AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2000
REGISTRATION NO. 33-____________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
GTC TELECOM CORP.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 88-0318246
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3151 Airway Ave., Suite P-3
Costa Mesa, California 92626
(Address of Principal Executive Offices, Including Zip Code)
____________________
Employee Agreements
Consulting Agreements
Legal Services Agreements
(Full Title of the Plan)
____________________
S. Paul Sandhu
President & CEO
3151 Airway Ave., Suite P-3
Costa Mesa, California
(714) 549-7700
(Name, Address, and Telephone Number of Agent for Service)
COPIES TO:
M. Richard Cutler, Esq.
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, California 92660
(949) 719-1977
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered per Share(1) Price Fee
- ------------------------------------------------------------------------------------------------
Common Stock,
par value $0.001(2) 282,575 $ 1.875 $ 529,828 $ 139.87
Common Stock,
par value $0.001(3) 425,000 $ 1.875 $ 796,875 $ 210.38
- ------------------------------------------------------------------------------------------------
TOTAL REGISTRATION FEE 707,575 $ 2.75 $ 1,326,703 $ 350.25
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c).
(2) Represents shares of Common Stock issued to consultants of the Company.
Please refer to the Selling Shareholders section of this document.
(3) Represents shares of Common Stock underlying options issued to Officers
and Directors of the Company. Please refer to the Selling Shareholders
section of this document.
<PAGE>
EXPLANATORY NOTE
GTC Telecom Corp. ("GTC") has prepared this Registration Statement in accordance
with the requirements of Form S-8 under the Securities Act of 1933, as amended
(the "1933 Act"), to register shares of common stock, $.001 par value per share,
underlying options to purchase the Common Stock of GTC previously issued to
certain officers of the Company.
Under cover of this Form S-8 is a Reoffer Prospectus GTC prepared in accordance
with Part I of Form S-3 under the 1933 Act. The Reoffer Prospectus may be
utilized for reofferings and resales of up to 707,575 shares of common stock
acquired by the selling shareholders.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
GTC will send or give the documents containing the information specified in Part
1 of Form S-8 to employees or consultants as specified by Securities and
Exchange Commission Rule 428 (b) (1) under the Securities Act of 1933, as
amended (the "1933 Act"). GTC does not need to file these documents with the
commission either as part of this Registration Statement or as prospectuses or
prospectus supplements under Rule 424 of the 1933 Act.
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REOFFER PROSPECTUS
GTC TELECOM CORP.
3151 AIRWAY AVE., SUITE P-3
COSTA MESA, CALIFORNIA 92626
(714) 549-7700
707,575 SHARES OF COMMON STOCK
The shares of common stock, $0.001 par value per share, of GTC Telecom Corp.
("GTC" or the "Company") offered hereby (the "Shares") will be sold from time to
time by the individuals listed under the Selling Shareholders section of this
document (the "Selling Shareholders"). The Selling Shareholders acquired the
Shares pursuant to compensatory benefit plans or pursuant to Options for the
purchase of the Shares granted pursuant to employment benefit plans with GTC for
employment, consulting and legal services that the Selling Shareholders provided
to GTC.
The sales may occur in transactions on the NASDAQ over-the-counter market at
prevailing market prices or in negotiated transactions. GTC will not receive
proceeds from any of the sale the Shares. However, GTC will receive proceeds
from the exercise of Options granted pursuant to the employee benefit plans for
which some of the Shares underlie. GTC is paying for the expenses incurred in
registering the Shares.
The Shares are "restricted securities" under the Securities Act of 1933 (the
"1933 Act") before their sale under the Reoffer Prospectus. The Reoffer
Prospectus has been prepared for the purpose of registering the Shares under the
1933 Act to allow for future sales by the Selling Shareholders to the public
without restriction. To the knowledge of the Company, the Selling Shareholders
have no arrangement with any brokerage firm for the sale of the Shares. The
Selling Shareholders may be deemed to be an "underwriter" within the meaning of
the 1933 Act. Any commissions received by a broker or dealer in connection with
resales of the Shares may be deemed to be underwriting commissions or discounts
under the 1933 Act.
GTC's common stock is currently traded on the NASDAQ Over-the-Counter Bulletin
Board under the symbol "GTCC".
________________________
This investment involves a high degree of risk. Please see "Risk Factors"
beginning on page 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________________
January 18, 2000
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TABLE OF CONTENTS
Where You Can Find More Information 4
Incorporated Documents 4
The Company 5
Risk Factors 7
Use of Proceeds 14
Selling Shareholders 14
Plan of Distribution 14
Legal Matters 14
Experts 15
________________________
You should only rely on the information incorporated by reference or provided in
this Reoffer Prospectus or any supplement. We have not authorized anyone else
to provide you with different information. The common stock is not being
offered in any state where the offer is not permitted. You should not assume
that the information in this Reoffer Prospectus or any supplement is accurate as
of any date other than the date on the front of this Reoffer Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
GTC is required to file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC") as
required by the Securities Exchange Act of 1934, as amended (the "1934 Act").
You may read and copy any reports, statements or other information we file at
the SEC's Public Reference Rooms at:
450 Fifth Street, N.W., Washington, D.C. 20549;
Seven World Trade Center, 13th Floor, New York, N.Y. 10048
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Rooms. Our filings are also available to the public from commercial
document retrieval services and the SEC website (http://www.sec.gov).
INCORPORATED DOCUMENTS
The SEC allows GTC to "incorporate by reference" information into this Reoffer
Prospectus, which means that the Company can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Reoffer
Prospectus, except for any information superseded by information in this Reoffer
Prospectus.
GTC's Annual Report on Form 10-KSB, dated October 13, 1999, is incorporated
herein by reference. In addition, all documents filed or subsequently filed by
the Company under Sections 13(a), 13(c), 14 and 15(d) of the 1934 Act, before
the termination of this offering, are incorporated by reference.
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The Company will provide without charge to each person to whom a copy of this
Reoffer Prospectus is delivered, upon oral or written request, a copy of any or
all documents incorporated by reference into this Reoffer Prospectus (excluding
exhibits unless the exhibits are specifically incorporated by reference into the
information the Reoffer Prospectus incorporates). Requests should be directed to
the Chief Financial Offer at GTC, at GTC's executive offices, located at 3151
Airway Ave., Suite P-3, Costa Mesa, California 92626. GTC's telephone number is
(714) 549-7700. The Company's corporate Web site address is
http://www.gtctelecom.com.
THE COMPANY
GTC is a provider of various Telecommunication and Internet related services,
including long distance telephone, and calling card services as well as various
Internet related services including Internet Service Provider Access and Web
Page Hosting. On May 29, 1997, our founders formed GenX, LLC ("GenX") in the
state of Delaware for the purpose of providing long distance telephone service.
On February 3, 1998, GenX reorganized from a limited liability company to a
corporation and changed its name to GenTel Communications, Inc., a Colorado
corporation ("GenTel"). On August 31, 1998, GenTel was acquired by Bobernco,
Inc., a Nevada corporation ("Bobernco"). Prior to its acquisition of GenTel,
Bobernco had no significant operations. Immediately following the tranaction,
our founder owned a majority of the outstanding stock of Bobernco, and thus had
control of Bobernco. For accounting purposes we recorded the transaction as a
reverse acquisition whereby GenTel was treated as having acquired Bobernco.
Following the transaction, Bobernco changed its name to GTC Telecom Corp.
The founders of GenTel agreed to be acquired by Bobernco because Bobernco was a
public company whose common stock was listed for trading on the Over The Counter
Bulletin Board. As a public company, we felt that it would be easier to raise
the money necessary to carry out our business plan.
Immediately prior to the acquisition, Bobernco had 1,800,000 shares of Common
Stock outstanding. As part of Bobernco's reorganization with GenTel, Bobernco
issued 8,986,950 shares of its Common Stock to the shareholders of GenTel in
exchange for 8,986,950 shares of GenTel Common Stock. Subsequent to the
acquisition, the former shareholders of GenTel constituted 83.31% of the total
outstanding shares of the Common Stock of GTC and the original shareholders of
Bobernco constituted 16.69% of the total outstanding shares of the Common Stock
of the Company. Our common stock currently trades on the NASD OTC Bulletin
Board under the symbol "GTCC."
BUSINESS OF THE COMPANY
We currently offer a variety of services designed to meet its customer's
telecommunications and Internet related needs. Our services currently consist
of the following:
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Telecommunications Related Services
We are currently licensed in 48 states and the District of Columbia to provide
long distance telecommunications services. We primarily service small and
medium sized businesses and residential customers throughout the United States.
We have positioned ourselves to be a low-cost provider in the marketplace. By
offering low rates, we expect to add customers at an accelerated pace. To date,
we have operated as a switchless, nonfacilities-based reseller of long distance
services. By committing to purchase large usage volumes from carriers such as
MCI/WorldCom, Inc. pursuant to contract tariffs, we have been able to procure
substantial discounts and offer low-cost, high-quality long distance services to
its customers at rates below the current standard industry levels.
We currently provide long distance telephone service under a variety of plans.
These include outbound service, inbound toll-free 800 service and dedicated
private line services for data. We do not currently provide local telephone
service. Our long distance services are billed on a monthly basis either
directly by us or by the Local Exchange Carrier ("LEC") through the services of
Billing Concepts, Inc. dba U.S. Billing ("USBI"). If these services are billed
directly by us, the customer has a choice of paying by credit card or sending
payment to us directly. If these services are billed by the LEC, the LEC is
responsible for collecting the amount billed and remitting the proceeds to us.
We are also in the process of purchasing a voice-over-IP ("VoIP") technology
network to complement our long distance telecommunications services. In
addition, we are also exploring the possibility of providing local telephone
service. Whether we will be able to provide local telephone services is
dependent on our ability to negotiate contracts with third-party providers of
local telephone service on favorable terms. We have initiated negotiations with
certain local telephone providers but have not reached any agreements.
Therefore, there can be no assurances that we will be able to offer local
telephone service.
Internet Related Services
We have also recently began providing a variety of Internet related services.
These services, available to both consumer and business users, include prepaid
calling cards at our ecallingcards.com web site; Internet Services Provider
access through dial-up, Digital Subscriber Line ("DSL"), and Wireless T-1
methods; and Internet Web Page development and hosting services. Our Internet
related services are billed using the same methods as those used for billing our
Telecommunication services. Our Internet related services, with the exception
of our prepaid calling cards, are provided pursuant to contracts with
third-party providers, who remain our competitors. By contracting with
third-party providers to purchase large quantities of usage volumes, we are able
to secure significant discounts which then allows us to offer these services to
our end-users at rates at or lower than our competitors.
Our Internet Service Provider Access service is currently provided on a
nationwide basis. Dial-up service provides unlimited Internet access and
several related services using conventional modems at access speeds up to 56
kbps for a $9.95 monthly fee. DSL service provides a faster, more efficient
method for communicating digital data over telephone lines. DSL speeds are
significantly faster than conventional modem speeds (up to 1.1 Mbps versus 56
kbps for Dial-up service). Our monthly DSL service charge ranges from $59.95 to
$249.95 depending on speed and service options. We also charge a one-time
set-up fee of $150.
Currently, our Wireless T-1 services are only available in the Southern
California region. Wireless T-1 allows businesses to utilize connections at 1.5
Mbps without contracting for T-1 service from local telephone companies. Our
Wireless T-1 Service fees range from $299 to $899 per month with a one-time
set-up fee of $2,500. We plan on expanding this service to include other
regions. Whether we are able to provide our Wireless T-1 services to other
regions depends on whether we will be able to secure contracts with third-party
suppliers on favorable terms. There can be no assurances that we will be able
to obtain such contracts and therefore will be able to expand our Wireless T-1
service to other regions.
6
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Our Internet Web Page Hosting services are currently available on a nationwide
basis. Our Internet Web Page Hosting services provide space on our Web Server
computers for customers to publish their own Web Pages. Our Internet Web Page
Hosting fees are $29.95 per month, with a one-time set-up fee of $29.95.
RISK FACTORS
In this section we highlight some of the risks associated with our business and
operations. Prospective investors should carefully consider the following risk
factors when evaluating an investment in the common stock offered by this
Reoffer Prospectus.
EXTREMELY LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. Our executive
officers commenced our major lines of business B providing long distance and
Internet service B relatively recently. Accordingly, your evaluation of GTC
will be based on an extremely limited operating history. You must consider that
our prospects are subject to the risks, expenses and uncertainties frequently
encountered by companies in the early stage of development in new and rapidly
evolving markets. As of September 30, 1999, we had an accumulated deficit of
$5,084,133. Although we have experienced revenue growth in recent months, there
can be no assurance that our revenues will continue to increase. GTC has not
achieved profitability to date, and we anticipate that we will continue to incur
net losses for the foreseeable future. We currently expect to increase our
operating expenses significantly, expand our sales and marketing operations and
continue to develop and extend our Telecommunications and Internet related
services. If these expenses exceed revenues, our business, results of
operations and financial condition could be materially and adversely affected.
The extremely limited operating history of GTC and the uncertain nature of the
markets addressed by GTC make the prediction of future results of operations
difficult or impossible. Therefore, our recent revenue growth should not be
taken as indicative of the rate of revenue growth, if any, that can be expected
in the future. We believe that period-to-period comparisons of our results of
operations are not meaningful and that you should not rely on the results for
any period as an indication of future performance.
7
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WE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS. We currently depend upon
MCI/WorldCom, Inc., ("MCI/WCOM") as our sole provider of long distance service.
We contract with MCI/WCOM to provide us with long distance services which we
resale to our customers. We will continue to depend upon MCI/WCOM to provide
transmission facilities, maintenance and international long distance services
for the foreseeable future. This agreement is probably our most vital agreement
and our ability to provide our long distance service depends upon whether we can
continue to maintain a favorable relationship with MCI/WCOM. MCI/WCOM may
terminate its contract with us for limited reasons, including for nonpayment by
GTC, for national defense purposes or if the provision of services to GTC were
to have a substantial adverse impact on MCI/WCOM's network. Under the terms of
the contract, MCI/WCOM is required to provide us with a minimum notice of 5-days
in the case of a material breach prior to termination of the contract. Although
we have no specific contingency arrangements in place to provide service to our
customers if MCI/WCOM were to discontinue its service to us, based upon
discussions we have had with other long distance providers and based on such
providers' published rates, we believe that we could negotiate and obtain
contracts with other long distance providers to resell long distance services at
rates at or below our current rates with MCI/WCOM. If we were to switch to
another provider, however, we believe that it would take approximately thirty
(30) days to switch our customers to a new provider. Although we believe that
we have the right to switch our customers without their consent to such other
providers, our customers have the right to discontinue such service at any time.
Accordingly, the termination or nonrenewal of our contract with MCI/WCOM or the
loss of the telecommunications services provided by MCI/WCOM would likely have a
material adverse effect on our results of operations and financial condition.
We currently use third party merchant card payment processing services to
process our customer's credit card payments. Termination, disruptions, or
reductions in the ability of our third party processing services to process our
customer's credit card payments could disrupt our ability to collect payment for
our services and could have a material adverse effect on our results of
operations. The Company has experienced such disruptions in the past and may
encounter such disruptions in the future. In an effort to minimize the effects
of such disruptions, the Company is currently in the process of securing
multiple merchant card payment processors. However, there can be no assurances
that the Company will be able to secure such additional processors.
We currently use and will continue to use billing services provided by US
Billing, a publicly traded company ("USBI"). USBI is in the business of
providing billing services to the LEC. There can be no assurance that USBI will
continue to offer us billing services on terms we find acceptable. USBI may
decrease the extent to which its name may be used on bills for which it provides
billing services. The loss of USBI's billing services or decreased customer
awareness of the USBI name could have a material adverse effect on our marketing
strategy and retention of existing customers.
We do not have our own Internet Network. We currently provide our Internet
Service Provider Access services pursuant to a one-year agreement with Level 3
Communications, LLC ("Level 3") to provide its Internet Service Provider Access.
The agreement, which began in July 1999, provides for us to initially pay
$36,000 per month with an initial set-up fee of $8,000. As Level 3 is able to
provide service throughout the nation, our monthly minimum commitment will
increase from $36,000 per month to a maximum of $60,750 per month. In addition,
we are committed to pay an additional set-up fee of up to $5,500. Although we
believe that our relations with Level 3 are strong and should remain so with
continued contract compliance, the termination of our contract with Level 3, the
loss of Internet services provided by Level 3, or a reduction in the quality of
service we receive from Level 3 could have a material adverse effect on our
results of operations.
In an effort to reduce our monthly minimum usage fees for the provisioning of
Internet Service Provider Access, on December 29, 1999 we entered into a one
year agreement with Ziplink, Inc. for the provisioning of the Company's Internet
Service Provider Access service. Pursuant to the Agreement, the Company is
subject to a monthly minimum commitment of $500. In addition, we are committed
to pay an additional set-up fee of $100. We are currently in the process of
negotiating an early termination of our agreement with Level 3. Unless we are
able to negotiate the termination of our agreement with Level 3 on more
favorable terms, we will be committed to continue to pay Level 3's minimum usage
fees of $36,000 per month until July 2000, or an aggregate of $252,000 over the
remaining term of the contract.
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Our Wireless T-1 services are currently provided pursuant to a contract with
Global Pacific Internet ("Global"). Currently, our T-1 services are available
only in the Southern California region. Under the terms of its contract with
Global, we are not subject to a monthly minimum revenue commitment. Although we
believe that our relations with Global are strong and should remain so with
continued contract compliance, the loss of Wireless T-1 services provided by
Global, or a reduction in the quality of service we receive from Global could
have a material adverse effect on our results of operations. We anticipate that
it would take between thirty (30) to sixty (60) days to locate a replacement
supplier in the event that our agreement with Global is terminated. We
currently plan to expand our Wireless T-1 services to other regions. However,
there can be no assurances that we will or will be able to expand this service
to other regions.
FUTURE CAPITAL NEEDS. To date, we have relied mostly on private funding from
the sale of restricted shares of our Common Stock and short term borrowing to
fund our operations. To date, we have generated little revenue and have
extremely limited cash liquidity and capital resources. Our future capital
requirements will depend on many factors, including our ability to market our
services successfully, our cash flow from operations, and competing market
developments. Our business plan requires additional funding beyond the proceeds
previously generated from the sale of our restricted Common Stock.
Consequently, although we currently have no specific plans or arrangements for
financing, we intend to raise additional funds through private placements,
public offerings or other financings. Any equity financings would result in
dilution to our then-existing shareholders. Additionally, sources of debt
financing may result in higher interest expense. Any financing, if available,
may be on terms unfavorable to us. If adequate funds are not obtained, we may
be required to reduce or curtail operations. We currently anticipate that our
existing capital resources will not be adequate to satisfy our current operating
expenses and capital requirements for the next full fiscal year. Consequently,
we may have to secure additional financing in order to develop our business
plan.
THERE IS A LIMITED PUBLIC TRADING MARKET FOR OUR COMMON STOCK. Our Common Stock
presently trades on the Nasdaq over-the-counter bulletin board under the symbol
GTCC. There can be no assurance, however, that such market will continue or
that investors in this offering will be able to liquidate their shares acquired
in this Offering at the price herein or otherwise. There can be no assurance
that any other market will be established in the future. There can be no
assurance that an investor will be able to liquidate his or her investment
without considerable delay, if at all. The price of our Common Stock may be
highly volatile. Additionally, the factors discussed in this Risk Factors
section may have a significant impact on the market price of the shares offered
in this Reoffer Prospectus.
COMPETITION. The long distance telecommunications industry is highly
competitive and affected by the introduction of new services by, and the market
activities of, major industry participants, including AT&T Corp., MCI/WorldCom,
Sprint Corporation, local exchange carriers such as Bell Atlantic, and other
national and regional interexchange carriers. Competition in the long distance
business is based upon pricing, customer service, billing services and perceived
quality. We compete against various national and regional long distance
carriers that are composed of both facilities-based providers (those that carry
long distance traffic on their own equipment) and switchless resellers (those
that resale long distance carried by facilities-based providers) offering
essentially the same services as us. Several of our competitors are
substantially larger and have greater financial, technical and marketing
resources. Although we believe that we have the human and technical resources
to pursue our strategy and compete effectively in this competitive environment,
our success will depend upon our continued ability to profitably provide high
quality, high value services at prices generally competitive with, or lower
than, those charged by our competitors.
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We expect to encounter continued competition from major domestic and
international communications companies. In addition, we may be subject to
additional competition due to the enactment of the Telecommunications Act, the
development of new technologies and increased availability of domestic and
international transmission capacity. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors, which may have financial, personnel and other
resources significantly greater than those of GTC. Other potential competitors
include cable television companies, wireless telephone companies, electric
utilities, microwave carriers and private networks of large end users.
The telecommunications industry is in a period of rapid technological evolution,
marked by the introduction of new product and service offerings and increasing
transmission capacity for services similar to those provided by us. We cannot
predict which of many possible future product and service offerings will be
important to maintain our competitive position or what expenditures will be
required to develop and provide such products and services.
The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on the
Internet, the number of Internet Service Providers and online services competing
for users' attention and spending has proliferated because of, among other
reasons, the absence of substantial barriers to entry, and we expect that
competition will continue to intensify. Many of our current and potential
competitors such as Earthlink, PsiNet, AOL, UUNET, Microsoft Network, and
Prodigy have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources.
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and to devote greater
resources to the development, promotion and sale of their products and services
than we are.
We currently believe that our Internet Related Services are marketed at
competitive rates and provide quality and services comparable to our
competitors. However, our Internet Related Services are intended more as a
value added service to attract customers to the our Telecommunication Services
as opposed to a revenue generating service. We are offering unlimited dial-up
service for $9.95 per month and DSL service at rates raging from $59.95 to
$249.95 per month. We anticipate that revenue generated exclusively from our
Internet Related Services will be immaterial to our results of operations.
Rather, we expect to derive sufficient revenue from our Telecommunication
Services and Internet related advertising revenue to pay for the costs of our
Internet Related Services.
We can make no representations or assurances that there will not be increased
competition or that our projections will ever be realized due to the intensity
of competition.
CONCENTRATION OF STOCK OWNERSHIP. As of December 31, 1999, the present
directors and executive officers, and their respective affiliates beneficially
owned approximately 38.38% of our outstanding common stock. As a result of
their ownership, the directors and executive officers and their respective
affiliates collectively are able to significantly influence all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of GTC.
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DEPENDENCE ON MANAGEMENT. Our success depends, to a significant extent, upon
certain key employees and directors, including primarily, Paul Sandhu, Eric
Clemons, Mark Fleming, Gerald A. DeCiccio, John Eger and Clay T. Whitehead. The
loss of services of one or more of these employees or director could have a
material adverse effect on our business. In addition, we have substantial need
for additional qualified management and marketing personnel. We believe that
our future success will also depend in part upon our ability to attract, retain
and motivate qualified personnel. There can be no assurance that we will be
successful in attracting and retaining such personnel. Competition for such
personnel is intense. We currently do not maintain a policy of key man life
insurance on any employees.
MAINTENANCE OF CUSTOMER DATABASE. Our customers are not obligated to purchase
any minimum usage amount and can discontinue service, without penalty, at any
time. There can be no assurance that customers will continue to buy their long
distance telephone service through us. In the event that a significant portion
of our customers decide to purchase long distance service from another long
distance service provider, there can be no assurance that we will be able to
replace our customer base from other sources. Loss of a significant portion of
our customers would have a material adverse effect on our results of operations
and financial condition.
A high level of customer attrition is inherent in the long distance industry,
and our revenues are affected by such attrition. Attrition is attributable to a
variety of factors, including termination of customers by us for nonpayment and
the initiatives of existing and new competitors as they engage in, among other
things, national advertising campaigns, telemarketing programs and the issuance
of cash or other forms of incentives.
LACK OF CONTROL OVER MARKETING ACTIVITIES. Certain marketing practices,
including the methods and means to convert a customer's long distance telephone
service from one carrier to another, have recently been subject to increased
regulatory review at both the federal and state levels. This increased
regulatory review could affect adversely the possible future acquisition of new
business from other resellers. Our marketing activities mandate compliance with
applicable state and federal regulations. We are unable to predict the effect
of such increased regulatory review.
GOVERNMENT REGULATION. Our provision of communications services is subject to
government regulation. Federal law regulates interstate and international
telecommunications, while states have jurisdiction over telecommunications that
originate and terminate within the same state. Changes in existing policies or
regulations in any state or by the Federal Communications Commission ("FCC")
could have a material adverse effect on our financial condition or results of
operations, particularly if those policies make it more difficult for us to
obtain service from MCI/WCOM or other long distance companies at competitive
rates, or otherwise increase the cost and regulatory burdens of marketing and
providing service. There can be no assurance that the regulatory authorities in
one or more states or the FCC will not take action having an adverse effect on
the business or financial condition or results of our operations.
We are subject to regulation by the FCC and by various state public service and
public utility commissions as a nondominant provider of long distance services.
We are required to file tariffs for interstate and international service with
the FCC, which tariffs are presumed lawful and become effective on one day's
notice. We are also required to file tariffs or obtain approval for intrastate
service provided in most of the states in which we market long distance
services. By engaging in direct marketing to end users, we will be subject to
applicable regulatory standards for marketing activities and the increased FCC
and state attention to certain marketing practices may become more significant
to us.
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ADVERSE EFFECT OF RAPID TECHNOLOGICAL CHANGE AND SERVICE. The
telecommunications industry has been characterized by rapid technological
change, frequent new service introductions and evolving industry standards. We
believe that our future success will depend on our ability to anticipate such
changes, and to offer services on a timely basis that meet these evolving
standards. There can be no assurance that we will have sufficient resources to
make necessary investments or to introduce new services that would satisfy an
expanded range of end user needs.
EXPANSION INTO NEW BUSINESS ACTIVITIES. We will market our long distance
services directly to end users. Such direct marketing will increase our costs
as we hire new employees, provide increased customer support and collection
services, and acquire additional equipment. We also are required to comply with
additional regulatory standards for direct marketing of telecommunications
services.
PROTECTION OF PROPRIETARY INFORMATION. Currently, we do not hold patents or
trademarks on any of our names, products or processes under development. We do,
however, treat our technical data as confidential and rely on internal
nondisclosure safeguards, as well as on laws protecting trade secrets, to
protect our proprietary information. There can be no assurance that these
measures will adequately protect the confidentiality of our proprietary
information or that others will not independently develop products or technology
that are equivalent or superior to ours. We may receive in the future,
communications from third parties asserting that our products infringe the
proprietary rights of third parties. There can be no assurance that any such
claims would not result in protracted and costly litigation, having a materially
adverse and negative effect on us and our financial results.
DIFFICULTY OF PLANNED EXPANSION; MANAGEMENT OF GROWTH. We plan to expand our
level of operations. Our operating results will be adversely affected if net
sales do not increase sufficiently to compensate for the increase in operating
expenses caused by this expansion. In addition, our planned expansion of
operations may cause significant strain on our management, technical, financial
and other resources. To manage our growth effectively, we must continue to
improve and expand our existing resources and management information systems and
must attract, train and motivate qualified managers and employees. There can be
no assurance, however, that we will successfully be able to achieve these goals.
If we are unable to manage growth effectively, our operating results will be
adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE. At the conclusion of this offering, a maximum
of 17,127,574 shares of our Common Stock will be issued and outstanding, of
which approximately 4,707,358 shares will be "restricted securities," and under
certain circumstances may, in the future, be sold in compliance with Rule 144
adopted under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
GTC, who has beneficially owned restricted shares of Common Stock for at least
one year is entitled to sell, in certain brokerage transactions, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or if the Common Stock
is quoted on Nasdaq or a stock exchange, the average weekly trading volume
during the four calendar weeks immediately preceding the sale. A person who
presently is not and who has not been an affiliate of GTC for at least three
months immediately preceding the sale and who has beneficially owned the shares
of Common Stock for at least two years is entitled to sell such shares under
Rule 144 without regard to any of the volume limitations described above.
12
<PAGE>
AUTHORIZATION OF ADDITIONAL SHARES OF COMMON STOCK. Our Articles of
Incorporation authorize the issuance of up to 50,000,000 shares of Common Stock.
Our Board of Directors has the authority to issue additional shares of Common
Stock and to issue options and warrants to purchase shares of our Common Stock
without shareholder approval. Future issuance of Common Stock could be at
values substantially below current market prices therefore could represent
further substantial dilution to investors in this Offering. In addition, the
Board could issue large blocks of voting stock to fend off unwanted tender
offers or hostile takeovers without further shareholder approval.
AUTHORIZATION OF ADDITIONAL SHARES OF PREFERRED STOCK. Our shareholders have
authorized us to amend our Articles of Incorporation to authorize the issuance
of up to 10,000,000 shares of Preferred Stock in one or more series. We
anticipate amending our Articles as directed by our shareholders as soon as
possible. Consequently, our Board of Directors will have the authority to fix
the number of preferred shares and to determine or alter for each such series,
such voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, in a resolution or
resolutions adopted by the Board of Directors providing for the issue of such
shares. The Board of Directors will also be authorized to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series.
YEAR 2000 COMPLIANCE. The Year 2000 (or "Y2K") issue involves the potential for
system and processing failures of date-related data resulting from
computer-controlled systems using two digits rather than four to define the
applicable year. For instance, computer programs that contain time-sensitive
software may recognize a date using two digits of "00" as the year 1900 rather
than the year 2000. This could result in system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar ordinary
business activities. We have completed a review of our computer systems and
non-information technology ("non-IT") systems to identify all systems that could
be affected by the Year 2000 issue. We are dependent on third-party computer
systems and applications, particularly with respect to such critical tasks as
accounting, billing and our underlying carrier (MCI/WorldCom) of our long
distance telephone service. We also rely on our own computer and non-IT systems
(which consists of personal computers, internal telephone systems, internal
network server, Internet server and associated software and operating systems).
In conducting a review of our internal systems, we have performed operational
tests of our systems which revealed no Y2K problems. As a result of our review,
we have discovered no problems with our systems relating to the Y2K issue and
believe that such systems are Y2K compliant. Additionally, we have obtained
written assurances from all of our major suppliers of third-party computer
systems and applications, indicating that they have completed a review of their
respective computer systems and that such systems are Y2K compliant. Costs
associated with our review were not material to our results of operations.
13
<PAGE>
Although we did not experience any problems related to the Y2K issue at the
turnover between the year 1999 and 2000, because of the complexity of the Y2K
issue and the interdependence of organizations using computer systems, there can
be no assurances that our efforts, or those of third parties with whom we
interact, have fully resolved all possible Y2K issues. Failure to
satisfactorily address the Y2K issue could have a material adverse effect on
GTC. The most likely worst case Y2K scenario which management has identified to
date is that, due to unanticipated Y2K compliance problems, we may be unable to
bill our customers, in full or in part, for services used. Should this occur,
it would result in a material loss of some or all gross revenue for an
indeterminable amount of time, which could cause us to cease operations.
Although we have received written assurances from our major suppliers that they
are, or will be, Year 2000 compliant, should any such supplier fail to
adequately address the Year 2000 problem, our only recourse for any damages
suffered as a result would be through litigation. We have not yet developed a
contingency plan to address this worst case Y2K scenario, and do not intend to
develop such a plan in the future.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of common stock
by the Selling Shareholders. However, we will receive proceeds from the
exercise of the options held by the Selling Shareholders. All proceeds received
as a result of the exercise of those options will be used as working capital for
our operations.
SELLING SHAREHOLDERS
The Shares of GTC to which this Reoffer Prospectus relates are being registered
for reoffers and resales by the Selling Shareholders, who acquired the Shares
pursuant to a compensatory benefit plan with GTC for consulting services they
provided to GTC. The Selling Shareholders may resell all, a portion or none of
such Shares from time to time.
The table below sets forth with respect to the Selling Shareholders, based upon
information available to the Company as of December 31, 1999, the number of
Shares owned, the number of Shares registered by this Reoffer Prospectus and the
number and percent of outstanding Shares that will be owned after the sale of
the registered Shares assuming the sale of all of the registered Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
% OF SHARES
NUMBER OF NUMBER OF SHARES OWNED BY
SELLING SHARES OWNED REGISTERED BY NUMBER OF SHARES SHAREHOLDER
SHAREHOLDERS BEFORE SALE PROSPECTUS OWNED AFTER SALE AFTER SALE
- ------------ ----------- -------------- ---------------- -----------
Paul Sandhu(1) 4,271,108 175,000 4,096,108 23.97%
Eric Clemons(2) 1,404,152 75,000 1,319,152 7.72%
Clay T. Whitehead(3) 526,316 175,000 351,316 2.06%
Rebecca Raff 75,000 75,000 0 0.00%
Joe Farris 40,000 40,000 0 0.00%
Jonathan Eng 8,500 8,500 0 0.00%
Robert Gleckman 40,000 40,000 0 0.00%
Martin Williams 33,575 16,575 17,000 0.10%
Edwin Wong 20,000 20,000 0 0.00%
Sonya Fukuda 12,500 12,500 0 0.00%
Dan W. Baer 125,000 25,000 100,000 0.59%
Dean Kern 20,000 20,000 0 0.00%
M. Richard Cutler (4) 40,000 25,000 15,000 0.09%
</TABLE>
(1) Mr. Sandhu is currently the President and CEO of GTC. The securities
registered pursuant to this Reoffer Prospectus represents 175,000 shares of
common stock underlying options to purchase up to 175,000 shares of GTC's common
stock at an exercise price of $0.235 per share granted pursuant to Mr. Sandhu's
employment agreement. These options are vested and immediately exercisable.
(2) Mr. Clemons is currently the Chief Operating Officer and Secretary of GTC.
The securities registered pursuant to this Reoffer Prospectus represents 75,000
shares of common stock underlying options to purchase up to 75,000 shares of
GTC's common stock at an exercise price of $0.235 per share granted pursuant to
Mr. Clemons's employment agreement. These options are vested and immediately
exercisable.
(3) Mr. Whitehead is currently a director of the Company. The securities
registered pursuant to this Reoffer Prospectus represents 175,000 shares of
common stock issued to Mr. Whitehead pursuant to option agreements issued as
compensation for Mr. Whitehead's services as a director of the Company.
(4) Mr. Cutler is GTC's securities attorney. The securities registered pursuant
to the Reoffer Prospectus represents shares of common stock issued to Mr. Cutler
in exchange for legal services provided to GTC.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares for value from time to time under
this Reoffer Prospectus in one or more transactions on the Nasdaq
Over-the-Counter Bulletin Board, or other exchange, in a negotiated transaction
or in a combination of such methods of sale, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at prices
otherwise negotiated. The Selling Shareholders may effect such transactions by
selling the Shares to or through brokers-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agent (which compensation may be less
than or in excess of customary commissions).
The Selling Shareholders and any broker-dealers that participate in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the 1933 Act, and any commissions received by them and any
profit on the resale of the Shares sold by them may be deemed be underwriting
discounts and commissions under the 1933 Act. All selling and other expenses
incurred by the Selling Shareholders will be borne by the Selling Shareholders.
In addition to any Shares sold hereunder, the Selling Shareholders may, at the
same time, sell any shares of common stock, including the Shares, owned by him
or her in compliance with all of the requirements of Rule 144, regardless of
whether such shares are covered by this Reoffer Prospectus.
There is no assurance that the Selling Shareholders will sell all or any portion
of the Shares offered.
The Company will pay all expenses in connection with this offering and will not
receive any proceeds from sales of any Shares by the Selling Shareholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by the Cutler Law Group, Newport Beach, California. The Cutler Law
Group and its employees currently holds 40,450 shares of the Company's Common
Stock.
14
<PAGE>
EXPERTS
The balance sheets as of June 30, 1999 and 1998 and the statements of operations
shareholders' equity and cash flows for the two years ended June 30, 1999
of GTC Telecom Corp., have been incorporated by reference in this
Registration Statement in reliance on the report of Corbin & Wertz LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents are hereby incorporated by reference in this
Registration Statement:
(i) The Registrant's Annual Report on Form 10-KSB filed with the Commission
on October 13, 1999.
(ii) All other reports and documents subsequently filed by the Registrant
pursuant after the date of this Registration Statement pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 and prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference and to be a part hereof
from the date of the filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Certain legal matters with respect to the Common Stock offered hereby will be
passed upon for the Company by the Cutler Law Group, counsel to the Company.
Mr. M. Richard Cutler, principal of the Cutler Law Group is the beneficial owner
of 40,000 shares of Common Stock of the Company. 25,000 shares of the foregoing
are being registered for sale herein. Other employees of the Cutler Law Group
hold an additional 450 shares of the Common Stock of the Company.
15
<PAGE>
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation Laws of the State of Nevada and the Company's Bylaws provide for
indemnification of the Company's Directors for liabilities and expenses that
they may incur in such capacities. In general, Directors and Officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful. Furthermore, the personal
liability of the Directors is limited as provided in the Company's Articles of
Incorporation.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The Shares were issued for advisory and legal services rendered. These sales
were made in reliance of the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) thereof covering
transactions not involving any public offering or not involving any "offer" or
"sale".
ITEM 8. EXHIBITS
5.1 Opinion of M. Richard Cutler, Esq., counsel to the Registrant,
regarding legality of securities being registered.
10.1 Employment Agreement by and between GTC and Paul Sandhu, dated
December 1, 1998 (incorporated by reference to Exhibit 10.8 of the
Registrant's Form 10-SB).
10.2 Employment Agreement by and between GTC and Eric Clemons, dated
December 1, 1998 (incorporated by reference to Exhibit 10.6 of the
Registrant's Form 10-SB).
10.3 Stock Option Agreement by and between Clay T. Whitehead and GTC.
10.4 Letter Agreement between GTC and Rebecca Raff regarding issuance
of stock.
10.5 Letter Agreement between GTC and Joe Farris regarding issuance of
stock.
10.6 Letter Agreement between GTC and Jonathan Eng regarding issuance
of stock
10.7 Letter Agreement between GTC and Robert Gleckman regarding
issuance of stock.
10.8 Letter Agreement between GTC and Martin Williams regarding
issuance of stock.
10.9 Letter Agreement between GTC and Edwin Wong regarding issuance of
stock.
10.10 Letter Agreement between GTC and Sonya Fukuda regarding issuance
of stock.
10.11 Consulting Agreement between GTC and Dan W. Baer.
10.12 Letter Agreement between GTC and Dean Kern regarding issuance of
stock.
10.13 Letter Agreement between GTC and Cutler Law Group regarding
issuance of stock.
23.1 Consent of M. Richard Cutler (included in Exhibit 5.1).
16
<PAGE>
23.2 Consent of Corbin & Wertz LLP, Independent Public Accountants.
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a) (3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a) (1)(i) and (a) (1) (ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
17
<PAGE>
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that is meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Costa Mesa, State of California, on January 18, 2000
GTC TELECOM CORP.
/s/ S. Paul Sandhu
By: S. Paul Sandhu
Its: President & CEO
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ S. Paul Sandhu President, CEO and Director
S. Paul Sandhu
/s/ Eric A. Clemons Secretary, Chief Operating Officer and Director
Eric A. Clemons
/s/ Gerald A. DeCiccio Chief Financial Officer
Gerald A. DeCiccio
19
<PAGE>
CUTLER LAW GROUP LETTERHEAD
January 18, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: GTC TELECOM CORP.
Ladies and Gentlemen:
This office represents GTC Telecom Corp., a Nevada corporation (the
"Registrant") in connection with the Registrant's Registration Statement on Form
S-8 under the Securities Act of 1933 (the "Registration Statement"), which
relates to the sale of 707,575 shares of the Registrant's Common Stock issued to
certain individuals for advisory and consulting services (the "Shares").
In connection with our representation, we have examined such documents and
undertaken such further inquiry as we consider necessary for rendering the
opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that the Registered Securities,
when sold as set forth in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the inclusion of this opinion in the Registration
Statement and to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and with such state regulatory agencies in such states as may require
such filing in connection with the registration of the Registered Securities for
offer and sale in such states.
Cutler Law Group
/s/ M. Richard Cutler
By: M. Richard Cutler, Esq.
3
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement") is dated as of April 15, 1999
(the "Effective Date"), by and between GTC Telecom Corp., a Nevada corporation,
(the "Company"), and Clay T. Whitehead, an individual ("Holder").
RECITALS
WHEREAS, the Company proposes to issue to Holder an option to acquire up to
526,316 shares (the "Shares") of the authorized and issued common stock of the
Company (the "Common Stock") in accordance with the terms of this Agreement; and
WHEREAS, in consideration of the promises and the mutual agreements herein
set forth, the parties hereto agree as follows:
AGREEMENT
SECTION 1. Issuance of Option. Upon execution of this Agreement, the
Company hereby issues Holder an option to acquire up to 526,316 Shares of the
Company's Common Stock, fully paid and non-assessable at an exercise price of
$0.475 per share (the "Exercise Price"), subject to the terms of this Agreement
(the "Option").
SECTION 2. Exercise of the Option. If and when Holder elects to
exercise this Option, the exercise must be for a minimum of 5,000 Shares. Upon
such exercise of the Option and payment of the Exercise Price, the Company shall
cause to be issued and delivered promptly to Holder a certificate for the Shares
issuable upon the exercise of the Option.
SECTION 3. Expiration of Option. Holder's option rights to acquire
any Shares not previously purchased by him shall expire on the date which is one
(1) year from the date hereof.
SECTION 4. Mutilated or Missing Option Certificates. In case the
original of this Agreement shall be mutilated, lost, stolen or destroyed, the
Company shall issue and deliver, in exchange and substitution for and upon
cancellation of this Agreement, a new Option of like tenor and representing an
equivalent right or interest.
SECTION 5. Reservation of Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury for the purpose of enabling it to satisfy its
obligation to issue Shares upon exercise of the Option, the full number of
Shares deliverable upon the exercise of the entire Option.
SECTION 6. Non-Assignable Option Rights. Holder's Option right to
acquire all or the balance of Shares that Holder has the right to acquire under
this Agreement is non-assignable by Holder.
<PAGE>
SECTION 7. Certificates to Bear Language. The Shares and the
certificate or certificates evidencing any such Shares shall bear the following
legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1993. THE SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
Share Certificates can be issued, without such restrictive language or legend,
if the Option or the Shares are sold pursuant to an effective registration
statement under the Securities Act of 1933 or if the Company has received an
opinion from counsel, reasonably satisfactory to counsel for the Company, that
such restrictive language or legend is no longer required under the Act.
SECTION 8. Consolidation, Merger or Sale of the Company. If the
Company is a party to a consolidation, merger or transfer of assets which
reclassifies or changes its outstanding Common Stock, the successor corporation
(or corporation controlling the successor corporation or the Company, as the
case may be) shall by operation of law assume the Company's obligations under
this Agreement. Upon consummation of such transaction the Option shall
automatically become exercisable for the kind and amount of securities, cash or
other assets which the holder of the Option would have owned immediately after
the consolidation, merger or transfer if the holder had exercised the Option
immediately before the effective date of such transaction.
SECTION 9. Company Transfer of Shares. The Company shall use its best
efforts to assure that the Shares shall be transferable under Rule 144
promulgated under the Securities Act of 1933, as amended, on that date in which
the Holder has held the Shares for the applicable holding period under Rule 144,
and shall use its best efforts at no cost or expense to Holder to cause its
transfer agent to transfer the Shares under such Rule 144 when the same is
sought by Holder.
SECTION 10. Notices to Company and Holder. Any notice or demand
authorized by this Agreement to be given or made by Holder or by the Company
shall be sufficiently given or made if sent by registered mail, postage prepaid,
return receipt requested to the principal office of the party to receive the
notice as provided below:
If to Company: GTC Telecom Corp.
3151 Airway Avenue, Suite P-3
Costa Mesa, CA 92626
Attn: Paul Sandhu, President
With copy to: Law offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attention: M. Richard Cutler
<PAGE>
If to Holder: Clay T. Whitehead
_________________________
_________________________
_________________________
SECTION 11. Supplements and Amendments. This Agreement may only be
amended with the express written consent of Holder and the Company.
SECTION 12. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or Holder shall bind and inure to
the benefit of their respective successor and assigns hereunder.
SECTION 13. Counterparts. This Agreement may be executed in one or more
counter parts, such that when integrated together they will form a binding
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date and year first above written.
GTC TELECOM CORP.
/s/ S. Paul Sandhu
By: S. Paul Sandhu
Its: President
/s/ Clay T. Whitehead
Clay T. Whitehead
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Rebecca:
This letter confirms our understanding that you are to be issued 75,000 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $150,000 for services rendered
relating to the development of our websites gtcinternet, gtczone and gtcmail,
and other activities.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Rebecca Raff
COO Rebecca Raff
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
January 1, 2000
Dear Joe:
This letter confirms our understanding that you are to be issued 40,000 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $70,000 for services provided in
advertising on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Joe Ferris
COO Joe Ferris
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Jonathan:
This letter confirms our understanding that you are to be issued 8,500 shares of
GTC Telecom common stock with registration rights. These shares are issued to
you, in lieu of cash, as payment against $17.000 for services rendered relating
marketing activities.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Johnathan Eng
COO Johnathan Eng
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Robert:
This letter confirms our understanding that you are to be issued 40,000 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $80,000 for services rendered
relating marketing on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Robert Gleckman
COO Robert Gleckman
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Martin:
This letter confirms our understanding that you are to be issued 16,575 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $30,000 for services provided in
marketing on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Martin Williams
COO Martin Williams
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Edwin:
This letter confirms our understanding that you are to be issued 20,000 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $40,000 for services provided in
marketing on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Edwin Wong
COO Edwin Wong
GTC Telecom
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Sonya:
This letter confirms our understanding that you are to be issued 12,500 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $25,00 in full for services provided
in marketing activities on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Sonya Fukuda
COO Sonya Fukuda
GTC Telecom
AGREEMENT FOR COMPENSATION
FOR CONSULTING SERVICES
THIS AGREEMENT (the "AGREEMENT") is made by and between DAN W. BAER, an
Individual ("BAER"), and GTC CORP., a Nevada corporation, as successor in
interest to Gen Tel Communications, Inc., a Colorado corporation (both
collectively referred to as "GTC"), ERIC CLEMONS, an Individual ("CLEMONS") and
PAUL SANDHU, an Individual ("SANDHU"), (GTC, CLEMONS, and SANDHU are
collectively referred to together as "GTC GROUP"), with respect to the following
facts.
A. The parties acknowledge that a conflict of interests exists in that
DAN W. BAER ("BAER") is a Licensed California real estate broker, and a
principal in HAMILTON COVE REALTY, INC. ("HCR"), a California corporation, as
well as president of SOUTHERN CALIFORNIA SUNBELT DEVELOPERS, INC. ("SCSD"), a
California corporation. SCSD is the owner of real property located at 3151
Airway Avenue, Suites P-3 and P-1, Costa Mesa, California 92626 (The "LEASED
PREMISES").
B. Gen-Tel Communications, Inc., a Colorado corporation, Clemons and
Sandhu are the named lessees under a written lease dated May 21, 1998 pertaining
to Suite P-3, and GTC Telecom, Eric Clemons and Paul Sandhu are named lessees
under a subsequent written Addendum to Lease, pertaining to Suite P-1. On or
about August 31, 1998, Gen-Tel Communications, Inc., a Colorado corporation, was
merged into Bobernco, Inc., a Nevada corporation. Upon the merger, Gen-Tel
Communications, Inc., changed its name to GTC Telecom, a Nevada corporation, and
is now the successor in interest to Gen-Tel Communications, Inc.
C. The GTC Group is obligated to BAER for real estate and consulting
services in connection with market analysis and negotiations for GTC's proposed
lease of new space, and negotiations for an Early Termination Agreement and a
Settlement Agreement as between the GTC Group and SCSD for GTC's Leased
Premises.
D. Each of the above recitals is a material part of this Agreement and
all are hereby fully incorporated into the body of this Agreement.
1. CONSIDERATION TO BAER: As full satisfaction of any sums due for
BAER's services rendered to date, GTC Group agrees to issue and transfer to
BAER, in the name of DAN W. BAER, the following shares of common stock of GTC
TELECOM CORP., a Nevada corp.
25,000 Shares of Section 144 stock issued IN THE NAME OF DAN W. BAER, AN
INDIVIDUAL, with an Effective Date or Issue Date as soon as available, but in no
event later than January 31, 2000.
2. All of the shares shall be issued in separate Certificates of five
thousand (5,000) shares each, and all rights to the Certificates and the shares
issued thereunder shall be fully assignable by Dan W. Baer.
<PAGE>
3. BAER acknowledges that such GTC TELECOM CORP. common stock issued
pursuant to this Agreement (the "SECURITIES"), will be "restricted securities"
(as such term is defined in Rule 144 promulgated under the Securities Act of
1933, as amended ("RULE 144")), that the Securities will include the restrictive
legend as detailed below, and except as otherwise set forth in this Agreement,
that the Shares cannot be sold for a period of one year from the Effective Date,
unless registered with the SEC and qualified by appropriate state securities
regulators, or unless BAER obtains written consent from GTC and otherwise
complies with an exemption from such registration and qualification (including,
without limitation, compliance with Rule 144).
4. Each certificate of Section 144 stock issued to Dan W. Baer, an
Individual, pursuant to this Agreement shall bear the following restrictive
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 FOR A PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF EXCEPT
(i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATES LAWS OR (II) UPON THE EXPRESS WRITTEN AGREEMENT OF THE COMPANY
AND COMPLIANCE, TO THE EXTENT APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES.)"
5. GTC hereby agrees to register said securities on Form S-8.
6. DEFAULT IN ISSUANCE OF SHARES. In the event GTC Group does not
cause all of the share certificates to be fully issued and delivered to BAER or
his nominee ON OR BEFORE JANUARY 31, 2000, then after giving five (5) days
written notice of such non-receipt to GTC, given by U.S. Mail, unless the
certificates are received within said five (5) day period, BAER shall be
entitled to additional shares of Section 144 stock of GTC at the rate of two
hundred (200) shares per calendar day until all such shares, including any
additional shares, are issued and received by BAER.
7. ATTORNEY'S FEES AND LEGAL COSTS. Each party shall bear its own
attorney's fees and costs associated with the creation and adoption of this
Agreement.
8. MISCELLANEOUS. It is further agreed as follows:
a. Time. Time is of the essence in this Agreement.
<PAGE>
b. Notices. Any notices, approvals, agreements, or other
communications between the parties hereto required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given or
served if delivered by hand or sent by United States mail, postage prepaid,
return receipt requested, addressed to the party at the following address or to
such other address as the party may from time to time specify by written notice
to the other party.
To BAER:
Dan W. Baer
Hamilton Cove Realty, Inc.
3230 East Imperial Highway, Suite 200
Brea, CA 92821
To GTC Group:
Paul Sandhu, President
GTC Telecom Corp.
3151 Airway Ave., Suite P-3
Costa Mesa, CA 92626
Any such notice shall be deemed delivered and given as of the date so delivered,
if delivered personally, or seventy-two (72) hours after deposit in a regularly
maintained receptacle for the deposit of United States mail, postage paid,
addressed and sent as aforesaid.
c. Headings. Headings contained in this Agreement are reference
purposes only and are in no way intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provisions hereof.
d. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.
e. Amendments. This Agreement may not be amended, changed, or modified
except by a written instrument signed by the party affected by such change.
f. Fax Execution. This Agreement may be executed and delivered via fax
transmission. Any signature transmitted via fax shall be treated the same as an
original signature. Any party executing this Agreement via fax, shall mail the
original signature to the other party within twenty-four (24) hours of
execution.
g. California Law. The laws of the State of California shall govern
all aspects of this Agreement. Any legal action brought in connection with this
Agreement shall be maintained in Orange County, California.
h. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute one
(1) agreement.
<PAGE>
i. Parties in Interest: Each and every provision herein contained
shall be binding upon and shall inure to the benefit of the parties' successors,
permitted assigns, heirs, executors, administrators, and personal
representatives.
j. Variation of Pronouns. All pronouns and variations thereof shall be
deemed to refer to masculine, feminine, neuter, singular, or plural, as the
identify of the person or persons may require.
k. Entire Agreement. As of the date hereof, this Agreement including
any attachments described herein, constitutes the entire understanding and
agreement among the parties hereto with respect to the subject matter hereof,
and there are no agreements, understandings, restrictions, representations, or
warranties among the parties other than those set forth in this Agreement.
l. Attorney Fees. If any litigation, arbitration or other proceeding
is commenced between the parties or their personal representatives concerning
any provision of this Agreement, or the rights and duties of any party in
relation thereto, the prevailing party in such litigation or arbitration shall
be entitled, in addition to such other relief as may be granted, to recover
their costs and reasonable attorney's fees and expenses, as costs, in such
litigation or arbitration. If any judgment results from such litigation or
arbitration, then the prevailing party shall be entitled to recover reasonable
attorney's fees, expenses and costs of enforcing such judgment and this
post-judgment right to attorney's fees is intended to be severable from the
other provisions of this Agreement, to survive any judgment obtained hereunder
and is not deemed merged into the judgment. As used herein, "reasonable
attorney's fees", "expenses", and "costs" shall mean the full and actual costs
of any legal services actually performed, calculated on the basis of the usual
fees charged and expenses and costs incurred by the attorney performing such
services.
m. No Interpretation Against Drafter. This Agreement has been
negotiated at arms length between persons sophisticated and knowledgeable in
these types of matters. In addition, each party has been represented by
experienced and knowledgeable legal counsel, or had the opportunity to consult
such counsel. Accordingly, any normal rule of construction or legal decision
that would require a court to resolve any ambiguities against the drafting party
is hereby waived and shall not apply in interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and entered into this
Agreement as of the date shown below.
/s/ Dan W. Baer
Date January 4 DAN W. BAER, an Individual
(Additional Signatures Appear on Following Page)
<PAGE>
GTC TELECOM CORP. (successor in
interest to Gen-Tel Communications,
Inc., a Colorado corporation)
A Nevada corporation
By: /s/ S. Paul Sandhu
Date January 4 PAUL SANDHU, President and
Chief Executive Officer and Director
By: /s/ Eric Clemons
Date January 4 ERIC CLEMONS, Chief Operating
Officer and Director
By: /s/ Gerald DeCiccio
Date January 4 GERALD DeCICCIO, Chief Financial Officer
/s/ Eric Clemons
Date January 4 ERIC CLEMONS, Individually
/s/ Eric Clemons
Date January 4 PAUL SANDHU, Individually
[GTC TELECOM CORP. LETTERHEAD]
December 27, 1999
Dear Dean:
This letter confirms our understanding that you are to be issued 20,000 shares
of GTC Telecom common stock with registration rights. These shares are issued
to you, in lieu of cash, as payment against $40,000 for services provided in
Internet administration and network design on behalf of GTC.
Please sign this letter confirming your understanding of the agreement.
Sincerely,
Eric Clemons
/s/ Eric Clemons /s/ Dean Kern
COO Dean Kern
GTC Telecom
[CUTLER LAW GROUP LETTERHEAD]
January 14, 2000
Paul Sandhu
GTC Telecom Corp.
3151 Airway Ave., Suite P-3
Costa Mesa, California 92626
RE: STOCK ISSUANCES
Dear Paul:
This letter confirms our understanding that we are to be issued 25,000
shares of GTC Telecom Corp. common stock with S-8 registration rights. These
shares are issued to us, in lieu of cash, as payment against $40,000 for legal
services provided. This letter will also confirm that we have previously been
issued an aggregate of 41,175 shares of the common stock of GTC Telecom Corp.
As agreed, this firm will prepare and file the appropriate Form S-8 at no
additional cost.
In order for us to accept securities as compensation, we must obtain
informed, written consent from the Company. The purpose of this letter is to
request informed, written consent to the receipt of such compensation.
Essentially, certain conflicts of interest may arise from our accepting an
equity position in the Company for legal services. More specifically, the
interests and objectives of one party may become inconsistent and incompatible
with the interests and objectives of another party.
Attorneys are governed by specific rules regarding the representation of
clients when present or potential conflicts of interest exist. Rules 3-310(A),
(B), and (C) and (E) of the Rules of Professional Conduct of the State Bar of
California provide as follows:
"Rule 3-310 Avoiding Interests Adverse to a Client
A. For purposes of this rule:
1. 'Disclosure' means informing the client or former client of the
relevant circumstances and of the actual and reasonably foreseeable adverse
consequences to the client or former client;
2. 'Informed written consent' means the client's or former client's written
agreement to the representation following written disclosure;
3. 'Written' means any writing as defined in Evidence Code Section 250.
B. A member shall not accept or continue representation of a client without
providing written disclosure to the client where:
1. The member has a legal, business, financial, professional, or
personal relationship with a party or witness in the same matter; or
2. The member knows or reasonably should know that:
(a) the member previously had a legal, business,
financial, professional, or personal relationship with a party or witness in the
same matter; and
(b) the previous relationship would substantially affect the member's
representation; or
3. The member has or had a legal, business, financial, professional, or
personal relationship with another person or entity the member knows or
reasonably should know would be affected substantially by resolution of the
matter; or
<PAGE>
4. The member has or had a legal, business, financial, or professional
interest in the subject matter of the representation.
C. A member shall not, without the informed written consent of each client:
1. Accept representation of more than one client in a matter in which
the interests of the clients potentially conflict; or
2. Accept or continue representation of more than one client in a matter in
which the interests of the clients actually conflict; or
3. Represent a client in a matter and at the same time in a separate matter
accept as a client a person or entity whose interest in the first matter is
adverse to the client in the first matter.
D. A member shall not, without the informed written consent of the client or
former client accept employment adverse to the client or former client where, by
reason of the representation of the client or former client, the member has
obtained confidential information material to the employment."
Because of possible conflicts of interest, we suggest that the Company
carefully consider the implications of compensation in the form of common stock
of the Company. Additionally, we recommend that the Company seek the advice of
independent counsel should any questions arise regarding the existence of actual
or potential conflicts of interest which may presently exist or which may arise.
Once the Company has fully considered such implications, if they so desire, they
may consent to our accepting common stock as compensation by signing a copy of
this letter acknowledging that (i) the Company has been advised of rules
3-310(A), (B), (C), and (E) and of the conflicts associated with the proposed
arrangement, and (ii) nevertheless, the Company wants us to represent it and be
compensated partially with common stock warrants.
Very truly yours,
/s/ M. Richard Cutler
M. Richard Cutler
<PAGE>
CONSENT
Cutler Law Group has explained to the undersigned that there may exist
present and conflicting interests in the above-described action and Cutler Law
Group has informed me of the possible consequences of these conflicts.
I understand that I have the right to seek independent counsel before
signing this Consent or at any future time. The undersigned nevertheless
desires representation by and payment of common stock to Cutler Law Group to the
extent described above, and, therefore, consents and gives approval to such
representation and payment.
Dated: January 14, 2000 GTC Telecom Corp.
By:_/s/ Paul Sandhu
Paul Sandhu
President and Chief Executive
Officer
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement of
GTC Telecom Corp. (the "Company") on Form S-8, and in the Reoffer Prospectus
referred to therein, of our report dated October 11, 1999, on our audit of the
financial statements of GTC Telecom Corp. as of June 30, 1999, and 1998, which
report is included in the Company's Annual Report on Form 10-KSB (File No.
O-25703). We also consent to the use of our name as it appears under the
caption "Experts."
/s/ Corbin & Wertz
Irvine, California CORBIN & WERTZ
January 18, 2000
