.C.
Associate Counsel